Corbyn: the heir to Blair

It’s not 1997 any more. This shouldn’t need saying, but attacks on Jeremy Corbyn such as this from Ian Austin suggests it does. He accuses Corbyn of wanting to turn Labour into “something very different” from its traditional mainstream social democracy.

What this misses is that Labour must reinvent itself, because the economic challenges we face now are very different from those of the 1990s. Take four examples:

1. In the 90s, real interest rates were high: longer-dated index-linked gilt yields were over 3.5% when Labour took power. Such high yields meant that the fiscal arithmetic worked against government borrowing; even modest deficits would have meant an ever-rising debt-GDP ratio. There was therefore a good reason for Labour to be “fiscally responsible”. Today, however, real yields are negative so the fiscal arithmetic means deficits are compatible with debt sustainability. And with Bank rate close to the zero bound (whereas it was 6% when Blair was first elected), there’s a much stronger case for looser fiscal policy.

2. Labour productivity and investment were growing OK in the 90s. That meant the job of economic policy was largely to keep the show on the road – to offer business a stable policy framework within which confidence to invest and innovate would be maintained. Today, of course, things are very different. Productivity has pretty much flatlined for years, and the share of business investment in GDP was a percentage point lower last year than it was in 1997. This suggests a case for governments to take a more active role to raise productivity and investment.

3. New Labour thought that a stable policy framework was sufficient to ensure macroeconomic stability. We know now that this is not the case and that even with stable policy, capitalism can generate severe crises.

4. In the 90s, the inequality that bothered Labour was the 90/10 ratio. It was reasonable to ameliorate this through tax credits, a minimum wage and university expansion. Today, though, even once middle-class people are struggling, especially those too young to have bought a house. Instead, the inequality that matters most is the share of incomes going to the very top. In the 90s, this was just over 10%, but rising, whilst today it is over 14%. It’s plausible that this inequality – and the inequality of power that generates it – has contributed to our poor economic performance.

Even the most narrow-minded technocrat must therefore see that our changed economy requires a changed response (and in fact many technocrats in the Bank of England or IMF do see this). As Joe Guinan and Martin O’Neill write:

If we are serious about addressing real economic challenges then we need a different set of institutions and arrangements capable of producing sustainable, lasting, and more democratic outcomes.

Such arrangements mean not just looser fiscal policy but, as they say, measures to increase investment and oppose managerialism, such as worker coops. Measures such as more public ownership, a state investment bank and more co-ops are things any European would recognise as social democratic. Yes, it’s a different from of social democracy from New Labour’s. But a different economy requires different policies.

This is not to say that Corbynism is perfect. Far from it. I’m not keen on its student politics anti-imperialist posturing,and have my doubts about its economic plans: I’m not sure whether it can raise billions more in corporate taxes; its desire for more coops requires tons of detailed work; and I’d like to see more acknowledgement that there is still a big role for markets and entrepreneurship to play.

My gripe with Labour’s centrists, however, is that they seem oblivious even to the basic fact of capitalist stagnation and the challenges it poses: Austin writes as if a decade of falling real wages hadn’t happened.

And herein lies a paradox. Corbyn and McDonnell are, from this perspective, the true heirs to Blair. They recognise – as Blair did in the 1990s – that a new economy requires a new form of social democracy. And their critics, like Blair’s critics in the 90s, seem unaware of this fact.  

Comments

[Dave Timoney]

I don't think Austin, like other centrists, is oblivious to capitalist stagnation so much as in complete denial about it. This is why in his attack on Corbyn he defined the social democratic tradition in terms of anticommunism, unionism and support for Israel. The word "economy" doesn't appear once in his piece.

[e]

Leaving aside the Tory-boy Brexit hold on conservatism, truth be told the economic arguments you recount have been won. Post Corbyn's establishment, rhetoric from all sides falls in favour of recognising gross inequality. So as ever: in power, just the matter of degree to get tangled in.
Your criticism, “anti-imperialist posturing” is interesting because Corbyn hasn't demanded the removal of the big (yet weak) imperialist stick, he asks for diplomatic know how to be given pride of place. Is this juvenile? To my mind, continuing to stand behind the West's 'big men' no matter the degree of their dementia, is the far greater problem...

[Steve H]

I'm sure Austin will have found the last manifesto perfectly acceptable, and will broadly support the direction of economic policy. There's not many in the party who will resist the notion of greater state involvement in the economy.
His real gripe - like many in and formerly in the party - is principally about the character and to a lesser degree the competence of the men in charge.

[rogerh]

"What this misses is that Labour must reinvent itself, because the economic challenges we face now are very different from those of the 1990s".

To get into power Labour must first get elected and I very much doubt any voters will carry out any economic analysis whatsoever in casting their vote. You are looking through the wrong end of the telescope. Much more important will be how badly the Tories screw up, what the DM and DT tell their readers and whether Corbyn and Abbott manage to look like halfway acceptable politicians.

Blair was a smooth operator and not entirely straight with the unions when he got in thanks largely to Tory hubris. But I am sorry to say Corbyn and Abbott do not make for anything like a smooth product. The Tories can manage (temporarily) the impact of their screw up, the DM and DT are still on their side and Abbott and Corbyn are not getting any more acceptable. IMHO things will have to get a lot worse for Labour to stand much chance in 2022.

But your real thrust, a new economics is highly relevant. The big question is what exactly are the economic challenges and 'is it even possible for a country like the UK to stand much above any other country'.

An ancient trope is that science plateaus. I think there is plenty to be discovered but that it may not be all that much benefit. Too much energy involved or that complex questions reveal equally complex answers. Then the world can be expected to flatten out in wealth and human comfort. This may mean Western levels of consumption fall for the not so well off.

A central difficulty is how industry and global commerce is developing. Possibly AI and robotics will displace lots of workers. Unfortunately we are still driven by pretty selfish motives and looking down on those displaced is predictable until it is us that gets displaced. Universal income will probably have to come along in such a way that it is not tainted by being some sort of 'benefit'.

Then we will soon have to face the fact that all populations are made up of ordinary limited human beings. Whilst education is 'a good thing' I doubt we will ever get to teaching tensor calculus to 14 year olds as a norm, we are simply not built for that. AI can do some of our thinking but we may have to cope with a plateau in our knowledge or ability to do anything with it.

However, for now the DT and DM readers are still comfortably off, new 4x4 in the drive and funding the kid's starter home. Darkish clouds on the horizon for those who care to look. A lot depends on how fast managed decline proceeds and how bad the Brexit project goes. Capitalism does look to be part of the problem, but equally it is likely to be part of the solution.

In the end, politicians are merely a product package and it is their job to look glossy and inviting. Always fronting up some sort of imperfectly understood economic system. The future is not bright, its limited.

[e]

@ Steve H. I think you're quite right. But Labour's strength is in its collective, its diversity; not the character of individuals; not particular wings; not even the boss.. Therefore, if not to question the competence of our ABC adherents, one has to question motive. Looks to me to be decidedly orange.....could they be any more open about helping them out?

[Noah Carl]

Fair points, but shouldn't one be wary of handing the reins to anybody who consistently praised the policies of Latin America's number one economic basket case?

[Blissex]

«anybody who consistently praised the policies of Latin America's number one economic basket case?»

What has Argentina got to do with all this? It does not even have the excuse of being a victim of low oil prices like Saudi Arabia or Venezuela or Mexico, other poorly managed countries.

[cjcjc]

"I’m not keen on its student politics anti-imperialist posturing,and have my doubts about its economic plans: I’m not sure whether it can raise billions more in corporate taxes; its desire for more coops requires tons of detailed work; and I’d like to see more acknowledgement that there is still a big role for markets and entrepreneurship to play."

Remind us again what you actually do like about it...