New Labour: success and failure

Did New Labour really ignore inequality? Responding to Corbyn’s claims that successive governments have neglected it for decades, Blair replies that New Labour “made the UK more equal, more fair and more socially mobile.”

Both men, I think, are partially right.

Blair is correct to say that New Labour massively increased spending on public services and reduced child and pensioner poverty.

However, overall inequality did not change much under New Labour despite that fall in poverty. One reason for this is that as Robert Joyce and Luke Sibieta at the IFS have pointed out (pdf), their tax and benefit reforms “had relatively little net impact on the top half of the income distribution”. Another is that pre-tax inequality rose in one important respect at least: the share of pre-tax incomes going to the top 1% rose from 10% to 12% between 1997 and 2007, before falling back as a result of the banking crisis.

It is in this last fact, I think, that New Labour’s failure lies, and where Corbyn has a point. Blair and Brown were far too managerialist, and too deferential to bosses: this much was evident not just in Brown’s lauding of them as wealth creators and courageous leaders but in his inviting the likes of Derek Wanless, David Freud and James Crosby to conduct policy reviews. Bosses, New Labour thought, were trusted experts.

In this respect, New Labour was indeed neoliberal. And this had at least three big costs.

One is that the importing of crude managerialism into the public sector failed to raise productivity: the ONS says this flat-lined (pdf) under New Labour. Yes, the public services improved. But this was simply because the government threw money at them. This made the health of the public sector dangerously dependent upon that of the private sector.

The second is that it meant that New Labour under-appreciated the many pathways through which the excessive wealth and power of the top 1% can worsen economic performance.

 Thirdly, it fostered the belief that private sector companies could run themselves tolerably well if left alone. The banking crisis, however, revealed this to be a fiction.

That said, it is a little harsh of Blair’s critiques to blame a lack of banking regulation for the economic crisis. For one thing, the crisis was not due mainly to rising domestic debt. The banks that failed in 2007-08 did not, for the most part, do so because their loans turned bad. Instead, the main failures were due to terrible take-over decisions, such as RBS’s buying of ABN Amro, or because they relied upon wholesale funding which dried up in 2007: this was Northern Rock’s problem. Credit controls would probably not have prevented these failures.

And for another, the crisis was global. It would have hit the UK even if we’d had tighter regulation. In fact, in 2009 UK GDP fell only slightly more than the OECD average (4.2% against 3.4%) and it fell less than it did in Germany and Sweden, whose economies are often held up as models of what the UK should be. No reasonable policies could have insulated us from the global financial crisis.

From this perspective, it is absurd to blame New Labour for the subsequent austerity (except to the extent that we should blame it for losing the 2010 general election). We’d have had a deep recession in 2009 whatever the government would have done, and this would have greatly increased government borrowing thereby giving the Tories and the media the chance to complain about Labour profligacy. Austerity is the fault of the Tories and Lib Dems, nobody else.

New Labour had its faults, many of which are more obvious with hindsight than they were at the time, and the left is wholly correct to want to move on from its economic policies which are now out-of-date. But these facts should not detract from another fact – that Labour did indeed do much to reduce poverty.

Comments

[Jonathan da Silva]

Wow you demolished the only thing (+ve) I would give the amoral LLG credit for. Is it fair to say though Labour imposed a form of austerity (surpluses - low deficits) from 97-01 for no reason? [harsher view until Brown expected to be in charge] Also use of PFI was a hostage to fortune? [harsher view paid when Brown was gone]

In 2010 the 3 manifestos were all but the same - all 3 within 8bn (?) rounding error. Coalition relaxed its plans. Labour kept Balls out of shadow chancellor who had proposed spending in his leader campaign for leader. A placeholder Johnson was put in place initially.

Labour 2015 still did not break the narrative that countries are like people who are going to grow old and get lower incomes and the deficit mattered far more than it does.

Most Labour MPs are not MMT they are all for treating money like it's a Gold Standard still.

Other than war torture rendition et al all backed by whole cabinet Blair is incidental economically. Corbyn is attacking the wrong killer B.

[James]

'The banks that failed in 2007-08 did not, for the most part, do so because their loans turned bad'

This is kind of true but somewhat beside the point. Banks went bust because of an acute liquidity crisis, but once that crisis passed they were also (and not just the ones that went bust) insolvent because of vast quantities of bad loans, particularly against property. This was the legacy of years of lax lending standards and inadequate capital buffers in the run-up to the crisis. These loans sat on bank balance sheets for years, gumming up the system and contributing enormously to the depth and length of the crisis.

It's a bit harsh to blame Labour for this when almost everyone else had similar problems, but Canada for instance did much better.

[Alex]

It has certainly struck me before that, given the worldwide surge of inequality, New Labour did pretty well to hold it to flat.

[James Brooks]

One of the biggest issues faced in assessing New Labour's culpability is whether or not they were being responsible, given the information they had to hand. Subsequent analysis by the OBR suggests the output gap had been completely closed, and was in fact possibly as high as +4% of GDP in 2007.

https://obr.uk/docs/dlm_uploads/WorkingPaperNo1-Estimating-the-UKs-historical-output-gap.pdf

We could ask whether the Brown/Blair government would have acted differently, and restrained spending accordingly, had they had this sort of analysis to hand contemporaneously - but it is clearly an issue when GDP based metrics are not factoring in the extent to which the economy is running above full potential.

[e]

Interesting, so many still arguing the toss given the ease with which it was all, in any case, swept away.

Labour alleviated poverty during its New years. Fine. No argument. Labour's raison d'être has always been to work to achieve, through Parliamentary means, economic and social justice. Merely alleviating the worst of it good enough or no more than a LibDem would have to offer?

[Nanikore]

This is a little lightweight - and it gets too many people off the hook - especially New Labour and the mainstream economists that advised them.

Blair was an excellent politician. As was Clinton. Their motives were good.

The problem was they were given the wrong advice, and they took it.

To look at the problems that built up to 2008, we need to look at the Great Moderation and the ideas and hubris that were behind it. It saw international capitalism (globalisation) as an unambiguously good thing. New Labour deregulated international capital flows, good flows and labour flows accordingly. The problem was that such policies did not address the fundamental problems that were already beginning to be seen in capitalism. In the UK this was related to deindustrialisation and the concentrations of wealth, of which geographical concentration was of one manifestation. The Blair's Government's response was neo-classical: compensate the losers, but do not get involved in decisions in that distort market prices. Capital controls, industry policy, prices and incomes policies were definitely off the table and for the realm of old left dinosaurs.

We are now seeing the political fallout from this. Austerity cannot be entirely blamed. What we learned from the New Labour era is that expansionary macro policy is not enough. The Government has to get involved in decisions that involve the allocation of capital.

I think this is also the message of Corbyn, His message is not what neo-classical economists want to hear. But their are plenty of historical examples of successful countries that have followed his path.

[Nanikore]

One more thing.

Mainstream economists like to paint Eurozone economies as neo-liberal. This is actually very misleading. In truth they neither follow the neo-liberal nor the neo-classical rule book. It is true that monetary policy in these countries follows strict rules in terms of monetary growth. But governments and central banks are intricately involved in the allocation of credit. There is also far more active involvement in the labour market, with collective bargaining as a means to set wages and prices. This calls for strong unions.

Labour was let down by New Labour who did not arrest the decline of trade unions. Blair neo-liberalism involved maintaining an extensive welfare state, but with a free market that allowed for the 'efficient' price setting and resource allocation.

And this is the ideology that ultimately failed. You cannot blame globalisation and associated global economic shocks, because ultimately the country had let itself over-exposed to them.

[Philjvtaylor]

You say:

"From this perspective, it is absurd to blame New Labour for the subsequent austerity (except to the extent that we should blame it for losing the 2010 general election). We’d have had a deep recession in 2009 whatever the government would have done, and this would have greatly increased government borrowing thereby giving the Tories and the media the chance to complain about Labour profligacy. Austerity is the fault of the Tories and Lib Dems, nobody else."

But Darling/Brown implemented an austerity programme 9/10ths the strength of the Coalition one and actually put it in place.

It had three planks:

- £20 billion Nicholson Challenge cuts in NHS
- halving net public investment
- departmental savings of £46bn.

Nicholson kicked off in 2009 by Andy Burnham. Labour put in 2010 manifesto on page 4:3. Tories did not change.

Capital spending cut from £50bn in 2010 to £22bn in 2014 in November 2009 pre-budget report. Tories did not change.

IFS calculated that Darling's March 2010 budget spending envelope implied departmental spending cuts of £46bn. The Tories went in a bit harder on this.

We would have had austerity under Brown and Darling himself said we will have to cut harder than Thatcher.

[Graeme]

https://www.conservativewoman.co.uk/the-big-lies-about-margaret-thatcher-part-2/

Your answer in a nutshell

[Rocco Siffredi]

How is productivity going in the NHS? Scotland and Wales.... Versus austerity England. Dillow, lift your doctrinal goggles. Try looking at data

[Graeme]

Who are the oppressed workers who should embrace the Labour Party? The trades have gone.... Plumbers, miners, electricians, postpeople, dockers, steel makers. Difficult to build a mass movement on council staff and buros