Friday, 3 March 2017

What New Labour can teach Jeremy Corbyn

One of the sub-plots around the questioning of Jeremy Corbyn’s virtues (or lack of them) as leader of the Labour party has been a reassertion of the unfairly maligned, it is alleged, successes of New Labour. Leftist traducing of the last Labour government’s record, under the catch-all ‘Blairite’ banner of abuse, has obscured that government’s undoubted achievements. Massive flaws like Iraq aside, Corbynite bitterness and the Conservative spendthrift mantra have allied, it is claimed, to conceal the real advances made between 1997 and 2010.

Actually I think outlining the achievements of the last Labour government is exactly what is required because they serve to illustrate the depth of the problem Corbyn, or any other Labour leader, faces.

A list of New Labour’s accomplishments would have to include introducing working tax credits, building over 3,000 Sure Start centres, reducing child and pensioner poverty and overseeing the  largest peacetime increase in health and education spending in British history.

But all these achievements were crucially and ineluctably linked to supporting a Thatcherite economic model that began shipping water in the early 2000s and sank to the ocean floor in 2008. The undoubted progress made on reducing child poverty began to unravel in 2005 and real wages started stagnating in 2003. In the guise of being relaxed about people becoming ‘filthy rich’, the proportion of national income contributed by corporation tax fell to its lowest ever level (just 2.5%) and capital gains tax was cut nearly in half. New Labour’s response to imminent systemic meltdown was to spend £1.5 trillion on bailing out the banks, institute a £375 billion asset-saving quantitative easing scheme whose benefits overwhelmingly went to the top 10% of taxpayers and promise austerity. In other words, the mirror opposite of the redistribution and public spending that underscored its achievements.

RIP social democracy.           

What this means is that any departure from (old) New Labour orthodoxy is going to have to be much more than plain anti-austerity. It’s obvious that you can’t fund social care or the health service properly if you are intent, as was the case with Ed Balls and Ed Miliband, on austerity. But to be sustainably anti-austerity you have to find an economic model of capitalism to replace the fake growth of the New Labour years. “Almost everyone agrees that wealth, as experienced by households, was in excess of reality,” Lawrence Summers, director of the National Economic Council under Obama, said of the pre-crisis economy in 2013. In essence, you need an economic model, not ‘in excess of reality’, that automatically generates the tax you need, through income and corporate income tax, to fund the signature social programmes of the early New Labour years.

Now such a model, at this stage in the history of capitalism, is extremely hard to find. Since the mid-1970s, growth has fallen in every region of the world, and markedly so in ‘mature’ economies. At 0.8%, productivity in mature economies, an essential component of economic growth, is significantly below its pre-crisis level and a mere blip compared to the 5% a year achieved in the 1960s and ‘70s.

Such sustained underperformance, augmented by the 2008 crash, has resulted in a fiscal crisis across the western world and lent a spurious justification to austerity which claims, utterly contrary to the evidence, an ability to reduce public debts.

As above graph shows, government debt grew massively in the immediate aftermath of the financial crisis (the largest transfer from poor to rich since the time of William the Conqueror), and then continued to shoot upwards in the era of austerity, whose end point is forever postponed further into the future. There are many reasons for this – the government has deliberately reduced its revenue by swingeing cuts to corporate income tax and the inexorable rise of poorly paid, low productivity, self-employed, temporary and part-time jobs has slashed tax income while increasing the amount paid out through tax credits. Lastly, the government is gladly divulging billions in corporate welfare and ‘legacy payments’ from the financial crisis.

But the fact that, a ‘quintessentially private sector crisis’, rather than spending on schools and hospitals, caused this fiscal crisis, does not detract from the stubborn fact of its existence.

There is tendency on the Left to assume that public debts and deficits don’t really matter. You can always find money from somewhere, an attitude bolstered the invention of $12 trillion dollars in ‘quantitative easing’ by states across the world in order to maintain share prices. But they do, especially in an era of declining, low-growth capitalism. Apart from anything else, when the government borrows, it borrows from somebody – namely banks, insurance companies and high net worth individuals. That money has to be paid back with interest, as opposed to simply being confiscated through tax.

If I were Corbyn, I’d never miss an opportunity to talk about the economy, debt and deficit – how any government deficit consists of two elements, revenue and spending, and how governments’ revenue from taxing companies and the extremely wealthy, has been systematically crippled over the past few decades. I’d emphasise how cuts strip demand from the economy and thus income from VAT. In a left-wing version of triangulation, I’d attack the Conservatives, at all times, on their alleged strong point, the economy, and hone in on the hollowness of austerity arguments.

This, however, probably won’t work. I don’t mean in the sense of winning an election but in the sense of achieving your aims once in power. Even full-throated Corbynism will only raise corporate tax slightly, will only raise tax on the 1% slightly and may close down one or two tax havens. This is a mere drop in the ocean compared to 50% tax rates on corporations and 90% tax bands for the highest earners common in the era of successful capitalism. Public investment, another signature Corbyn policy, will likely not spark a revival in moribund private investment.

But it’s more than this. Periodic recessions are in the nature of capitalism and, in the West, we are due one. Even if massive corporate indebtedness does not turn the next recession into systemic meltdown, public finances will be further diminished. Tax revenues will decline while spending on unemployment benefits will have to increase. This is on top of the effects of 2008 which no government on earth has recovered from. The outcome will likely be hyper-austerity and state repression or an utter revulsion with cuts leading to … something else. Corbynism will seem, in retrospect, quite quaint.