A howl for the past rather than a serious fight for the future: Corbyn and the political economy of nostalgia

Britain’s next PM? (Credit: David Holt, CC BY NC 2.0)

Back in the summer of ‘83

In 1983 I was in the passenger seat of our Morris Marina touring the London suburb where I grew up. My father had never been so politically excited before. Our entire car had been transformed from its natural dull Pistachio Green to a lurid bright yellow, being plastered by posters of Labour’s Manifesto.

Through the loudspeaker bolted precariously on my side window, my Dad belted out his support for the nationalisation of the commanding heights of the economy, the restoration of union power and Unilateral Nuclear Disarmament. Sadly for him, Michael Foot wastrounced in the elections with Labour’s share collapsing by 9.3% from 1979 – only 700,000 above the Alliance of the SDP who split from Labour as it veered leftwards and the Liberals. Indeed, Gerald Kaufman’s subsequent labelling of the manifesto as “the longest suicide note in history” was apt. Our car’s suspension gave up the ghost during the campaign and had to be toed off. Our Marina collapsed as catastrophically as the Labour and its manufacturer, the state-created British Leyland.

Observing Corbymania has re-kindled fond memories for those heady pre-election days. The Left was ascendant and like today, the analysis was that Labour had been too timid in power. Despite having won the three (or four if you include the two in 1974) elections prior to Margaret Thatcher’s 1979 victory, the party was deeply unhappy. If only the flame of socialism could burn brighter the workers would shed their false consciousness and come to see the truth in battling big business.

Alas, things did not turn out that way and the Labour party spent the next 14 years in opposition re-building itself intellectually and politically into an effective force.

Corbynomics

Unlike most commentators I have actually read Corbyn’s “The Economy in 2020” as well as the 1983 manifesto. Corbyn’s document has several major advantages. First, at 8 pages it is much shorter and second, it does not (yet) commit the UK to leaving the European Union (a very silly idea).

Indeed, Corby-nomics strikes many of the right notes. Low productivity is holding down wages and inadequate infrastructure in housing, transport and energy is, in turn, depressing productivity. This resonates with my findings in the LSE Growth Commission.

But what is the solution? Mandating the Bank of England to make these investments through “people’s quantitative easing” makes no institutional sense to me. The Bank’s remit is to keep inflation under control not deal with the problems of under-investment in particular areas. By increasing its burden and politically interfering with its main role, the Bank’s independence will be undermined. Developing independent institutions like the Bank was a major achievement of Labour, ending the political manipulation of interest rates that had been a feature of previous governments. Labour created robust institutions to help determine NHS drug choice (NICE), minimum wages (Low Pay Commission) and migration levels (MAC) based on evidence and expert advice instead of political whim. The undermining of these innovative institutions since 2010 is plain wrong.

The financing of new public investment is to come from ending the “huge reliefs and subsidies on offer to the corporate sector” which apparently come to £93bn. I have little idea as to how this number is arrived at. Presumably, it includes the £1bn of tax reliefs to Research and Development that were introduced by Labour in 2000 and that I and others have shown to have helped increase innovation and productivity.

Similarly there is apparently £120bn of tax revenues that the government has forgotten to collect that can easily be magicked up by employing a few more tax collectors.

This is the kind of wishful thinking that all parties indulged in during the election campaign. The Tories promised to raise £5bn through reducing tax fraud, Labour pushed this to £7bn and the Liberal Democrats upped the ante to £10bn (the Greens win the prize by promising to get £30bn). Of course more can and should be done to reduce avoidance. But pretending this is easy allows politicians to avoid the harsh reality of spelling out where the money is coming from if you want to pay for increased spending. Just as I predicted before the election, the Chancellor whacked up taxes after the election because the Office of Budget Responsibility (OBR) rightly refused to believe his forecasts about reduced tax avoidance.

Just to be clear, I have no objection per se to a National Infrastructure Bank to reduce risk and boost investment. Indeed, when I co-chaired the LSE Growth Commission we advocated the creation of such an organisation alongside an Infrastructure Commission (which was in Labour’s 2015 manifesto). But tying it to the Bank of England, dressing it up as QE and pretending it can be funded from reducing tax avoidance is unnecessary, disingenuous and harmful.

Labour’s economic record: growth and equality

There is a deep ambivalence in the party over the New Labour years. Obviously for Tony Blair this is deeply tied to Iraq. But on the economic side, the 1997-2008 period was one of strong economic performance. UK national income per person had been falling behind the US, France and Germany consistently since the mid-Nineteenth Century, but for the three decades preceding the global financial crisis Britain reverse a century of relative decline. This success was rooted in both improved productivity and higher employment rates.

This economic success was built on reducing the power of monopolies (like the 2002 Enterprise Act), ensuring flexible labour markets (such as Labour’s New Deal for Young Unemployed and Job Centre Plus), boosting years in education, and supporting innovation (e.g. increases in the Science budget).

The major difference after 1997 was how the fruits of GDP were used. Inequality shot up under in the 1980s, yet from the mid-1990s the income differences between the top and bottom 10% narrowed significantly (see Figure 3 here). This was due to policies such as the introduction of the first national minimum wage in 1999 and generous increases in benefits and tax credits especially for working families. Increased spending on health and schools also disproportionately benefited the least well off.

These reductions in the inequality amongst the vast majority if people are overlooked by many in Labour’s left who focus obsessively on the top 1%, whose share of income did indeed rise under Labour. The main reason for this increase was the financial sector: two thirds of the increase in the share of the top 1% were simply due to bankers’ bonuses.

Without doubt, Labour’s biggest economic policy failing was poor financial regulation. This contributed to the rise in extreme inequality and to the financial crisis in 2008. Of course, this was a worldwide collective failure of regulation. And don’t forget that the gains in productivity prior to the global crisis were mainly outside finance – only 14% of the increase in output per hour between 1997 and 2007 was because of financial services.

The period since 2008 has been an unhappy time – the slowest recovery from a recession this century accompanied by 10% cuts in real wages from 2008 to 2014. The disastrous decision to accelerate austerity in 2010 under the Coalition, especially the 40% cut in public investment, unnecessarily prolonged the pain.

Labour was ineffective in attacking the government’s austerity record. The fact that in hindsight slightly larger budget surpluses should have been run during the pre-crisis period has been turned into the mantra of Labour’s “out of control” public spending both causing the crisis and being the reason for accelerated fiscal consolidation. This is simply absurd and has been thoroughly debunked.

Part of the problem was that Labour was reluctant to highlight its rather sensible pledge to eliminate thecurrent deficit by the end of the next parliament. Instead of being proud to say that public investment should not be included in plans for eliminating the deficit as capital spending has a longer term return than current spending, it prevaricated out of fear of looking fiscally irresponsible.

What the future holds

New Labour’s sheepishness in defending its record had allowed the Corbynistas to make all the running. The Corbyn economic plan doesn’t want any commitments to eliminating the current deficit. The hard won successes of the post 1997 period are to be reversed with increases in union power and public ownership. “Tax justice” is the answer to most problems – soaking the rich.

Voting for Corbyn is gesture politics. It makes many on the left feel good about themselves and avoids the painful task of re-thinking policies and reconnecting beyond the base to the rest of the electorate.

It is a howl for the past rather than a serious fight for the future.

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John Van Reenen is Director of the Centre for Economic Performance at the London School of Economics.