David Cobham is professor of economics at Heriot-Watt University in Edinburgh. He co-edited the spring 2013 issue of the Oxford Review of Economic Policy on the economic record of the 1997-2010 Labour government. In the context of this blog, he was the author of a very popular post on seven Conservative claims that Labour should have nailed long ago. In this guest post he considers what Labour (like other parties that have the aim of representing those less privileged in society) can do in the current economic and political climate. In the process he seeks to place the sensitive issue of wealth creation in its proper context. I thought it another contribution worth sharing:
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The current calls for Labour to jettison the ‘leftwing' policies on which it allegedly fought the election in favour of the more ‘centrist' and City-oriented policies it allegedly had under Blair are not just all too predictable, they are also silly and unthinking. What Labour really needs is a strategic debate about what progressive politics is and what can be achieved within a modern economy. This will take time, but above all it needs a willingness to address difficult questions.
Many of us have long thought that Labour made a crucial mistake in allowing the Coalition to embed their myths about the economic crisis into the public consciousness. It should have had a rebuttal unit in place throughout the long leadership election in 2010. But that mistake cannot now be rectified by confessing to economic policy errors which did not exist, and Labour will do itself no favours by agreeing with even a small part of the Coalition's fairy stories.
The financial crisis was global. It originated in the US, and affected the UK so severely because of the size of its financial sector. It was not the result of excessive or uncontrolled government expenditure: that rose from 37.8% of GDP in 1997-98 to 40.4% in 2006-7 (compared to 49.7% in 1975-6, 48.1% in 1982-3 and an average of 40.4% from 1987-8 to 1997-8). At the start of the crisis the current budget deficit was 0.6% of GDP and the government debt to income ratio was 46% (compared to 64% in Germany and the US, and 73% in France). The subsequent sharp rise in the deficit and then in debt was mainly the result (not the cause) of the recession, assisted by a sharper drop in tax revenues from the City than the Treasury or anyone else had expected plus a small amount of fiscal easing (the temporary VAT cut). And a rise in the budget deficit in a recession is just what economic theory recommends.
It is true that recent estimates of the structural deficit in 2007 (what the deficit would have been if the economy had been operating at the potential output level) put it much higher — but that is just a function of the mechanical way these things are sometimes compiled: the effect of the crisis and recession has been to pull down the mechanical estimate of potential output both now and in the recent past, which pushes up the estimate of the output gap (the extent to which actual output exceeds potential) in 2007, raises the amount of tax revenue which is ascribed to output being above potential, and therefore increases the estimate of the structural deficit. Any economist with intelligence and integrity would not take such estimates seriously.
It is also arguable that Labour made a bad mistake in not highlighting the Coalition government's major softening of their fiscal consolidation programme in 2012. Osborne glossed over this, no doubt because to admit it he would have had to accept the failure of his Plan A. But Labour also ignored it. With hindsight it seems clear that if Labour had stressed the government's U-turn it would have been able to explain the (limited) recovery when that came, rather than allowing Osborne to present the recovery as proof that his plan was working and Labour had been wrong about austerity. But Labour could still have campaigned on the economic losses due to Plan A, the cost of living, the unequal impact of government policies and so on.
What Labour needs now is a fundamental strategic rethink about what progressive outcomes might be achievable, and how they can be realised, in a modern globalised and liberalised economy — the big questions now facing all social democratic movements. Of course, the 1997-2010 Labour government grappled with these issues, and its answer was reflected in policies such as the minimum wage, tax credits, Bank of England independence and fiscal rules. The government can be criticised, particularly with hindsight, for compromising too much with the neo-liberal doctrines and policies introduced under Thatcher and Major (and in other countries too) — in the early years such compromise was probably unavoidable, but the extent to which it could and should have been more deeply and more clearly reversed in the later years is still a matter of fine political judgment.
Ed Miliband and his shadow cabinet also grappled with these issues, in the post-crisis context. Its election platform, from raising the minimum wage to freezing energy prices before reshaping an oligopolistic energy market to more gradual fiscal consolidation, reflected this. In both cases the policies adopted may not always have been right (even without hindsight), but they were serious attempts to address the issues. However, the objectives and the thinking were kept largely behind closed doors; policies seem to have been developed in a piecemeal way rather than as part of a wider strategy for a new type of government. What Labour needs now is a much more open and public debate on where those policies fell short and where they went too far, given both the domestic and international market forces that constrain a government's ability to act, and the political constraints in a post-Thatcher UK.
Such a debate would also provide Labour with an answer to much of the attacks on it made by the Scottish National Party. The SNP has never had such a debate, although it claims these days to be social democratic. Instead, it presents Labour as pursuing less progressive policies than many would like out of choice rather than from any analysis of what is possible (which the SNP as insurgent party has managed so far to avoid facing). Instead, at different times the SNP has been associated with a watered down version of Tony Benn's Alternative Economic Strategy (79 Group), with a New Labour-ish cosying up to business and bankers (including support for RBS's disastrous bid for ABN-AMRO and arguments for a cut in corporation tax), and recently with an Old Labour rhetoric about inequality (though it took a long time for the SNP to support the re-imposition of the 50% tax band).
Labour needs to work out what a progressive party can and cannot achieve and then to be much more effective in explaining both the constraints and its choices to its members and its potential voters, in Scotland and elsewhere. That would enable it to answer the ‘red Tory' charge coming from an SNP which has been dancing a delicate two-step with the Conservative Party and the conservative press designed to maximise SNP votes in Scotland and minimise Labour votes in England. But in former industrial areas in England and Wales it would also give it a chance of regaining trust with the voters it has lost to UKIP.
At the same time, a transparent programme of this kind would allow Labour to confront the accusation that it is against wealth creation by demonstrating how in a properly-run economy and society, one not dominated by financial short-termism and rent-seeking, wealth creation and distribution can and should go hand in hand.
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Can’t fault a word of David’s blog, Richard. But given what we’re seeing/reading on a daily basis about the thoughts and positions of all the Labour leadership contenders there’s not a cat in hells chance they’ll follow this advice. It seems to me that what we have instead is a bunch of people who are expecting the Tory government to move to the right of where they were when in coalition (a fully justified belief, I’d say) and then Labour under their leadership will move into the right of centre space eft vacant. In short, a bluer shade of “blue Labour”.
Which leaves the Greens on the left in England
Yes – I’m definitely green lit all the way to the next election from now on.
Respectfully Mr. M….all of what you say may or may not be true and I’ll take it at face value as one expert opinion.
Then along came the SNP screaming and shouting about getting more for Scotland to be paid for by rUK…..the electorate in England went “Nah….no thanks…” and it didn’t help that Labour were so lukewarm in their denials about doing deals with the SNP.
Finally, of course we come to the real issue that Labour has – immigration – it threw open the gates to all and sundry (for what ever reason) and in doing so smashed the very people at the bottom of the pile as the competition for everything went through the roof.
I know solid Red voters who have now turned their back on Labour – not because they’ve suddenly become right wing but because they’ve seen what mass, uncontrolled immigration as done for the chances of their children in terms of getting a job, a home at a decent rent and even education for grandchildren when huge blocks of the class don’t speak English as a first language….
….you Mr. M., are a white collar professional, living in nice part of the country, not directly challenged by immigration, so I’m sure my comments may seem extreme to you and I respect your right not to publish them…..but if the Labour movement as a whole doesn’t address the concerns of ex-Labour voters like the ones I know, it is dead. Finished…done….and will fade away to merge with the LDs as UKIP take more and more socially conservative ex-Labour voters.
Where I live Mr. M., from a standing start UKIP got 6000 votes and were solidly third. More tellingly the Cons + UKIP vote outnumbered the Labour vote (but under FPTP Labour hold the seat and this is a seat where a former Labour MP once held a majority of over 14,000 – it now stands at about 3000) – sooner or later more and more seats will fall to the Blues or UKIP and Labour will become an irrelevance unless it addresses fully issues like immigration.
As I said, I doubt you’ll publish this, but Mr. M., you work with organisations like Class and routinely meet Labour MPs – you’ve got to work to stop Labour and the movement as a whole becoming a sterile echo chamber hell-bent on ignoring the views of ex-Labour voters simply because ‘Labour’ wants to pretend all is sunny.
Anyway…best regards etc.
I also have to challenge racism
Labour has admitted (apparently) that they ‘got it wrong’ on immigration.
But the Tory policy on immigration is no better at all – they just issue harsher qualitifying criteria for benefits. They have not stemmed it really. And they have no intention of either because of friends in the organisation I mention below.
The tragedy for Labour – or any government in the UK – is that it is not immigration per se that is the problem; rather it is the behaviour of employers towards immigration and the opportunities they take with what is usually seen as cheap labour.
In the 1990’s in London, your local KFC or Hamleys toy store was dominated by Africans employed as staff; go to these places today and you get Eastern Europeans.
Everytime any government talks about controlling immigration one of the first public bodies to start crying about it is guess who…………? The good old CBI of course (the Confederation of British Industry) – standing up for its members to employ cheap labour from abroad.
So where Labour got it wrong on immigration is allowing it to be used as a means by which to bring down wages in the population as a whole. That has led to it losing much of its vote to UKIP and others I feel. There should have been more regulation of this sort of behaviour.
No doubt the next neo-lib missive will be about typical business hating lefties like me – go on – I’m waiting…………..
Indeed. Having lived in several working class suburbs of northern industrial towns for 4 decades many people who are (or were) ‘traditional’ Labour voters are actually very conservative (with a small ‘c’). They think the Royal Family is wonderful, dislike immigrants and are suspicious of homosexuals, are anti-EU etc. – you get the picture. Many have a very ambivalent attitude to trade unions – they usually join one for’protection’ at the same as disagreeing with their wider political stance and many would not actually follow a decision to strike. There is a perception that several working class suburbs have now been taken over by specific ethnic groups and, dare I say, white people are virtually non-existent in these communities. UKIP has very cleverly tapped into these worries and concerns whilst Labour has not robustly addressed them and the media has generally whipped up hysteria and fuelled these fears.
I think this is a great piece. Logical and nicely calm while hopeful.
My observation over the last few week and a bit has been that almost all of the left wing commentary I’ve read, whether from those near to the centre, or the more radical camps, tacitly accepts our society as essentially being “zero sum”. Those on the left think we should take more from the rich to give to the poor, and those near the middle think we need to take less to give to the poor.
I think this means much of the left spectrum is letting itself be “framed” by the right’s narrative of household budgets.
We have evidence that suggests that redistribution to create a more equal society isn’t just “nice” or “compassionate” or “fair”, but it is also “smart” and “good business”, because it will let society grow more quickly. You don’t grow a business by failing to invest, right? I’m going to link here to Richard Wilkinson’s TED talk — I’d really like to have other sources I could link to! http://www.ted.com/talks/richard_wilkinson?language=en
So, if there is evidence, then the zero sum idea is wrong.
While, as this piece says, the Left and Labour should be thinking about what they can and can’t achieve, they should, IMHO be making the case that a more equal society is a more effective society. That when everyone gets a better chance, everyone will do better.
The word “aspirational” has come up a lot. For the lefter left it’s a derogatory term about Labour’s focus being wrong. For the middle left its a necessary property for wealth creation by the potentially wealthy.
Both of these seem to miss the point that “aspiration” doesn’t _need_ to be a choice. It should be something given to everyone and it can be given to everyone if we’re investing properly.
I think Labour and the Left need to build an evidence base for this and then structure their message with the underlying points that progressive policies are compassionate, but they’re also “aspirational” and “good business”. And finally, they’re also “unifying” because it’s by working together, building together and investing in each other, that we can succeed better.
This might be very obvious to everyone, or maybe it’s wrong or unconvincing, or probably true but unimportant. To me if feels terribly important at the moment though, so I’d love to hear other’s views on it!
Thanks.
The difficulty of all this is is that it is counterintuitive and the Mail derides it before it starts
And Labour cannot get its head round it
We have to accept that the Right has appropriated a lot of the Left’s language of equality and social justice.
The only way to get it back is to fight.
Dear Richard, and others reading this… My take on a way forward for Labour: Key messages and needed popular policies:
1) Defend Labour’s record on financial crisis, prevention of financial depression was down to labour action on banks. Labour not profligate but did rely on financial sector too much.
2) Make clear Tory cuts have created stagnation (low pay economy) and ultimately worsens public finances (less tax receipts, more benefits paid, less income to spend in economy). You cannot cut your way out of a deficit.
3) Policy of national revival/new deal to deal with Tory stagnation. Jobs, housing and income growth for working and middle class. Public investment is needed to tackle structural budget deficit and will give confidence to business to invest.
4) Labour promise to protect public services but control day to day spend. Taxes on the wealthiest have to rise to pay for this. This is reasonable and popular.
5) Support for business, rebalance the economy through a well capitalised public investment bank but controls on business and teeth for regulators where clearly needed eg finance and energy sector.
6) Message of support for immigration, people come here to contribute and work alongside us. Immigrants help public finance and are needed for an ageing population. Investment in services and housing vital in areas with high immigration.
7) Action on inequality is popular eg action on zero hrs contracts and rent controls. Reducing/removing student loans is clearly popular as is keeping the NHS public.
Bold Popular Policies to Improve Economy, Public and Personal Finances:
– Minimum wage equal to living wage for a decent life. This means more spend for business and reduces benefit payments. Associated policy of tax/ business rate reduction for small business.
– Investment in massive social housing build to house working people and address immigration concerns. Reduces housing benefit.
– Huge investment in green energy/conservation to tackle energy bills and climate change.
– Big investment in HMRC staff to tackle tax evasion and avoidance.
These will mean more jobs for working and middle class, incomes up, deficit down and a way out of stagnation for all.
Above all a really positive message of hope and alternative is needed. A new deal, a national revival, investment in our future.
Best,
Mike
Sounds like things I have been arguing for
The immigration issue is more subtle than you suggest though
But you’r right: a radical change in messaging is needed