Labour's economic policy
A new era in social democratic thinking?
7 March 2016
Speaking notes for a presentation at the University of East London
- Last summer I discovered I was the author of Corbynomics.
- I am not saying I am sorry about that
- What I am saying is that much that was in Jeremy Corbyn's policy document published as part of his Labour leadership campaign seemed to have been borrowed from my blog
- Well that's why you blog
- And as an academic this was good impact.
- But, I stress this happened without me being a member of the Labour Party. To this day I remain a critical friend of that Party who is also happy to acknowledge the friendship of others.
- So the question is, what is Labour's economic policy about?
- Corbynomics was based on three key ideas
- The need to invest in infrastructure to get the UK economy going again
- With the resulting implication that fiscal policy was back in town
- The possibility of using People's QE to fund that investment if need be.
- Within which was an implicit suggestion that the mandate of the Bank if England might be reviewed
- Creating a more progressive tax system
- And backing that up with a better resourced and reformed tax authority
- And a review of the tax reliefs and allowances given by past governments to make sure that they remain appropriate now
- Plus a crack down on tax abuse to close the tax gap
- And the creation of a more level playing field on which all people and businesses cam operate as a result
- The need to invest in infrastructure to get the UK economy going again
- But what do these ideas imply?
- I stress I can only offer a personal view
- I might know Jeremy Corbyn and John McDonnell
- And I talk to their teams
- I also rather hope that they read at least some of my blogs
- But I stress, I am not a team Corbyn team member or adviser in any formal sense
- That said, first, there is an acceptance that monetary policy has reached the limited of its usefulness
- When everyone, from all the FT's main columnists to the IMF and OECD onwards say that central banks are at the limits of monetary policy
- And even former ECB board member Lorenzo Bini Smaghi says there is a stunning silence in response on fiscal policy from the Treasuries of the world
- Then the fact that Labour is embracing fiscal policy whilst being willing to wrap it in the monetary wrapper of People's QE is real economic innovation on a staggering scale for an opposition party
- The challenge this presents when George Osborne is mute to the demand that he acts is significant
- Second, there is explicit endorsement of fiscal policy
- Fiscal policy has been dead in the water for so long Labour's return to it is significant
- But it is important to note that this is neither boom and bust
- Nor is it old style fiscal policy: the understanding that this policy can be funded by monetisation of debt moves fiscal policy into a new era where the government does not just accept its role as the agent that must stimulate the economy when all else fails but that it must also create the necessary funding to achieve this goal when the private sector banks cannot or will not
- This is then creating a whole new role for government, combining monetary and fiscal policy and at the same time accepting that the central bank is not a passive agent under notionally independent banker control but is an active agent that must be integrated into the overall scheme of government economic management
- Third there is an understanding that tax is much more than about revenue raising
- Tax has six roles
- Reclaiming the money that the government will now have to spend into the economy in pursuit of its goals
- Ratifying the value of money - when tax has to be paid in a domestic currency trading in anything else - including Bitcoin - makes almost no sense. Tax due then has to be big enough to ensure a government has effective control of its own currency
- Reorganising the economy through fiscal policy
- Redistributing income and wealth
- Repricing market failure
- Raising representation in a democracy - which is why taking those on lowest incomes out of tax is not a benevolent act but one that means that they, almost literally, do not count
- I think Labour is beginning to embrace these ideas
- Fourth there is recognition that the architecture of economic power needs to be revised
- But what all this means is that Labour ha to reclaim the instruments of economic power
- In that context do not see the policy reviews on the powers and structures of the Treasury, HMRC and Bank of England as mere admin matters: these are about challenging the powers of the established financial elites and reclaiming them for social purpose
- Fifth, and I can't say this enough, there is a belief in a mixed economy
- I think this is fundamental
- I do not think there is a real appetite for Clause 4 socialism in the Corbyn Labour Party
- What there is instead is a real understanding that there are horses for courses
- There are situations where the state is easily the best actor to deliver services
- Education
- Health
- Law and order
- Defence
- Pensions and the social safety net
- Our social and communications infrastructure
- And maybe, even, some parts of banking
- Plus energy infrastructure
- The risks of failure in these sectors is too big to outsource them
- Economies of scale and the existence of natural monopolies means that private sector capture and the risk of the exploitation of rents is too great to contemplate
- Just as there are others when we have to be quite honest about the fact that the private sector does best
- Food and retail suplies
- Almost all wants
- Much of IT and technical services
- Pharmaceiticals
- Raw materials productionand processing
- And so much more
- But this realisation is based on an acceptance that neither sector is better or worse than the other
- The aim is to bring out the best in both for the common good
- With each part being expected to make that contribution to that common good whilst nurturing and appropriately rewarding those who work within them
- Sixth, there is as a consequence a statement of belief in the broader economic and social role of the state
- This is fundamental to the Labour approach
- And it changes 37 years of UK thinking
- Seventh, this is rooted in a belief in justice
- It is about the concept of democratic justice - that the people must have control of the instruments of power and that those instruments must be run for the benefit of people
- And economic justice: it says that the imbalances and inequalities that have arisen in the UK and elsewhere are unacceptable
- It is about tax justice
- And it is about market justice: creating a level playing field on which all can compete equally in a way that existing policy has never done because it has favoured big companies over small and international against national
- Eighth then, there is here an architecture for social democratic thinking for the 21 St century
- Where the constraints on government imposed by historic roles and the artificial divide between fiscal and monetary policy are thrown off
- Where there is a real understanding that money is costless to create and that it is the role of government to create it when necessary to liberate the potential within an economy
- Subject only to the constraint to keep inflation within acceptable limits - but that is a positive rate of at least 2%
- Where the social and fiscal functions of tax are understood and embraced
- Where the power of elites is challenged and social accountability is at the core of policy
- Where the partnership between state, citizen and private sector is recognised and mutually respected
- And where the aim is the realisation of the potential of people and the constraints that monetary policy have for too long placed in the achievement of this are not accepted
- In conclusion, you can argue that Labour has said nothing as yet on economics and civic engagement
- But I beg to differ
- Implicit in what Labour has already said is an economic policy for an age where the power of financial elites is not only alienating voters but is giving rise to demand for real change
- But, and this is key, Labour has to work out how to say that is what it is doing
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Very good stuff, although your ‘Fifth Element’ crucially omits affordable social housing as a sector where the state should be the best actor to deliver what society is currently desperately lacking.
Whoops, I guess the last point you make refers to that – I missed the reference as rents in the property sense! Apologies.
The state is also the best actor for delivering really low cost mortgages and in the process stopping greedy bankers blowing another recessionary inducing house price bubble!
what private sector does best… Much of IT and technical services
Compare the World wide Web created by public money – open and transparent except for the bits that private commerce has grabbed- and Windows/Apple where more time and effort has been spent trying to overcome the computer`s natural assets – virtually costless distribution of programs and information – than on building a reliable product.
Pharmaceuticals – yeah, like penicillin.
Surprised that `running a national railway` isn`t in the list.
“these are about challenging the powers of the established financial elites and reclaiming them for social purpose.”
Therein lies a major challenge. Not only do those financial elites have human assets working within the Labour Party on their behalf for their benefit against everything listed above they are also hedging their options by setting up a scheme to field “independent” candidates in constituencies throughout the country giving an opportunity for nominally blue, red, yellow and probably purple neo con/neo liberal MP’s to stifle any progression away from serfdom.
Today’s Independent refers:
http://www.independent.co.uk/news/uk/politics/lord-digby-jones-millionaire-recluse-to-fund-disaffected-mps-in-the-next-general-election-a6915911.html
Getty
“Disaffected Labour MPs — along with Tories left isolated by their party’s split over Europe — will be able to apply for financial backing from a new £6.5 million fund if they stand as independents at the next general election.
With Blairite MPs increasingly worried about their future prospects under Jeremy Corbyn, and Conservatives in the Commons forecasting bitter divisions to follow June’s EU referendum, a new pressure group, the Charter for a Free Parliament (CFP), plans to hold “primary” elections for independent candidates in every UK constituency.
The primaries will be open to anyone, including sitting MPs who have been deselected by, or chosen to leave, their current parties. The winners will have their campaign costs underwritten.
A reclusive Scottish multi-millionaire industrialist, regarded as being on the right of UK politics, is the main money man behind the ambitious scheme to give £10,000 to 600 independents to fund an effective challenge to mainstream candidates in every constituency.”
It is doubtful that anyone will be surprised to learn that Lord Digby Jones is an influential player in this scheme.
The gerrymandering of the demos is becoming increasingly blatant, turning the entire country into one giant rotten borough.
£10,000 does not go far
Good work, Richard. Your modesty does you credit, but the reality is that you provided the crucial bridge which allowed ideas suppressed by the you-know-whos for 80-odd years to once again become part of the political dialogue.
Then it was as much by accident as design
But that’s how life works
Very interesting.
Can see why you might not have said it so overtly but the most obvious indication in belief of a mixed economy is the belief in private banks creating money on their own terms, for the purpose of their own profit, to whomsoever they choose.
That also looks like a tacit acceptance that they could continue to create, wittingly or unwittingly, asset bubbles.
Personally I’d like to see an additional and local banking sector orientated towards social benefit. But perhaps that is too big a change just yet…
The issue was more explicitly addressed in the actual talk and I addressed how to tackle this issue
Interesting read. The concept of a true mixed economy should indeed be what we strive for and is a very sellable proposition. Capitalism leads to deregulated capitalism leads to inequality is the starting point that leads to understanding that if we want provision for the entrepreneurial spirit then it has to be under a completely new construct. A prospect of an exciting future with highly trained young people keen to choose a public route to enhance the lives of people or the specific challenge of a new-version private route, inside a balanced public-private framework where each respects and needs the other. Bung in a clever form of basic income and swap pharmas to public sector.
Good stuff. Was the talk recorded?
Not for broadcast that I know of
Thanks. Pity. I think I might have misunderstood anyway. Was this just for the University and not the Labour Party?
This was a university event, nothing to do with Labour Party
“Labour has to work out how to say that is what it is doing ”
This is the decisive factor-and it will have to say it confidently against a largely hostile media that will want to trash what it says and dismiss it as ‘whacko.’
it needs to star a ‘mythbusting’ program to show the public that they have been scammed and syphoned for the last 35 years and that there is a coherent body of thought and evidence to show this unambiguously.
It will need to drill through the edifice of myths and create a new Overton Window.
Language framing will be key. A real ‘Yes We can’ message which is not empty rhetoric.
If Bernie Sanders can do what he has done in America (America FFS!) then Labour can certainly do it here.
Will they?
I don’t know and I’m worried a historic opportunity will be missed.
Me too
That’s why I said it
Richard
Aaaahh……….pure sanity. A rare commodity in these trouble times.
I have said it once and I will say it again: I would vote for you.
No need to answer. ‘Nuff said.
And I am not standing
Where I live in the North West of England, the traffic problem is bringing everything to a standstill. Where we used to walk the dogs there are just housing estates, where are the skylarks and hares we used to see. If we need to go to Manchster the M60 is a nightmare. Public transport is expensive, can’t always book in advance, standing room only quite usual. My children travel to work 40 or so miles as lots do, can take 2 or 3 hours, crazy. So to have the ability to move freely around the country without covering us in concrete, there’s a challenge , as most use cars. Public transport, subsidised heavily please. Excellent Mr Murphy, bet they all check you out to pinch your ideas.
My ideas are designed to be pinched
If your local MP from any party is on this list they should be ashamed of themselves and be advised so by their constituents who consider that reducing the benefit to sick and disabled benefits by £30 a week shows just how inhumane these so called representative politicians really are!
This is a matter of pure cruelty, not “financial privilege”
http://www.independent.co.uk/news/uk/politics/esa-wrag-disability-benefit-cut-disabled-mps-vote-tories-iain-duncan-smith-a6918556.html
Keith-I think this reduces ESA for new ‘entrants from about £100 to Job Seeker’s allowance levels of about £73. This group will include many who have given up work due to ill health/onset of mental health issues.
Aside form the sheer vindictiveness and outright cruelty it is also madness from a macroeconomic point of view as it reduces money supply and velocity. This will not concern the Government as ‘these people’ (as IDS likes to see them) are not financialised/or part of the treadmilling masses in low pay being cathetered by a landlord which is where they want ’em. Until you knuckle under they will treat you like a leper until you do and can then be patted on the head for ‘doing the right thing.’
I’m still in shock that:
1) A Government can even consider doing it, never mind enact it.
2) That society tolerates it.
The sense of shock and outrage never leaves me.
It was good to see JC use PMQ’s to question Cameron about this, although personally I don’t think he went far enough and should have found a way to turn this into a much more newsworthy exchange which it deserved to be.
The email I sent to my local Tory MP was more to the point. Feel free to copy and paste if you want to send it to your MP if they voted in support of this terrible attack on the sick and disabled.
Michelle,
It has been brought to my attention that you voted recently in support of reducing employment support allowance for sick and disabled people in your community and across this country by £30 per week.
No matter what anyone’s political views, I find this so disgusting it is almost beyond belief. This is a matter of pure cruelty to many of your constituents who are already having to deal with extremely difficult personal circumstances. It is not in my view a matter of parliamentary “financial privilege” that this should have been approved, it is a clear sign to me of an extreme anti-social form of politics emerging in your party that most decent people in this country thought had been eradicated long ago.
In my view you should be ashamed of your party for attacking the weakest and most vulnerable people in your community. I am willing to believe that this may not have been a decision taken easily by yourself, and one that perhaps in your heart you may have known to be wrong, inhumane and immoral.
But that is what we elect local representative politicians to do, make difficult decisions on behalf of ALL their constituents. If you have chosen to follow your party rather than your own personal beliefs then you should also be ashamed of yourself and will now have to accept that you will be tarred with the same brush as those who proposed such policies.
I have shared my views with all my friends and acquaintances and encouraged them to think very seriously about this issue and who they vote for in future. On this issue, I believe your party has stooped to a new low and cannot be forgiven.
Yours sincerely,
Keith Fletcher
Well said. I had thought “modern” economic theory very dubious but am a great admirer John Maynard Keynes and Ken Galbraith. This seems to me to be in that great tradition. We seem to have lost our way.
The quality of modern politicians seems to be very low. The current government are brazenly incompetent. My father would have used the phrase “invincibly ignorant” which sums them up very well.
One would think Labour should be able to score almost daily open goals against them but Jeremy Corbyn is far too nice and lets them get away with sprouting absolute garbage. We need someone with the terrier qualities of Margaret Hodge.
It is so easy to loose hope. Thank you again for your refreshing ideas and effort to put into lay man’s terms so to speak.
Thanks
All sounds good to me – apart from the bit about taxing the low paid to make them feel like they “count”. I would like to see Basic Citizens Income get a shout, and Land Value Tax to make the aristocracy feel more valued :-).
It looks a sound program, and what a breath of fresh air!
I hope you continue to have a constructive engagement with the Labour Party, and well done 🙂
Noted and thanks
Spot on! Your analysis is logical and perceptive. I think Labour is part way towards developing an alternative economic strategy that will stand up to intellectual scrutiny. The Labour Party now has sufficient economic advisors (official and unofficial). The next challenge will be to turn these economics ideas into a compelling vision that will appeal to virtually everybody (this would be a true reflection as only the very rich and tax avoiders would be hurt by such ideas) and a narrative (expressed in layman’s terms) that shows how Labour’s policies will lead us from Osborne’s neoliberal nightmare to the promised land. We need economically literate copywriters, story-tellers and poets!
So true in the last sentence
Interesting ideas. Do you not agree therefore that the rich are overly engaged in politics because of the amount of tax they pay?
No
I think they are comfortable with power
And have used wealth to cement that
Excellent article.
But why not nationalise rail, pharmaceuticals, banks and parts of IT/
Also when should we start getting worried/impatient that Labour hasn’t yet said all this clearly and simply?
A) I think only parts need nationalisation
B) Now
I would agree with most of this but it is very much focused on domestic macroeconomics. Other areas where we need to develop policy include:
1) International. We need policies on trade and international co-operation on everything from tax through regulation to environment and migration, at both a European and global level.
2) Regional/local. The discussion on policies such as an NIB is very much focused on the UK level but also needs to take account of devolved government and the role of local councils.
3) Microeconomics. There is more to this than just identifying which sectors should be public or private, including the role of regulation, intellectual property, rent-seeking behaviours, the scope for worker owner/management, cooperatives and non-profits, plus the impact of new technologies on working life.
4) Benefits/welfare. Most of the discussion around this is stuck in the 20th century but we need policies on what income support means in a much more fluid 21st century employment market.
As I’ve commented on earlier blogs, we need to go beyond talking about framing and messaging and get on with doing it.
I was given 40 minutes!
Point taken 🙂 I was thinking as much about the general character of current debates as about your contribution here.
OK