As I began writing, delegates from CLPs, socialist societies, affiliated Trade Unions and the Labour Party leadership were meeting at the Party’s National Policy Forum (NPF) to lay the foundations for Labour’s 2015 manifesto. Miliband’s speech to the Forum on Saturday morning contained several progressive measures – building 1 million houses over the next parliament, committing to repeal the health and social care bill and to implementing the living wage are all steps in the right direction. However, as Michael Meacher points out, Labour’s approach to the economy still has problems. The perspective repeated by the leadership (for example, Ed Miliband, here, Angela Eagle, the chair of the NPF, here, and Jon Cruddas, here) is that there is less money, so ‘higher spending is not the answer to the long-term economic crisis that we together have identified‘. At the close of the NPF, this has culminated in the line that Labour is in favour of ‘big reforms, not big spending‘.
But, as the Socialist Economic Bulletin (SEB) argues, the premise behind this position – that there is less money left – is untrue. The money does exist in the economy, except that it’s in private bank accounts, sitting idle.
The money does exist
As SEB has argued, after a period of sluggish growth, stagnating real wages, and an increase in private, household debts, culminating in the 2008 financial crisis, the rate of return on private investments – the capital invested in the economy by business – reached a tipping point. The return on investments fell to a level unnacceptable to the corporate sector. As a consequence, rather than reinvest them productively, a higher proportion of profits were either locked away in banks or distributed in dividends to shareholders. Today – after an investment strike lasting six years – big business sits on a cash mountain of hundreds of billions of pounds and shareholder payouts are at an all time high since the crisis began (see also here and here).
With the investment strike the economy slowed down. And when the economy slows down – when there’s less economic activity – businesses pay less tax, less people are in work and more people are on the dole. So, with the decline in investment, there’s an accompanying decline in tax receipts and an increase in welfare payments, which punches a hole in the public finances. All of a sudden there’s a surge in public debt.
But the ‘debt crisis’ is an illusion: this is a crisis of investment in which the impulse to make private profits contradicts the social need for economic growth. It’s not true that “there is no money left”. Money doesn’t disappear: it’s just languishing in the bank accounts of the big corporations, rather than being productively invested.
The Conservative Party has addressed the problem by trying to bribe companies into investing; by increasing what Marx called ‘the rate of exploitation’. This means making up for a decline in profitability by forcing down wages, and freezing pensions and increasing VAT to pay for corporation tax cuts and cash incentives to invest. It means serving up perfectly healthy – successful, even – public services to private interests so that they can make a profit out of them to the detriment of service provision.
It’s not working. The growth we’ve seen has been sluggish. Casualisation, pension freezes and downward pressures on wages have meant that even this anaemic growth is a recovery for the 1%, bought at the cost of the 99%. Even by the government’s own rationale, the austerity policy has failed. Public debt has gone up under the Tories. This is no surprise because the policy was never about ‘living within our means’, but all about restoring profits to capital at the expense of labour. That’s why the Tories want to make their cuts permanent. It’s about increasing the share of the economy that goes to profits and decreasing the share that goes to wages.
The Labour Party has a choice
Labour can repeat the right-wing framing of the austerity advocates; it can say that there’s no money left and that there’s nothing that can be done. This can be dressed up as a moderation of the Tory position – that the cuts are ‘too deep and too fast’ – but fundamentally it means accepting the basic logic of the argument. There’s no money so something has to give (welfare payments, public services, public sector pay etc).
This might placate the right-wing of the party, who argue that Labour must have a “responsible” economic plan (“responsible” only insofar as it doesn’t upset big business leaders, but profoundly irresponsible insofar as it will lead to crippling long-term stagnation). It certainly won’t placate the media who rightly see any “moderate” version of the austerity argument as contradictory. Most importantly, though, it will do very little for the millions of people adversely effected by the Tory drive to restore profits at the expense of everyone else.
Alternatively, Labour can propose a solution to the crisis that protects the living standards of the majority at the same time as it stands up to the corporate interests the Tories are protecting. If the private sector won’t invest the capital sitting idly in the banks, the next Labour government must make it.
Given that the money does exist in the British economy, SEB sets out a series of mechanisms which any radical reforming government could use to raise the cash required for productive investment without having to borrow. The measures set out aren’t exhaustive, but include using the banks that were nationalised in 2008 to direct credit to sections of the economy that are suffering from under-investment; nationalising companies so as to increase the resources available for productive investment; ending private sector subsidies; increasing corporation tax; promoting equality; raising living standards by implementing a living wage, which would reduce benefit payments; cutting Trident and other forms of “defence” spending; scrapping wasteful schemes like PFI; and transforming schemes like the nuclear power subsidy, applying it instead to publicly controlled sectors, such as renewable energies.
The cash raised from such measures could be used to invest in new green technology, higher education and research, new housing, and infrastructure such as high speed broadband, transport infrastructure and house insulation. Investment in these areas would stimulate growth and reduce unemployment (and in doing so, halt the forward march of casualisation and zero-hours contracts).
Alongside measures such as the implementation of a living wage, such a strategy of investment – not cuts – would defend the living standards of the majority of people whilst simultaneously addressing the fundamental driver of the crisis; the collapse in investment.
The Labour Party succeeds in the polls when it is bold
Of course, a policy platform such as the one sketched above would face resistance from big business and its allies in the media. But “Red Ed” and his so-called “union paymasters” are already coming under vociferous fire in the newspapers. “Cautious” triangulation is being painted as dithering and weakness. It won’t work as an economic strategy and it’s failing as a political and electoral strategy.
If polling tells us anything, it shows us that when Ed Miliband stands up to the corporate and media barons, he surges in the polls. When he accepts the framing of the right-wingers, he slumps. It’s not simply that protecting the interests of the 99% from the profit hungry 1% is morally the right thing to do, it’s the electorally savvy thing to do as well.
On this account, we have a lot to learn from the French Socialists. The French elected Hollande as the antidote to Sarkozy’s austerity, not because he would continue the race to the bottom of French living standards. He is now one of the most unpopular presidents in French history.
An accomodation with austerity is the road to political wilderness. Labour will probably win the 2015 election – I hope more than anything for a Labour victory – but if it does, it will be despite the genuflection to corporate power, not because of it. Indeed, as in France, if Labour’s economic policy continues to bend the knee to these interests, newly elected Labour MPs can expect to serve in an unpopular one term government.
Winning the argument against austerity
Resources such as the SEB are an invaluable source for the Left inside and outside the Labour Party. Often, the Left knows what policy it wants – to halt the privatisation of public services and to defend pay and conditions – but can be ill equipped to provide an answer to the arguments behind austerity; that “there is no money left”; that the economy is swimming in debt; that we need to be fiscally “responsible”.
This is a political debate we need to have within the labour movement, and it’s one the Left needs to win. If it doesn’t, it will consign the Labour Party to a political desert, the British economy to stagnation and decay, and the British people to low pay, poor working conditions and a lower standard of living.
The right policy is the one that does the opposite. It’s the popular policy; one that tackles the investment crisis and grows the economy; that boosts standards of living. This is about two economic visions; two visions of British society. Labour should ignore the mirages of those who seek only to restor profits to capital, and adopt a perspective that sees a fundamental alignment between the interests of ordinary people and the future of the British economy. If it doesn’t, it could face years in the wilderness.