Rejecting death by 1000 cuts and proposing alternatives
With the crisis persisting and the election drawing nearer Labour faces its most serious challenge in recent years. The questions are simple: how to engage the Coalition on the economy? What can it offer the electorate? Should it challenge the established consensus on the crisis and reject austerity?
Understanding the crisis is crucial to answering these questions. This is not a crisis of debt, but of growth. Accordingly, austerity is not a remedy, but threatens to condemn the patient to death by 1000 cuts. It is therefore imperative that Labour finds the courage of its (tacitly) Keynesian convictions to shatter the pathological consensus on economic policy in Britain.
This might be seen to expect too much, but there is already some clear blue water between the Coalition and the opposition on economic policy – and the channel is widening. The economic policy battleground has increasingly pitted the ‘Labour’s deficit’ discourse of the Coalition again the ‘Tories’ cuts’ discourse of the opposition in apportioning responsibility for the crisis.
These competing accounts rest on different, even antithetical, assumptions about the crisis.
Teasing out the differences reveals that the stakes of inter-party competition have grown significantly in the years since the election and in ways that now make it possible for Labour to break decisively with the established consensus on the crisis.
Labour certainly seems to understand the crisis differently to the Conservatives. That may not be terribly surprising economically, but politically it is extremely important, as a closer look at Labour’s alternative understanding of the crisis reveals. There are at least three implicit premises to Labour’s ‘Tories’ cuts’ discourse: (i) that cuts of this speed and severity are a political choice, rather than an economic imperative; (ii) that things would be different were Labour exercising that political choice; and (iii) that drastic cuts are not only unnecessary but also damaging. A final, and more narrowly political, premise is that the deficit-reduction agenda is a foil for a Tory (rather than Coalition) ideological offensive on the public sector (something hinted at, too, in the IMF’s recent tacit critique of the Coalition).
Presently, however, it is the third of these premises – that deficit reduction on this scale is itself economically damaging ‑ that is by far the most important. Yet there remains ambiguity about this in Labour’s discourse, not least because the party remains ostensibly committed to a comparable timeframe for deficit and debt reduction to that of the Coalition.
At other times it has been possible to detect in Labour’s thinking more of a Keynesian influence – with deficit reduction being seen less as the primary goal of policy and more as a by-product of policies to nurture growth. Only time will tell if this crystallises into a more obviously Keynesian crisis discourse; but there is potential for this, especially once the effects of public spending cuts start to hit home.
Were it to do so, we would have two very different understandings of the crisis with very different implications for policy and very different expectations of the consequences of the Coalition cuts. If the crisis is seen as a crisis of growth (of which debt is merely a symptom) rather than a crisis of public debt per se, then the dangers of deficit reduction as a putative solution become very obvious. This might lead to very different expectations going forward.
Indeed, the more Keynesian ‘crisis of growth’ theory and the more orthodox ‘crisis of public debt’ theory generate wildly divergent expectations about future levels of growth. Had the Labour opposition the courage of its recently rediscovered Keynesian convictions it might even challenge the Coalition to a public contest over economic predictions. If austerity continued to suppress growth after such a contest, then it would be far easier to discredit both the policy and the economic theory on which it was predicated.
Moreover, what would make such a battle of expectations even more difficult for the government is the systematic bias in its growth projections. As Alan Budd conceded before leaving the Office for Budget Responsibility, its own growth projections have consistently erred on the side of optimism – fearing that too much realism might spook the markets. A public contest over economic expectations might lead to a greater dose of economic realism – and would be a contest Labour is unlikely to lose.
This begins to look like something of an alternative economic strategy for Labour. But, as a strategy, it lacks one key thing: a new growth model to replace the one that is broken. Here lies the problem. Although both of the principal parties acknowledge the need for an alternative growth model, neither appears to have a clear sense of what one might look like.
It is certainly tempting to suggest that what Britain needs is a heavy dose of Keynesianism – or at least a government with the courage of Keynesian convictions. Such an administration might highlight the folly of swingeing public-sector spending cuts in the absence of a clearly articulated growth strategy. It might then set out a growth strategy, linking deficit reduction explicitly to the levels of growth achieved. But this in itself is not sufficient. Absent an alternative growth model, it still falls far short of the minimum requirements of an alternative strategy.
Yet, even here, there are certain grounds for optimism. It is not too difficult to imagine what an alternative growth strategy for Britain might look like ‑ with, for instance, the channelling of credit out of the housing market and into what are identified as strategically significant (and export-oriented) sectors of the economy, as I have recently argued in my SPERI Paper.
But there has been as of yet virtually no public discussion of the options available. Also, whilst the growth dividends from such a strategy might be considerable, they are unlikely to come on stream in the short term. Genuine comparative advantages are not easily or rapidly acquired, especially in a world economy only slowly recovering from recession. Indeed, if Labour is to play its economic policy cards differently and challenge the Coalition head-on, then it has to be realistic about the potential growth dividend. It has to manage and, arguably, even to suppress expectations.
That may not sound very tempting. But the alternative is to remain complicit in the slow death by a 1000 cuts that is Britain’s current fate. That is surely politically intolerable. If so, then now is the time for Labour to start to play its economic policy hand rather differently.