speri.comment: the political economy blog

The politics of reforming capitalism in Britain: Part I

The Labour approach being shaped by Corbyn and McDonnell has yet to find a politics that will work and will not do so if it comes to be seen as fundamentally anti-capitalist

Professor Tony Payne, Professorial Fellow, SPERI

Tony PayneWith Jeremy Corbyn emphatically re-elected to the leadership of the Labour Party and Theresa May basking still in the glow of her sudden elevation to Downing Street, it’s time to talk again about the politics of reforming capitalism in Britain. This politics is actually rather more complicated than might appear to be the case.

Reforming capitalism is of course conventionally seen as a left project in politics. The right generally does not have the same need to talk about capitalism: it prefers on the whole just to get on with doing it.  But, at this present, rather strange, juncture in British history – not yet post-Brexit, but embarked now on an uncertain debate about what Brexit will come to mean – it is important to recall that, like the left, the right in British politics also has views, and divergent views at that, about how British capitalism needs to be reformed over the next decade.

This post will be the first of two posts that will examine this issue, addressing in turn Labour on the left and the Conservatives on the right.

Labour’s attempt to shape the discussion of political economy in Britain after 2015 has been a curiously stuttering affair. Corbyn himself had never previously shown much interest in political economy, preferring to focus on defence and foreign policy issues.  But McDonnell, his shadow Chancellor, close friend and ally, is different: he had always been engaged with economic questions and had been an articulate and radical critic of the austerity policies of the Cameron/Osborne years and Labour’s excessive acquiescence in that ongoing neoliberal agenda.  As such, the Corbyn/McDonnell Labour Party immediately espoused an anti-austerity position and declared that it would devise an ‘alternative economic strategy’, using that phrase knowingly to echo its intellectual debt to the policies espoused by Tony Benn in the 1980s.

There followed early, interesting talk of embracing ‘people’s quantitative easing’ and of building a new investment-driven model of economic growth. McDonnell also astutely set up a formal Economic Advisory Council (EAC) and persuaded several eminent  heterodox economists (including global figures like Thomas Piketty and Joe Stiglitz but also other very able people based in Britain) to serve on it.  This act alone seemed to express Labour’s desire to position itself at the head of a serious body of critical intellectual opinion and build up policies from that base.  It was a good idea that would probably never have occurred to Ed Balls, McDonnell’s predecessor, who is likely to have thought that he had learned all the economics he needed to know as a young man at Harvard working with Larry Summers and then of course at the Treasury itself alongside Gordon Brown.

But, given this promising start, the disappointing reality is that, a year later, no coherent alternative growth model has been set out by Labour. Corbyn and McDonnell clearly see it differently, frequently proclaiming in interviews during the recent conference that Labour was united in its economic strategy and had set out already a real alternative to that of the government.  Last month both made lengthy speeches setting out their views on the economy, Corbyn to Bloomberg and McDonnell to the party conference itself. The trouble is that a hard read of these texts does not reveal much more than the easy citation of slogans and certain supposedly indicative phrases.  Labour will spend £500 billion in public investment; attack tax evasion; develop an industrial strategy; create an entrepreneurial state (as proposed by Mariana Mazzucato); improve access to broadband; change how the economy is owned and managed; write a living wage into law; and so on and so forth.

I want to be careful not to be unreasonably critical here. Politicians necessarily speak in clipped ways designed to signal their stance on issues, rather than setting out fully articulated positions that satisfy academic scrutiny.  One could say that there is nothing wrong with much of the Corbyn/McDonnell mantra; that British capitalism needs all of those things doing; and that, in any case, it’s still early days, with an election not due until 2020.  Give them a break!  Maybe more can be added in and, above all, a clearer sense established of where growth will come from and what sort of growth it will or should be (thinking green or greener here).

However, McDonnell’s EAC no longer seems to exist, falling apart after the EU referendum. Piketty quit first, followed by David Blanchflower, the former member of the Bank of England (BoE) Monetary Policy Committee.  Other members issued a statement saying that they felt meetings should be suspended for the time being, although adding that they would be honoured to advise Labour again in the future, if asked and when the current conflict was resolved. It looks to me, in other words, as if the initial attempt by Corbyn and McDonnell to seek to speak for a broad body of left opinion interested in governing the economy better has failed or been deliberately abandoned and that a far-left strategy of turning Labour into a social movement espousing ‘twenty-first century socialism’ is now being pursued in its place.

If so, this is a key shift. The reform of British capitalism will not be achieved just by proclaiming the benefits to potential beneficiaries.  It involves reforming the British state, which means that key actors in the Treasury, the BoE and other bodies have to be taken along with the project.  It involves changing the way British businesses and banks work, which again means taking these powerful, potential opponents along with the reform agenda, at least as far as is possible.  In short, it means developing a politics that not only draws applause at party conferences (easy) and secures enough votes to win an election (much harder), but also allows reform actually to be achieved in government by building a national consensus around a new model of capitalism (very, very hard indeed).  It is a tough ask, for sure, but this is the agenda against which the Corbyn/Mc Donnell Labour Party has to be judged.  Nothing else is good enough, given the failings of the existing British growth model.

At this point, think back for a moment – not actually that far in time, although it seems further – to Ed Miliband’s failed attempt to position Labour behind a ‘responsible’, rather than a ‘predatory’, capitalism. The point is that Miliband’s analysis of the problems of the British economy, although partial, was absolutely right – and yet, as he himself has admitted, he failed to find a politics by which to win office and embark upon the implementation of this programme.

The whole of the Labour left should think why that was so. In a pertinent analysis Miliband’s close adviser, Lord Stewart Wood, has argued that ‘our mistake on responsible capitalism was paradoxically both a credibility deficit and a radicalism deficit’. He went on:

Our response looked limited and tinkering, nowhere near the scale needed to turn the supertanker of the UK economy around. I also think our body language wasn’t right.  My sense is that voters were not persuaded that our strong criticism of the way markets in Britain were working was coming from people who actually wanted the market economy to do well.  We came across as having the outrage of sceptics of capitalism, not the concern to sort things out of critical friends of capitalism.

It is a telling observation that ought to be digested by everyone interested in reforming capitalism, but especially by Corbyn and McDonnell. Can you persuade ordinary voters, let alone business leaders, bankers and Treasury officials, that you are seeking to reform capitalism if you present yourselves as its longstanding enemies?

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Categories: SPERI Comment | Tags: , , , , , | 2 comments

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Comments (2)

  1. Great article.

    There have been so many missed opportunities in the last year that it feels like a wasted 12 months. One failures is to develop an economic narrative around the Northern Powerhouse, something that is crying out to be done. There is a real oportunity to explore the role of Regional Banks and how they could help with investment and lending for the big infrastructure projects in the north that Osborne talked so much about. This would be an oportunity to relook at reforming the Treasury without frightening the horses to much – and from there developing new economic models around the circular economy that people could understand. A few of us have started to do some thinking on this but that’s as far as it’s got!

    The article touches on he fact that the big beasts have left the Corbyn tent. This maybe temporary but it’s very insightful to read Richard Murphy on all this and why he left. The frustrating thing is that Richard, like Blanchflower, had both the narrative and the policy detail. We are all quite literally much poorer for them not being part of the Corbyn/McDonnell thinking on the economy.

    Looking forward to Part 2.

  2. labour aren’t going to win the next election. the right wing alliance with the Tories in the indyref has destroyed labour in Scotland. the boundary commission will finish the job off.

    however, labour, as the voice of the radical left, has been and continues to be be influential. you can tell exactly how influential by the amount of hatred directed at Corbyn and the fact that May is pretending to (and perhaps will) steal labour’s clothes.

    labour as a party of protest in opposition seems way better than having labour in power with the likes of Rachael Reeves crushing the unemployed. especially if labour in opposition can induce so much funk in the Tories that they decide to stop the DWP hassling the terminally ill.

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