LABOUR'S GREAT TEST
BY BENJAMIN MERCER
It happens occasionally in the history of democratic nations that a vote or election will take place which, because of its place in time, will say more about a nation's peoples, and the powers which govern them, than is normal.
The New Labour victory in '97 was one such moment, as was Thatcher’s victory in ’79.
In the latter case, the Thatcherite revolution dispensed as much with Tory orthodoxy as with Labour. It was the introduction, into the 'political mainstream', of the free-marketism espoused earlier in political arena by Enoch Powell, and in academic economics by the likes of Hayek. It marked a paradigm shift away from the form of Keynesianism - however debased - that had set the terms in preceding decades.
Blair did not dispense with the new neoliberal orthodoxy, but his Americanised aesthetic and adoption of the Third Way, with all the triangulation that entails, redefined political presentation. It enabled a landslide, and unmatched success for a Labour government, and allowed the Blairite movement to take Thatcherism to radical extremes whilst appearing, nominally, as a party of the Labour tradition.
If momentum is any guide, our next election will be another such moment. It will be a Labour government which provides us with the next transformative episode.
The Labour Party's programme marks a wholesale shift away from the prevailing economic orthodoxy. It harks back to a Keynesian tradition, with its enormous borrow-to-spend approach recalling the strategy deployed against the depressions of previous eras. It is the view that, rather than cutting or 'strategic' inaction, the best way to escape recession is to inject vast new capital into public works.
There is little doubt in my mind about the merits of this approach. It is often claimed, of Labour or leftist governments which adopt such approaches, that they leave the country bankrupt. But this claim is specious. It is just as true to say that the Keynesian approach is responsible for ending every great depression.
One can go as far back as ancient Athens and find examples of this. The great slump of public confidence and public coffers after the gruelling Athenian-led war against Persia was countered by Perocles, who commissioned the building of the Parthenon - in every sense a monumental task - in part to provide what we would call a stimulus.
Of this venture, Plutarch wrote that 'the house and home contingent, no whit less than the sailors, sentinels and soldiers, might have a pretext for getting a beneficial share of the public wealth. The materials to be used were stone, bronze, ivory, gold, ebony and cypresswood; the arts which should elaborate and work up these materials were those of carpenter, molder, bronze-smith, stone-cutter, dyer, veneerer in gold and ivory, painter, embroiderer, embosser, to say nothing of the forwarders and furnishers of the material’. It came to pass that for every age almost, and every capacity, the city's great abundance was distributed and shared by such demands.
Warfare invariably necessitates what we would now call Keynesian economic principles, whether that be in Alexandrian Macedonia where vast armies required vast wages, war machinery vast expertise, the building or rebuilding of cities vast and skilled labour; or the Cold War military Keynesianism of Reagan, where the US economy was made to boom at least in part by the constant infusion of money into the war economy; or the post-war reconstruction of Germany, which was comprised of enormous public works projects financed by new capital given or loaned by the United States; or the US under Roosevelt's New Deal, which saw massive public spending both on public infrastructure and welfare programmes, as well as re-armament in advance of WWII. One might add Britain's own post-war recovery under the Attlee government.
(Swords into ploughshares is a noble ideal, but ploughshares into swords is an economic boon.
See Germany's post-Weimar recovery brought about by the NSDAP's military spending.)
Away from war and on to more general matters of crisis: Both Clinton and Blair recovered from the bust years under Bush and Major by innovative ways of increasing capital flow (e.g. PFI) whilst pretending at what the new economics considered 'safe', 'sensible', 'prudent'. And the ECB, attempting to steer a continent through one of the most protracted economic crises of recent decades, has had a near constant quantitative easing programme in effect to counter the constitutionally enshrined austerity of the European Union it's wedded to. QE is a hangover from Keynesian economics, made necessary by public policy commitments to austerity.
So much for the history. Now to the future, and the great test which will face any government committed, as the Labour Party seems to be, to a formal return to Keynesianism.
The great achievement of the current model has been to remove vast amounts of wealth from the public. Whilst Roosevelt could spend money on public works, the current system has given economic power to those who work the public.
It has created huge oligarchical corporate and supranational entities, from banks that are too-big-to-fail to politically active hedge funds to 'independent' central banks which are no such thing, wedded as they are to the interests of those who loan them money and buy their debts, who are often the same banks and hedge funds and corporate entities listed above.
Borrowing rates, upon which central banks and governments rely to finance extra public expenditure, and much existing public expenditure besides, are influenced inordinately by ratings agencies, like Standard & Poor’s, which are not public bodies, are not accountable to the public, and which make their judgements by a series of tests designed to get the most out of the status quo.
Any government committed to borrowing more because the rates are currently low has no control over what those rates are and little power to influence what those rates might be in future. The act of borrowing vast sums of money may itself change those rates, especially if the impression is given or assumption made that said government is borrowing without thought of repayment.
This impression has already been given to, or the assumption has already been made by, those who presently hold the ‘levers’ of economic power. The boss of J.P. Morgan has described Labour’s policies as a ‘threat’, and Labour leader Jeremy Corbyn has embraced that label, for the reason – ostensibly sensible – that J.P. Morgan helped cause the economic crash that did so much to ruin the lives of ordinary people, and which has earned much popular animosity because the people had to bail out those who so harmed them. There are few votes to be won by taking the side of bankers.
But this attitude is precisely the reason the shadow Treasury team has had to ‘war game’ such scenarios as a run on the pound and capital flight. This has less to do with policy than the impression of policy: Labour’s proposed rise in corporation tax, for instance, and taxes on the wealthy, are by no measure extreme. But combined with such policies as renationalisation, and certain statements put forth by the Labour leadership -- for example the suggestion, following the Grenfell fire, that empty properties could or should be requisitioned by the state -- which suggest that Labour’s leaders aren’t particularly concerned by contractual obligations or even property rights, and they foster the image of a (potential) government more trouble than it’s worth.
This is the great success of contemporary economics: it reinforces itself, giving the holders of capital enormous power over national governments. Public spending must be signed off by private interests, with money available to government given not by popular will, not by the granting of taxes by the populace, not by those whose demands tend toward the view that public wealth should be spent on public goods, but on the whims of capital giants whom government must appease by preserving or even improving the conditions for said capital giants.
As I say, from time to time a vote comes about which tells us much about the state of the nation. The EU referendum was one such vote: it revealed that 48% of the voting populace hold no great love for democracy. (Either they didn’t realise the extent of EU opposition to democracy, in which case they didn’t care enough to find out, or they knew full well and still didn’t care.)
But that fact, however alarming it might be, would seem tame next to the engineered failure of a Labour government. Should it come to power on a manifesto similar to that presented at the last election, elected by the people of this country, but be brought down by capital flight and rate rises and other such deliberate tricks of the finance elite, it will reveal just how little of our democracy still exists, and how much lingers only in myth.