Political reform is the acid test for Corbyn’s Labour

Jeremy_CorbynBritish politics has suffered a massive earthquake with the election of Jeremy Corbyn as Labour leader. There is a lot of dust; there will be aftershocks. But what can liberals say at this point?

Let us for now take this development at face value. There is an upsurge of public support for Mr Corbyn amongst people desperate an alternative narrative to “austerity”, and for a political party with real left-wing values. Let us say that the half a million or so people who took part in the party’s election process are not mainly London clictivists, but will join Labour’s campaigning by making phone calls, knocking on doors and donating money, from London to Leeds and from Bristol to Glasgow. Let us also say that Labour will not be riven my infighting but will mobilise behind a concerted attack on government policies.

If this happens there will be real momentum  behind Labour. It will take the wind from the sails of the Green Party; Tim Farron, the Liberal Democrats’ new leader will find it very difficult to attract people to his party through returning to left-wing campaigning. Many working class Ukip voters will consider returning to Labour, now that it has rejected the establishment consensus. Labour will start winning by elections against all comers.

All this would throw down the gauntlet to liberals who reject the government’s creed of economic liberalism. If it looks as if this reinvigorated Labour party might make headway against the Conservatives, do liberals support them in the hope that a transfer of power will be good for the country? Or do they think this new movement is fundamentally wrong, and has to be stopped at all costs? There seem to be three groups of issues that could decide this.

The first is Britain’s place in the wider world and defence. At this point it is very unclear what Labour’s new stance will be. Mr Corbyn himself has been associated with some very extreme views, such as that Britain should leave NATO. It’s pretty safe to say, though, that Labour’s policy line will be more moderate than this.  But surely it will oppose just about any foreign military intervention, and the the odds are it will come out against renewal of Britain’s Trident nuclear weapons systems. Not so long ago these views would have been considered so extreme that no respectable politician should entertain them. But now there is a good case to be made. There seems to be little point in such  heavy-duty and expensive nuclear armaments, which will be dependent on US support. There is a respectable case for more limited nuclear weapons, or even complete nuclear disarmament. Likewise foreign military intervention doesn’t seem to be making the world a safer place. They provide no answers to filling the political vacuums that are the real threat to stability. If Labour starts to support leftist regimes that do not support political pluralism, such as those in Cuba or Venezuela, then that will be another matter. But I don’t think Mr Corbyn will be able to take his party to those positions. So liberals may not be given enough reason here to oppose the movement.

The second groups of issues is economics. This is central to Labour’s new appeal, as cn be seen by Mr Corbyn’s appointment of left-winger John McDonnell to the role of Shadow Chancellor. It will define itself through a bitter a bitter opposition to “austerity”. It will oppose this they mean cutbacks to benefits or public services, or raising taxes on anybody but a rich elite. They are also opposed to any serious reform of public services, apart from moves to a model of state-owned command and control organisations, staffed by union members on permanent contracts. Two ideas are offered to make this economically viable. The first is a sort of semi-digested Keynesianism, which suggests that their policies will stimulate demand and so economic growth and, through this, extra tax revenues. The second is that there are vast amounts of extra tax available from taxing the rich more, clamping down on tax avoidance and evasion, and attacking “corporate welfare” – tax breaks and subsidies for businesses.

I have commented on these ideas before. For now all I need to say is that there are two paradoxes at the heart of this economic programme. The first is that, almost by definition, rowing back on austerity means a greater dependence on global financial markets to provide funding – printing money is not a long term strategy. And yet these markets are treated with contempt. The second paradox is that their policies depend on a healthy private sector economy to deliver economic growth and tax revenues, and yet they also want to make life more difficult for the private sector, and encourage businesses to take their investment elsewhere. No left wing government, from Francois Hollande’s Socialists in France to Alexis Tsipras’s Syriza in Greece, has found an answer to these paradoxes. The anti-austerity programmes of the former were sunk by the need to attract private sector investment, and the latter by the need to keep borrowing money from abroad without a clear prospectus for paying that money back.

But, if in the end governments will be forced to their senses by the dictates of markets, perhaps we can tolerate a little short-term economic chaos? We can, after all, be sympathetic with the idea of using the tax system to effect redistribution of wealth. That depends on the third group of issues: political reform.

The Conservatives now control the government because the current political system is weighted in their favour. Liberals favour a more pluralistic system, with greater checks and balances. To achieve this we need political reform in a number of areas. Will Mr Corbyn’s Labour Party support these, or simply offer vague platitudes like his predecessor, Tony Blair? That will be, or should be, the defining issue for liberals. What are these areas?

  1. The first is political finance and the reach of big money. The UK is not anything like as bad as the US – but that country points to the dangers. Laws start to be dictated by corporate vested interests – a particular problem in public services outsourcing, and intellectual property. Mr Corbyn’s Labour Party will surely be much more serious about this than its predecessors.
  2. Next is devolution. This means not just protecting the settlements in Scotland and Wales, but promoting further devolution to English regions and councils – including revenue raising powers, and the coordination of public services. There is reason to be suspicious of Labour intentions here – though since Labour also control England’s major cities, there might be some constructive tension. I have not forgiven Andy Burnham’s scepticism of the devolution of health services to greater Manchester.
  3. Then there is the House of Lords. Will Labour support complete abolition, or replacement by an upper chamber with real powers? Personally I think a new upper chamber should be part of a new constitutional settlement for the UK, taking it to a more federal structure. But a proportionally elected revising chamber would be acceptable. Which brings us to:
  4. Electoral reform. This really is the only way of promoting political pluralism in the long run. We need a system based on some form of proportionality, such as the Single Transferable Vote (used in Northern Ireland, and indeed the Irish Republic) or the Alternative Member system (used for the Scottish and Welsh Parliaments and the London Assembly). We have to be careful here; there is real public scepticism about this. And moving to PR at national elections is a big step. But a firm commitment to PR for local elections is an essential accompaniment to serious progress on devolution.

Will Labour deliver on these? I would be most surprised if we get anything more than a few warm but vague words. For the hard left consolidating political power is the whole point and purpose of politics, and they want to monopolise it. They don’t accept pluralism except as a way of identifying enemies. The can’t accept that empowering the people can mean anything other than conferring the mandate of heaven to their own political elite. There are pluralists in Labour, but on political matters the Blairites and the hard left are remarkably close together. If Jeremy Corbyn strikes out on a different line, then the movement he has started may yet be a worthy revolution.



4 thoughts on “Political reform is the acid test for Corbyn’s Labour”

  1. Your two paradoxes:
    “The first is that, almost by definition, rowing back on austerity means a greater dependence on global financial markets to provide funding – printing money is not a long term strategy.”
    a. Why does this mean a greater dependence on global financial markets? It is intended to be a short term strategy anyway (Krugman)as the multiplier effect kicks in – as it always does with strategic infrastructure development – and, as Marshall said: (wealth is created by) the increased velocity if circulation of money. So, why borrow from the international markets?
    b. Printing money is better than the banks creating their own.

    “The second paradox is that their policies depend on a healthy private sector economy to deliver economic growth and tax revenues, and yet they also want to make life more difficult for the private sector, and encourage businesses to take their investment elsewhere.”
    Why is this seen as making it more difficult? At the moment the extent of the diversion of profits into shareholders pockets is unhealthy. In 2010, the top four oil companies spent 60 percent of their profits on dividends and stock repurchases, and just 18 percent on exploration. In other words, the companies spent 3.3 times as much on dividends and stock buybacks as they did on exploration in 2010. That amounts to $18.5 billion. Why? Imagine if just half of that went in higher prices to their suppliers, i.e. $9 billion. What a multiplier effect!

    So what Corbyn suggests would actually be good for the business per se, although it may drive some of our despicably greedy executives away. This would not be a loss to the private sector.

    Finally, in your last blog (Hidalgo) you wrote in response to my raising the John Seddon work: “Control by workers can have adverse consequences if they have no stake in the outcomes. ” Where on earth did that come from? Did you see subsidiarity as giving control? What part of your mental model of organisational life did that emerge from?

    1. I’ve been agreeing with you a bit too much recently John. To make up for that I profoundly disagree with you today.
      Point 1. A reversal of austerity means expansion of the public deficit and, by extension (Paul Krugman would accept this) the current account deficit. That requires more overseas finance. If that is tied to investment projects that will deliver a return to those overseas financiers, well and good – but you still need to treat them with a little respect. There are many good reasons to think that simple Keynesian stimulus won’t deliver sustainable growth at this point in the economic cycle. The Marshall Plan was delivered in a totally different economic context. Even Mr Krugman might be forced to admit that – he’d rather change the subject and talk about investment I suspect. The multiplier effect only works if there is spare capacity. Also I’m sure Krugman would agree with me about printing money. A central bank’s creation of money is a wholly different affair from that created by a regulated private bank, which must match its assets and liabilities.
      Point 2. The failure by private businesses to invest profits is a problem. But threatening to tax them more is not a viable solution. The economy is a complex ecosystem that does not respond well to direction from on high. We might want to pick on the “predators” and encourage the “producers”, but it is very hard to produce policies that successfully distinguish between the two. Besides some apparently predatory companies play an important part in the ecosystem, and disrupting them is likely to produce unintended consequences. Incidentally, dividends and stock buy-backs are better than just letting the money rot in bank accounts, at least it holds the possibility of the money being invested constructively.I think we need to encourage smaller businesses, especially those based away from the main economic hotspots – but doing so will require more sensitive policies, and surely more “corporate welfare” rather than less. My fear is that a Corbyn-led state will be so hungry for taxes that it be unable to resist the opportunity to milk all businesses and drive away any investment that is not taxpayer funded. And add to that that many companies (think of your top oil companies) are globally mobile and can simply take their investments somewhere else.
      Finally. my note of caution about employee control. I’m thinking of schools and hospitals controlled by employees without being accountable for their outcomes – these almost universally lead to job protection rackets and poor standards. On the other hand, if they are truly accountable for their results (how?), and therefore able to ask themselves challenging questions and take hard decisions, then that is another matter.

  2. Matthew
    First the Marshall I was referring to was not the US general, but Alfred Marshall of the Cambridge equation fame who famously said: “. . a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics: and I went more and more on the rules – (1) Use mathematics as a shorthand language, rather than as an engine of inquiry. (2) Keep them till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life. (5) Burn the mathematics. (6) If you can’t succeed in 4, burn 3.”

    But, to the point. There is plenty of corporate cash doing nothing (in the USA it calculated to be between 1 and 2 trillion). Richard Murphy’s Peoples QE will let the central bank assume the debt and the spending will stimulate the demand and the release of the corporate hoarding as confidence and optimism grow .
    Corporate tax is 34% in India, 37% in Japan and 39% in the USA. Their firms are not fleeing the countries. So there is real room for manoeuvre.
    Worker control: for worker involvement you read “control”. Wh? Hence my question about your paradigm. Why make the unjustified leap? Who knows better how the hospital system works than the nurses? Who knows better how the schools work than the teachers? Pure logic would dictate that they should therefore be the ones who can improve the system, not the CEO or the minister. All Seddon is saying is let the managers study the system with the help of the workers and soon very productive improvements will happen – without financial incentives.
    And, by the way, I am not against worker control, e.g. co-ops and employee-ownership. After all the most resilient Spanish company is Mondragon and the most successful UK paper mill is Tullis Russell, worker owned.

    1. Apologies for misunderstanding you. I think monetary thinking has advanced since Alfred Marshall’s day though, not without going up quite a few blind alleys. It seems nearly impossible to distinguish cause an effect. But I understand what you are trying to say now, I think. Unspent money is acting as a drain on the system – I think there is some good evidence for that. So it can be (and should be) counterbalanced by government led investment (whether or not through QE is a matter of tactics rather than strategy in my view). Such a corporate surplus makes a government deficit sustainable – that’s a point that Martin Wolf makes tirelessly. That’s a serious point which I’m not going to do justice to here. I will have to do a proper blog post on it!
      Incidentally, the US tax rate is considered to be a big problem there – and companies are fleeing. They are stashing money abroad and through nefarious methods getting foreign tax status – this is certainly reducing investment levels in the US. It remains so high because of political gridlock. And I think the 39% rate is a composite of federal and state taxes, with some states (Texas comes to mind) prospering by offering lower rates. What we can learn from the US though is their way of splitting corporate profits between the states – none of this intellectual property malarkey there. And I don’t think that current levels of corporate investment in India and Japan are anything to shout about either. Having said which, I am uncomfortable with the idea of cutting corporate tax rates – though we should note that one of the big drivers has been the SNP! It may be better to have higher rates but more generous investment and R+D allowances – though the Guardian would call this “corporate welfare”.
      Thanks for the clarification on Seddon – if that is what he is saying it is complete common sense, and scandalous that more public institutions aren’t doing it!

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