Perhaps the most depressing aspect of the Labour leadership contest is hearing the candidates acquiescing in the myth that Labour in office overspent – and, by implication, accepting the Tory framing that Labour crashed the economy. Of course it is more nuanced than that, but the outcome of the recent election shows that this is not a debate in which nuance plays much part.
The simple fact is that Labour did not overspend. In fact, as a percentage of GDP, New Labour spent less than Margaret Thatcher – an average of 41.5% of GDP against 44.2%. And in fact that figure hides the fact that after the 2007/8 crash, with the economy contracting viciously and rapidly, public spending as a proportion of GDP inevitably rose.
Moreover, spending is only one aspect of a deficit – you also need to consider taxation. And, again, Labour taxed less than Thatcher as a proportion of GDP – an average of 37.5% of GDP as against 42% under Thatcher. And, by 2007, public debt as a percentage of GDP was falling.
There’s an obvious point to be made here – the economy was growing throughout the Blair/Brown years up until 2007/8, so you would expect the proportion of GDP to be accounted for by taxation or spending to be smaller. Although Labour ran a surplus for more years than Thatcher or Major (and certainly Osborne) ever managed, Labour did run a small deficit for some of its period of office – in defiance, some would argue, of Keynes’ argument that you should run a surplus in the good times. But this was largely due to investment spending. The UK has persistently had one of the lowest rates of capital investment in the developed world. The financialisation of our economy has meant that quick-buck speculation in financial markets has long been more attractive. And since 2010 capital investment has fallen faster in the UK than anywhere else in the developed world, adding to our economic woes – especially the productivity crisis, in which low investment and casualisation of labour combine to continue the slow bleeding of Britain’s economic potential. During the Labour years, Government moved in to fill the gap left by the private sector’s investment strike: money spent on schools, hospitals to improve our national infrastructure.
There were mistakes of course. Labour in office was too willing to accept the assumptions of the financial sector, and did not spot the perils inherent in a boom founded on rising property prices and private credit. It was private, not public, indebtedness around the world that drove the dynamics of the 2007 crash, and that exacerbated its impact here in the UK.
So why are Labour’s leadership candidates apparently falling over themselves to trash the last Labour government’s economic record?
It’s difficult to see anything other than a failure of nerve – a complete reluctance to take on the Tories and to challenge their economic rationale. It’s almost as if they have given up, and simply decided that framing an alternative economic narrative is too difficult. But in doing that you are allowing the Tories to frame and dictate the debate, and you are further compounding the alienation from the political process of those for whom the economy just isn’t working – the people who deserted Labour in 2010 and 2015. You are allowing conservative populists – whether in the guise of UKIP or the more nuanced economic defeatists of Blue Labour – to push economics out of the debate, and to frame economic failure in cultural terms. And history shows us that’s an incredibly dangerous game to play.
Only weeks after a brutal election result, Labour is exhausted and traumatised. But unless we are going to sink into a long-term decline, with endless re-runs of May 8 2015 as signposts on the road to political oblivion, we have to get a grip on the economic debate. We have to show that we have a credible alternative. And the irony is that so much of it was in place in the election manifesto on which we were just defeated: significant increases in the minimum wage, apprenticeships to create better skills, and so on. But we also have to understand – as Blair and Brown did and the current leadership candidates, for all the mutterings about Blairism, apparently do not – that serious investment is needed, and where the private sector is unwilling or unable to provide it, the state has to step in. And that means using our ability as a state with a sovereign currency to use public expenditure and public borrowing to kick-start our way out of our current economic decline.
And it’s a political as well as an economic imperative. It’s not just that this is the only way in which we can move towards our aims as a party of securing a more just and equal society; something that is made immeasurably more difficult in by the zero-sum of redistribition at a time of economic decline. As Keynes realised, it’s about politics too – about creating a more stable and functioning democracy in which people feel included in the process.
And from Labour’s potential leaders, we need a bold, inclusive and optimistic narrative. Britain’s economy is broken: we can fix it and make it work, and make it work better for the majority. Keeping hold of nurse is not an election-winning strategy for a non-conservative party.