Yesterday in London, the Labour Party held its State of the Economy conference, in which more than 700 Labour members came together for debate on the Party’s economic policy for the next election and beyond.
It’s remarkable that this event should have happened at all. Economic policy has long been untouchable, forged by the professional party leaderships and machines without democratic involvement. One of the most remarkable – and potentially important – achievements of the Corbyn leadership has been to blow this consensus open. In the part year John McDonnell has formed his economic advisory committee, comprising some of the world’s leading economists, and has organised a tour of meetings throughout England at which these experts have led debates among Party members, as part of a process of developing a new approach to economic policy to replace the one that failed in the 2015 election. No previous party leadership has had the courage to open up economic debate in this way; it’s a huge step forward.
It’s a huge task – everybody knows that Labour’s inability to articulate a coherent economic vision was a central cause of the 2015 defeat – and the mood of the conference was appropriately serious.
John McDonnell’s opening address set the tone; Labour’s task was nothing less than the transformation of capitalism; the next Labour government would be more radical than Attlee’s (and that’s not hyperbole; the Attlee government was operating against the background of Bretton Woods and an understanding of the need for international financial regulation that it is hard to detect among political and financial elites today). The economic consensus had failed and we had to take the message out that we just couldn’t keep doing things the same way.
He was followed by Ha-Joon Chang, arguing powerfully in a keynote speech that the genius of the economic right had been to present the financial crisis of 2007-8 as a fiscal crisis of overspending. He reminded us that Britain’s economic peformance since that crisis had been significantly worse than that of Japan during what were described as its “two lost decades”. He went on to argue passionately for the need to invest in manufacturing, pointing to the record balance-of-payments deficit, the deficit that almost nobody was discussing; we needed to invest in manufacturing and growth in services would follow. And he indicated that all of this needed underpinning by a generous welfare state, to support people through the inevitable structural dislocations of a dynamic economy; security was the necessary condition of an innovative economy.
And it was investment that dominated the day – the need to stimulate sustainable growth. There was disagreement on whether manufacturing was the way forward; at a workshop session on fiscal and monetary policy, Jonathan Portes of NIESR asked how many people in the audience worked in manufacturing, and almost nobody did. And that seemed to me to illustrate one of the issues for economic policy-making; this was a London, middle-class, educated audience, and had Portes asked the same question in the North of England or South Wales, the answer might have been very different. In the same session, and in answer to the same issue, Michael Burke of Socialist Economic Bulletin made the point that investment in manufacturing produced very high-value, skilled jobs; but this in itself raised the question of what happened to the less-skilled, for whom wages have fallen fastest and insecurity is worst.
And Burke went on elegantly to destroy one of the less credible aspects of Corbynite policy: there was no case – none whatsoever – for so-called People’s Quantitative Easing when Government could borrow at near-zero cost and investment would produce such high returns. The only role for QE was in the context of a liquidity crisis, and this echoed comments in Ha-Joon Chang’s presentation about the difference between investment and printing money. The case for borrowing to fund investment must be at the heart of Labour policy, and represents a clear break with the consensus around short-term deficit reduction.
Similar themes emerged in the afternoon panel discussion – a couple of jibes from the platform about New Labour were really the only occasion on which one had any sense that there were divisions within the party. Paul Mason said that central bankers were looking at new ways of stimulating an economy that remained stagnant after years of creating liquidity through QE, and suggested writing off student loans (an idea that would largely benefit the middle-classes) but redeemed himself by saying that Labour had to promote private sector growth in small and medium enterprises as a priority. Len McCluskey said that in a situation where there was a massive investment shortage, huge unemployment and a skills shortage, a five-year old could join the dots to find a better way.
But, as it happened, that comment touched on the elephant that had been sitting in the corner of the hall all day. How do we join those dots? How do we articulate our narrative?
It had been a day of ideas, of optimism, of serious debate about how to create a fairer, more equal, more sustainable and crucially more efficient economy. But the question remained of how we take these arguments out to a sceptical public, especially in those areas that had been left behind by the metropolitan economic debate and where people were turning to UKIP; where the politics of national identity was crowding out a debate about economics and living standards, and where a simplistic debate was taking hold. Yes, the new economics is different, because it wholly rejects the assumptions and narratives of the austerians. But how do we get that across? It was a thought that went through my mind listenting to the rather disappointing speech from Jeremy Corbyn that closed the day; it was a shopping-list of things that a Labour Government would do, and it was difficult to object to any of them. But we seemed locked in the old, pre-2015 narrative – where was the faith and optimism about a new narrative? The fact is that, as a party and a movement, we are still working towards it. This conference was a huge step forward, and it’s good to know that there will be further conferences in future, but there remains an enormous amount of work to be done.
Before 1997, Labour was able to take control of the economic narrative for two reasons. First, the Tory Party was hopelessly split over Europe. Second, its reputation for economic competence was in tatters after the UK’s departure from the ERM. Blair and Brown were able to seize the initiative because they sounded as if they would make a better fist of things than the Tories. And it’s worth remembering they were lucky – in the early years at least they were able to harness the increasing tax take of a growing economy to implement key social policies without increasing personal taxation. The problem is that that option is no longer available; harking back to Blairism is economically irrelevant, but we need to be able to capture the public imagination as to how we will deal with Osborne’s toxic legacy – an economy in which real living standards are collapsing and in which economic insecurity is leading to a growing level of support for the politics of national identity. In 1997 we were told that things could only get better; but thanks to the bankers’ crisis and Cameron and Osborne’s response to it, things have got vastly worse.
Yesterday’s conference was a really encouraging event. At last, since last year’s election defeat, Labour is asking the right economic questions. This debate is streets ahead of anything Corbyn’s critics are saying. But we’re still a way from being able to deliver that imagination-sparking, hopeful narrative we’ll need to win the election. Lots of work is needed; but this conference was a big step forward.