British Tories reject the ‘free market’ neoliberal myth

The conservatives in the British Labour Party are obviously worried. The UK Guardian article (December 2, 2017) – Labour faces subversion by Momentum and far left, says Roy Hattersley – reports the claim by former Deputy leader, Roy Hattersley that British Labour is “facing the biggest crisis in its history” because left-wingers are engaged “in a systematic takeover of the party”. Gosh. Sounds shocking. A traditionally left-wing political party slowly wresting it back to mission after being hijacked by the right-wing, neoliberal Blairites. That sounds like Armageddon. The Blairites tried to kill off Jeremy Corbyn several times as they continued to undermine him in the public eye and bleated about how he was going to destroy the Labour Party. They then fell silent when he nearly delivered the Party government in the recent national election and saved many of their jobs. Now, with a by-election in Watford, the conservatives are back to it although it has to be said that Hattersley cannot be called a Blairite. He represents the pre-Blairite right-wingers who backed Dennis Healey as he imposed Monetarist ideology on the Party in the mid-1970s. And this article came out soon after the Tory government announced a major ‘socialist’-style industrial plan. In its press release (November 27, 2017) – Government unveils Industrial Strategy to boost productivity and earning power of people across the UK we learn that the Tories are finally understanding that it can actually improve the fortunes of British workers by abandoning the failed neoliberal, ‘free market’ narrative and recognising, instead, the central role to be played by the nation state in advancing well-being and economic fortune.

Hattersley shifted to the right in the 1970s and voted with the Tories to support Britain’s entry into the European Union. He was part of the James Callaghan Monetarist move in the mid-1970s and was vehemently opposed to the Bennites (Socialists) in the Parliamentary Party.

He used to rail against the Bennites accusing them of destroying Labour.

For example, in his 2017 autobiography – Who Goes Home?: Scenes from a Political Life – Hattersley wrote about his role in 1981 in helping Denis Healey see off a challenge from Tony Benn for Deputy Leader:

… I played my part in making the decision which turned the tide. If Denis had lost, thousands of moderates would have deserted Labour and the Bennite alliance – Trotskyites, one subject campaigners, Marxists who had never read Marx, Maoists, pathological dissidents, Utopians and, most dangerous of all, sentimentalists – would have turned the Party into an unhealthy hybrid of pressure group and protest movement. As it was, they merely played a major part in keeping the Conservatives in power for almost twenty years. It is difficult to say who helped Margaret Thatcher and the Tories the most – the Social Democrats who claimed that Labour was lost to extremism or the Bennite left who tried to prove them right.

Healey won in a two-round contest (given there were three initial candidates) by 50.4 per cent to 49.6 per cent.

Like many of these Labour Party types, allegedly serving to advance the interests of workers and who operated under a political manifesto to scrap the House of Lords, he accepted a peerage from none other than Tony Blair in 1997.

He also thought Tony Blair’s illegal move to invade Iraq was an example of Blair demonstrating “strong leadership” (Source)

I thought Owen Jones tweet was an adequate summary of Hattersley’s intervention.

The UK Guardian seems to be running a concerted anti-Corbyn campaign at present – well it has renewed the attacks, which are getting increasingly personal.

Not content to publish Keegan’s on-going rants about Brexit, they published an article (December 9, 2017) by Nick Cohen – What would it take for Labour’s moderates to revolt? – which for pure vitriol ranks among the best.

Cohen, by the way, was a staunch supporter of the illegal invasion of Iraq and wants the West to launch a military invasion of Syria. He is that sort of guy.

I recall a column in the New Statesman (June 7, 2010) where Cohen was described as providing “weird and wonderful claims” about the Israel-Palestine conflict (Cohen being firmly pro-Israeli).

The journalist wrote:

His columns become more ridiculous (not to mention right-wing) by the week. On 8 May, for example, Cohen urged the Liberal Democrats to form a coalition with the Conservatives (and not Labour): “There is no point in being in politics if they do not.” The following week, however, on 16 May, he accused the Liberal Democrats of having “toffed up” the Cameron-led coalition and “sundered their links with the social democratic tradition”, and described Vince Cable as a “good social democrat who threw in his lot with the Tories . . . a man with a mortal sin on his conscience.”

Bizarre. Does the Observer not provide this man with an editor? A sub? A reviewer of copy?

It seems that the UK Guardian also doesn’t provide Cohen with any feedback.

His attack on Corbyn and John McDonnell is blitheringly ridiculous but part of a massive right-wing attack that is accelerating again. They, largely went quiet after the election because, after all, what could they say?

Now the likes of Cohen are suggesting the Labour supporters “don’t know who they are following” or “may be ignorant” and that Corbyn is a “dim man”.

Cohen qualifications to speak about matters macroeconomic are encapsulated in this statement:

The Labour leadership’s inability to understand that its government would be unable to afford its programmes if Britain left the single market means that its social reforms could unravel.

Blitheringly ridiculous – blithering idiot!

The British government will always be able to ‘afford’ its programs as long as there are the commensurate availability of real resources available to implement them.

The only constraint that a newly-elected Labour government would have in implementing its infrastructure plans would be if there was available capital and labour shortages.

In that case, should it wish to persist with these plans and there was already full employment of productive resources, then the government would have to divert resources from other uses to its intended uses.

That diversion would have nothing to do with Britain’s EU membership or its participation in the single market.

This mistake is also made by the UK Guardian economist Larry Elliot in his latest article (December 10, 2017) – Attacks on McDonnell a sign Tories know stance on borrowing is defunct.

Larry Elliot comments on recent fumbles by John McDonnell in interviews, which he assesses reflects a Shadow Chancellor who was “overconfident and underprepared”.

It seemed odd to me that John McDonnell was not, seemingly, on top of basic details about “Labour’s spending plans” and the interest income that British sovereign debt holders receive each year.

But Larry Elliot goes further and writes:

Extra borrowing certainly means an increase in the national debt and higher debt interest payments in the short term, but that is not the real issue.

Imagine the chief executive of a FTSE 100 company going on TV to announce that the company was planning to go to the City to finance a new plant. The interview would not centre on what the investment meant for the company’s debt interest payments. The chief executive would be asked about what it meant for jobs, earnings and profits.

In the event that the chief executive was asked about the cost of the investment, they would give the same answer as McDonnell did, that at current rates of interest the investment would more than pay for itself, because otherwise we would not be doing it. Our debt interest payments will depend on what happens to interest rates and inflation, but our best judgment is that the investment will wash itself.

Instead of obsessing about the red herring of debt interest payments, more attention should be paid to the things that do matter. Labour is planning to borrow to invest, not to cover day-to-day government spending, and that makes sense if the return on the investment is higher than the cost of financing the extra debt.

Governments do not go bust, which means that they can borrow more cheaply than companies.

Which perpetuates the neoliberal myth that currency-issuing governments have to borrow before they can spend. John McDonnell would be better serving the progressive movement if he made that point over and over again.

Instead of trying to fudge how much public debt will rise in the UK it would be more instructive to present the view that a shift to Overt Monetary Financing (OMF) should occur.

I have written about OMF in these blogs (among others):

1. OMF – paranoia for many but a solution for all.

2. Helicopter money is a fiscal operation and is not inherently inflationary.

3. Overt Monetary Financing would flush out the ideological disdain for fiscal policy.

4. The Bank of Japan needs to introduce Overt Monetary Financing next.

5. Overt Monetary Financing – again.

6. There is no need to issue public debt.

And Larry Elliot makes the classic mistake in invoking a version of the ‘household budget analogy’. In this variation, he uses the ‘if it is okay for Corporations to invest to create returns then it is okay for Governments to do the same’ myth.

The Left often fall for this furphy and then get bogged down trying to outline the returns from the investment in public infrastructure.

The tendency, then, is to agree to all sorts of ridiculous user pays schemes (for example, toll roads, increased public transport fares etc) to make the ‘returns’ more concrete. Everyone understands a $ value (or in context a £ value)!

In Australia at present, we have a massive clusterf*xk emerging in the form of the National Broadband Network because the Federal Government is insisting the infrastructure has to be fully paid for via user charges. The problem is that the charges are so high that few people want to pay the top price so degraded service is the result. Ridiculous.

Please read my blog – The neo-liberal infestation – Australia’s broadband fiasco gets worse – for more discussion on this point.

The point is that a corporation is financially constrained (like a household) whereas the British government is not if it doesn’t want to be.

The experience of a corporation (or a household) provides no guidance to how a currency-issuing government should behave.

That is not to say that ;oliticians should demonstrate that their spending is delivering social returns and the spending is not wasteful or unduly lining the pockets of developers, construction companies etc.

But they should also make the break with any notion that this spending is dependent on the preferences of the bond markets.

All of which allows us to link Roy Hattersley’s hatred of Bennites and the national infrastructure debate.

I considered Tony Benn’s role in advancing an alternative vision for the Labour Party in the mid-1970s, in my series of blogs under the category – Demise of the Left. His plans were rejected by Harold Wilson and Denis Healey, who preferred to advance the myth that Britain had run out of money and would need IMF support.

This was an early example of the anti-democratic, depoliticisation that has become a hallmark of the neoliberal era. Politicians appeal to external forces (such as the IMF) to push through policies that damage the well-being of citizens so that they can avoid taking the political flack.

Instead of following Healey and co down the Monetarist path and lying to the British people about the currency capacities of the British government (it could never run out of money), Benn advanced his Alternative Economic Strategy.

Tony Benn who was then Secretary of State for Industry prepared a discussion paper in January 1975.

In his 1989 memoirs – Against the Tide, Diaries 1973-76, he described the plan outlined in that paper in this way:

It described Strategy A which is the Government of national unity, the Tory strategy of a pay policy, higher taxes all round and deflation, with Britain staying in the Common Market. Then Strategy B which is the real Labour policy of saving jobs, a vigorous micro-investment programme, import control, control of the banks and insurance companies, control of export, of capital, higher taxation of the rich, and Britain leaving the Common Market.

At the peak of the crisis in 1976, after the September Labour Party Conference where James Callaghan announced that the Labour Party would follow a Monetarist line, Benn submitted the plan to the Cabinet (October 1976).

Back in July 1976, Tony Benn, as Secretary of State for Energy, challenged the basic notion that Britain would face a “crisis of confidence” unless harsh fiscal cuts were introduced (see CAB 128/59 Original Reference CC (76) Meetings 1-22, 1976 13 Apr-3 Aug ).

He hinted that the Chancellor Healey was just ramming through ideologically-motivated cuts given that the Cabinet:

… had seen no specific financial forecast of the likely size of the public sector borrowing requirement, and no quantitative forecast of the extent to which it would fall as economic recovery proceeded.

He believed that the Tories were fermenting discontent by “aligning themselves with the markets to shake confidence in the Government”.

Benn also noted that the narrative kept changing. First, the workers were told that wage restraint was necessary to control inflation. Then, with wage restraint evident, they were told that strikes were causing havoc among international investors. Then, with industrial action “now at a very low level” they now were told:

… that there would have to be further public expenditure cuts?

The danger was that the austerity would undermine the Social Contract and jettison all the good work the unions had done in moderating their behaviour.

Benn urged the Government to consider alternative approaches to the external deficit without cutting public expenditure in any significant way. Among the policies he floated were:

1. “expand industrial capacity by concentrating imports on industrial re-equipment and restraining imports for consumption” (that is, import controls).

2. Increase taxes on “goods with a high imported content”.

3. Ensure higher profits that arose “from the relaxation of the Price Code were in fact devoted to industrial investment”.

4. Divert public money into areas of high unemployment.

The Left ‘alternative’ proposed by Benn and others to the Monetarist orthodoxy emerging within the Callaghan-Healey Labour Party was a recognition of the intrinsic capacities that a currency-issuing government possessed..

As such, the British government could have advanced the well-being of its citizens and eschewed the prioritisation of the interests of international capital, and by 1976, in particular, the interests of the investment bankers and hedge funds.

Unfortunately, it chose the latter path and paved the way for Margaret Thatcher’s damaging regime that would follow a few years later.

I also document how Harold Wilson had white-anted Tony Benn’s earlier attempt at an alternative path in this blog – The 1976 British austerity shift – a triumph of perception over reality,

When Benn’s proposal outlining the alternative path, which was based on such policy changes as import controls (particularly on luxury items), and a national plan to invest in and revitalise British industry, was sent to the Prime Minister on March 24, 1975, Wilson annotated the document in this way:

I haven’t read, don’t propose to, but I disagree with it.

Amazing really.

Fast track to November 27, 2017 and the release by the Tory Business Secretary Greg Clark of – The UK’s Industrial Strategy.

The accompanying Press Release – Government unveils Industrial Strategy to boost productivity and earning power of people across the UK – noted that the “Industrial Strategy” sets:

… out a long-term vision for how Britain can build on its economic strengths, address its productivity performance, embrace technological change and boost the earning power of people across the UK.

Described as a “flagship” strategy the announcement, while not getting much media attention, represents a major ideological shift in Tory politics.

Why?

Because it is an explicit statement that the British state has to be a central player with a major role in planning, managing and stimulating economic activity.

The ‘free market’ will solve allocation problems has been rejected – front and centre – by the release of this strategy.

The Tory British government has now rejected the idea that government should step aside and allow private profit-seeking to drive the future path of the economy.

It has now agreed that the State is central and has to steer investment and build infrastructure to ensure that investment is made in key areas.

The private sector, left to its own devices by New Labour and then the Cameron-Osborne Tory Government has clearly failed to put investment funds into areas that boost productivity.

These governments allowed the financial sector to grow at the expense of productive sectors. As a result, the UK is now a low productivity growth economy with severe compositional imbalances.

Skilled labour and investment is attracted into essentially unproductive, wealth-shuffling activities concentrated in London (finance), while regional and industrial decay is evident elsewhere.

The Industrial Strategy recognises that that more state intervention is required.

It defines “5 foundations” which will be the targets for significant state spending initiatives:

– ideas: the world’s most innovative economy

– people: good jobs and greater earning power for all

– infrastructure: a major upgrade to the UK’s infrastructure

– business environment: the best place to start and grow a business

– places: prosperous communities across the UK

If you mapped these foundations back into Tony Benn’s Alternative Economic Strategy you will see a strong correspondence.

Ideas – mean research and development, and, hopefully, more higher education funding, where innovations and knowledge are mostly born.

People – requires investment in better education (wider participation, inclusion for disadvantaged groups etc) and skill development.

Infrastructure – a recognition that public infrastructure allows private firms to leverage off – crowding-in private investment.

Business environment – encouraging investment.

Places – bringing the social settlement (where people live) into better alignment with the economic settlement (where jobs are). This is an explicit rejection of the New Regionalism that developed under the Blair regime and claimed that there was no need for state regional development strategies because the market would take care off it.

The Industrial Strategy also identifies “4 ‘Grand Challenges'”:

– artificial intelligence – we will put the UK at the forefront of the artificial intelligence and data revolution

– clean growth – we will maximise the advantages for UK industry from the global shift to clean growth

– ageing society – we will harness the power of innovation to help meet the needs of an ageing society

– future of mobility – we will become a world leader in the way people, goods and services move

Again, a sort of ‘picking winners’ approach to industrial development and an explicit rejection that the market knows best where to put investment funding.

I mostly agree with the UK Guardian article (November 27, 2017) – Why this white paper on industrial strategy is good news (mostly) – assessment of the Industrial Strategy.

It points to several weaknesses, which I will leave to you to read about.

The overall point though that:

The key is the welcome recognition that our economy will not succeed unless we are willing to abandon the economic orthodoxy of the past 30 years and give government its proper role. If that can now be accepted, we should all be grateful.

I thought the announcement was interesting in the light of the Brexit debate.

The day after the Industrial Strategy was announced, the CEO of the peak body representing British Universities released a statement (November 28, 2017) – Downturn in UK participation in latest EU research programme statistics – which tried to advance the Remain stance.

I doubt that the CEO had fully absorbed the intent of the Industrial Strategy when this press release was put out.

It echoed the standard anti-Brexit line that EU funding for UK higher education would dry up. As it probably will.

It noted that funding under “Horizon 2020, the current EU framework programme for research and innovation” had fallen for UK institutions.

Apparently this decline in funding participation will stop UK researchers from collaborating with “world-leading experts on life-changing research, with knock-on benefits for the economy, society and individuals in the UK”.

Well, that is simply untrue.

The UK Guardian – so anti-Brexit it doesn’t matter – bought into this myth in their article (December 3, 2017) – Fears grow over EU university funding as grants decline even before Brexit.

We read quotes such as:

– “It is so frustrating watching the country head towards a potential barren land for research”.

– “Ministers need to recognise the damage that their flawed approach to the Brexit negotiations is doing and act quickly to secure our future in European research programmes.”

Universities UK had acknowledged in their press release (November 27, 2017) – Industrial strategy white paper – that the
Industrial Strategy – would provide “increased support for quality-related research”.

Which makes you wonder why the next day they pushed the line that Brexit would kill research funding in the UK and then the UK Guardian elaborated on that lie.

The point is – and I will elaborate further on this in subsequent blogs – the UK government can fund as much research as it likes without any EU contribution.

And as an Australian researcher (who has secured many millions in competitive funding over my career), I have had no trouble collaborating with EU-based researchers, despite not having access to EU-based research funding.

Conclusion

While the language and terms used (emphasis on environmental sustainability, etc) are somewhat different to the Benn vision – reflecting history mostly, the Tory Industrial Strategy is a statement that Benn would not have opposed.

It marks a shift in the mindless, ‘free market’ narratives that governments have become obsessed with in this neoliberal era.

The next challenge is to reeducate these politicians on what currency sovereignty means.

I continue in that role.

That is enough for today!

(c) Copyright 2017 William Mitchell. All Rights Reserved.