ED BALLS AND THE LIMITS OF KEYNESIANISM
Ed Ball’s recent speech to the Fabians on the economy, and the attendant press coverage, is illustrative of the difficulties of economic debate in a democracy and a market economy; where messages are spun for electoral considerations, and fears about market confidence supress any instincts towards even modest radicalism.
Ball’s fairly nuanced argument is that the failure of the Tory Chancellor George Osborne to encourage economic growth has reduced tax revenue and thus increased the government’s deficit between income and outgoings. As a result the balance of deficit reduction has inevitably shifted from increasing revenue to reducing expenditure, and therefore in the public sector this raises a choice between reducing pay rises, or cutting jobs and services. Any government – of the right or left – is forced to manage the economy as they find it, and inheriting an economy damaged by Osborne’s mismanagement will constrain the options of a future Labour government.
However, in the hands of a BBC interviewer this was whittled down to a statement that Labour would oppose public sector pay rises; and Labour’s statement that they did not know whether economic circumstances when they regain power would allow them to reverse cuts is misrepresented as support for Tory cuts now. This was of course exacerbated by trade unionists, like RMT President Alex Gordon, who are predisposed to attack the Labour Party, as Alex says:
“What Ed Balls is announcing is that Labour’s given up on opposing those policies,” he said. “I think from the trade unions’ point of view, what we’re going to be asking is if Labour doesn’t want to be the opposition, then where is the opposition going to come from to this government? Our members aren’t going to stand by and take another two years of this kind of punishment and then turn out at the ballot box in 2014 and meekly vote for a Labour opposition that has supported these punishing cuts.”
Michael Meacher points out that Ed Balls’s opposition to public sector pay rises has indeed unnecessarily damaged Labour’s credibility with trade unionists, and the broader constituency of Labour voters:
At a time when the central economic problem is febrile growth because of lack of demand, it is wholly unacceptable for several reasons:
1. It would gratuitously weaken demand even further when low-paid public sector workers have a higher propensity to spend – exactly what the economy now needs – than better-off sections of the population.
2. It is grossly unfair to inflict a wage freeze for this year and next year, and then a flat 1% rise in the next two years (still a wage cut in real terms because inflation is expected to be rising at 2% a year), when 1% for a female local government worker represents less than £3 a week while for a doctor it represents £19 a week.
3. It lets the rich and particularly the ultra-rich off the hook completely, continuing to get gargantuan pay packets and bonuses hardly touched.
Why did Balls say this anyway? He didn’t have to make any such statement at all. The alleged reason – that it’s necessary to swallow the entire Tory scorched earth policy in order to gain credibility – is absurd. In fact the exact opposite is true – the Labour Party will never gain credibility whilst it continues robotically to parrot the Tory line.
Writing on this website, John Wight. eloquently expounds the type of left alternative that should command widespread support across the unions, and with the left: a clearer differentiation between Labour and the Tories over the narrative of austerity, a programme of public investment to boost demand, a shift away from economic dependence upon the finance sector, greater state intervention, and supporting wage rises for lower paid public sector workers while holding back the highest paid executives.
However, it is premature to expect that such a programme could be adopted by the Labour Party, when the left have not yet won the argument for such a strategy in the trade unions, and when we have not managed to develop a convincing political narrative that can win the middle ground in order to make such a radical stance electorally credible. That is the task ahead of us.
Ed Balls makes the point well in his Fabian speech that political debate about economics in a democracy tends to polarise around symbolic caracatures of complex arguments. Debate is further constrained by the circumspection required for parties in government, or aspiring to government, who need to maintain business confidence, especially in periods of currency exchange rate volatility.
Over the economy, Labour faces what might be called the Marks and Spencer dilemma. The chain store struggles to prosper based upon its existing customer base, but if it moves away from its frumpy image in pursuit of new customers, it may lose the ones it has got. If Labour can’t win an election, then whatever economic policy we advocate is irrelevant; so it does need to be cogniscent of the need to pitch its economic message to engage with the prevailing consensus of public opinion.
Labour hasn’t in fact endorsed the coalition’s economic policy, but in order to appease those on the right of the party who have been running a campaign to destablise Ed Miliband, this weekend the two Eds gave the impression that they have. Carl Packham accurately assesses the real problem with Ed Ball’s approach:
What Ed Balls is really to blame for is talking about this in a kind of quasi-managerial way, rather than talking about this in a way that says the coalition government are making a set of irreversible mistakes. Oddly, in an attempt to make the party’s economic message credible, they are allowing the press – from the right wingers to the left – to paint them as supportive of austerity measures that aren’t working.
Ed Balls’s five point economic plan is to nurture economic recovery, thus reducing the deficit through increased tax revenues, and for fewer spending cuts than the Tories, Boosting tax receipts through economic growth mitigates the requirement to reduce spending.
However, it is worth unpacking Balls’s argument when he says:
Of course, there will be naïve ‘Keynesians’ who will think it is always a special case – time to let rip and just ‘tax, spend and borrow’ in the hope that will deliver full employment – people who think we are always in 1930s-style depression and more borrowing is always the solution to unemployment. And that is what gave Keynesianism a bad name in the 1970s.
It is why Labour leader Jim Callaghan was right to tell the Labour Party Conference in 1976 that that you can’t just spend your way to full employment. But, as I argued well over a year ago now in my Bloomberg speech, the reason why the real Keynes is so relevant today is that the global economy has been sliding into that rare and dangerous ‘special case’ that Keynes identified in the 1930s and Japan suffered in the 1990s.
What led the paradigm shift away from Keynesianism in the 1970s was not its naïve over use, but that shifts in the structure of international capitalism had reduced the effectiveness of the conventional Keynesian mechanisms. Neither the deflationary package of July 1966 nor the Heath government’s attempt to stimulate investment supply through a Keynesian management of demand resulted in the expected outcomes.
The Labour Party’s programme of 1973, which resulted in the 1974 manifesto, was predicated upon a number of observations about Keynesianism, as operated in the post war period by British governments who had used control of interest rates to manage demand through raising or lowering the cost of credit borrowing. Although full employment could lead to a worsening balance of payments, this could theoretically be mitigated through devaluation, but political considerations acted as a constraint upon this option (the more presidential style of French government, had allowed them more freedom for devaluation). The state could also combat under-consumptionism through boosting demand. In the General Theory Keynes argues for both direct state expenditure to increase demand as well as indirect stimulus.
However, there were a number of changes that undermined the effectiveness of such measures. Firstly, there was a vicious circle that sustained slow growth rates combined with an increased organic composition of capital, which meant that the leading managers of private firms were unconvinced that costs could be recovered over the lifetime of a major investment project. This lack of confidence meant that private corporations were unresponsive to increase in demand.
What is more, the increasingly multi-national nature of capital meant that corporations were able to avoid any government attempts to restrict credit, by international transfers within their firms; and transfer pricing within corporations prevented any government price controls; and moving profits across borders allowed corporations to avoid taxation. The increasingly global nature of manufacturing meant that government stimulus for investment would be ineffective compared to the advantages of moving manufacturing to other states.
In other words, the Labour Party programme of 1973 recognised that while Keynesianism relied upon macroeconomic measures by government to create the context where private corporations would respond in a way virtuous to national economic development, the actual decisions were still left in the hands of the private sector managers of major corporations, who had institutional reasons for resisting such government intentions; and the multi-national nature and increasing size of corporations provided them with the mechanisms to avoid responding to Keynesian stimuli. Hence the commitment to undertake strategic nationalisations in profitable industries like pharmaceutical manufacturing, to allow direct government intervention at the level of corporate decision making.
This understanding that private ownership of corporations was an impediment to government intervention in the economy was fiercely resisted by the right in the party, for example in Anthony Crosland’s 1974 article “Socialism Now” he argued both that the left was wrong in identifying increased globalisation, which he argued had reached its maximum point; and also that there were no conflicts between private corporations and the public interest.
Both the left and the right in the party had in fact reached the conclusion (whether consciously articulated or not) that Keynesianism, as it was being operated by successive post-war British governments, had run its course. So Callaghan’s speech to the 1976 conference was not an attempt to defend Keynesianism from naïve over-use, as Ed Balls implies, but a deliberate signalling that Keynesianism was being abandoned in favour of allowing unemployment to rise in an attempt to curb wage-push inflation; and a rejection by the government of the 1974 manifesto commitments to nationalise sufficient leading companies to allow the government to directly intervene in the economy.
Of course, the constraint imposed by the multi-national nature of modern day capitalism is now well understood by neo-Keynesian economists, hence the enormous effort to coordinate international management of credit supply; and for international banking regulation; but the problem remains that the key decisions of whether to pursue investment are left in private hands.
These disputes are not of just historical interest as the economy which has best weathered the current recession is that of the People’s Republic of China, where a genuinely mixed economy gives the government direct access to the levers of investment and finance. There is limited possibility of really gaining popular and democratic control of the economy until we have reversed the consensus against public ownership. It is arguable that while Labour’s Five Point plan is far better than the austerity of the current government, it cannot lead to sustained prosperity in the interests of working people until the state has the capablity to directly stimulate productive investment.
With the state hamstrung with debt, to borrow money to invest or to print it which is the same thing for the same reason is to invite eye-watering levels of interest and inflation. Just as self-harming cuts threaten to kill the senile old patient by bleeding it to death stimulation of its sclerotic circulatory system holds out only the prospect of a fatal heart attack. Kapital ist kaput.
Let us not forget the privatised keynesianism of the last 30 years initiated by Thatcher and Reagan when they imposed tight spending on the state and handed responsibility for the money supply to the private sector on the grounds that englightened self-interest would result in a supply and demand equilibrium. Result: the biggest Ponzi Scheme the world has ever seen and now the imposition of a Bankers’ Versailles on the global economy to pay for it. But why was the credit bubble allowed to get out of hand? The monopolised and sclerotic system of the late 70s was struggling to contain socialism economically despite the able assistance of the treacherous Stalinists. Credit was allowed to let rip in order to boost falling demand and contracting production. As a consequence we now have a sclerotic, monopolised and bankrtupt system. Holding back socialism has destroyed the West. Standing in the way of history has destroyed the West.
Only the repudiation of the debt, most of which is based on counterfeit bonds owned by the super rich can provide the basis for a fresh start but that requires class struggle as the rich will not give up their wealth without a struggle and indeed would sooner turn the real economy to dust than give up its thievings.
Keynesianism and monetarism both say things that socialist can support such as balanced budgets and sound money and socially directed investment but as long as they are seen as remedies for capitalism they represent a false dichotomy offered to a gulible public and their combination a double whammy of errors.
#1
ia this the sort of “fresh start” that would leave us all scrabling for turnips on our allotments, as the economy slumps into isolation and depression??
ie. a Green New Deal then with likewise a Green Investment Bank. How about FTT and LVT as new revenue streams!? They do not impinge on the productive economy.
@2is this the sort of “fresh start” that would leave us all scrabling for turnips on our allotments, as the economy slumps into isolation and depression??
Sounds like music to “Wevoultionaries” ears.
Unfortunately, nobody elses.
Excellent and balanced article BTW.
Please consider changing the justified text to left justified, it’s not nice to read and not recommended from an accessibility point of view as visually impaired and dyslexic people can find it difficult to read.
http://www.rnib.org.uk/professionals/webaccessibility/articles/Pages/justified_text.aspx
Stewart Lansley slams the Condems wrongheaded economic policy in last weeks Independent:
http://www.independent.co.uk/opinion/commentators/stewart-lansley-enrichment-at-the-top-is-deepening-the-recession-6287726.html
#2 `is this the sort of “fresh start” that would leave us all scrabling for turnips on our allotments, as the economy slumps into isolation and depression??’
The only things that are going to leave us scrabbling for turnips is either we go through with the level of austerity necessary to bail out the banks or we print and borrow money to invest for profit. Either will do the trick. You clearly believe in capitalism as the only way out of the crisis it created but ironically you run a site called Socialist Unity. You are as socialist as the great catholic Blair. How anybody could have fallen for the Thatcherite free market crap more than him is a mystery but you have done it. You are actively hostile to socialist policies. For you socialism means the rich don’t get paid and we eat turnips. But you can keep your public school morality and your petit bourgeois prejudices. You are just a sub-version of Balls and the political vacuum that calls itself Ed Milliband.
labour abandoned it’s 74 manifesto.. letting inflation increase unemploymnet.. And lost the following general election.
but the Tories carried on the policy and uemployent increased even more ,yet the Tories won the ’83 election.
#8
But they would almost certainly have lost had they not had the Falklands war.
The interesting counterfactual to contemplate is that has Callaghan gone to the cuntry in 1978 he would ether have won, or Thatcher would have been in office for the Winter of Discontent, either of which would have opened very different possibilities.
#6 The problem with articles like that is they talk about `a recession’ that is somehow out there like a natural disaster that is nothing to do with man and the problem is how we are reacting to this `natural disaster’ and how some are inexcplicably reacting selfishly. The reality is that the recession-soon-to-be-depression is the policy of government and the monopoly and super rich capitalist classes it represents. The state, the workers and the tax payer are being bankrupted to pay out the bogus bonds issued by bankers during the thirty year credit bubble. These bonds, worth many, many more times the actual value of the economy, are owned by the elites who could find nowhere productive to put their money. Asset stripping is being conducted to pay out these bonds. Hospitals and schools are being torn down and converted to gold for this end. At the same time monopolies are closing down competitors and disinvesting from production adding massively to the already serious contraction caused by state austerity. Monopolies, being monopolies, have no incentive to invest. In fact they would be foolish to invest as any innovation that would further reduce the labour power in their commodities would simply impact their monopoly profits in an adverse way. The concentration of wealth and the monopolisation of production is killing the economy and democracy because democracy implies redistribution of wealth unless the majority really are simply dumb. All this is not a reaction to a natural disaster or even a response to a crippling war imposed from without it is a programme of unprecedented theft objectively imposed on those who wish to retain their class priveleges.
#9
“But they would almost certainly have lost had they not had the Falklands war”
Yes, and the Argentines have certainly done a lot better out of losing that war than we did out of winning it. Not only in the immediate term, the fall of the junta rather than the survival of Thatcher, but in the long run getting a left social-democratic government with the cojones to push the pro-investment policies which Ed has shied away from in the week. Policies which have brought that country back from economic ruin in 2001 to the highest rates of growth outside China. I agree with Andy that Ed’s shift is in part the result of our own failure to win the argument for the left alternative to austerity; but in the run up to the 30th anniversary of the Falklands War, the Argentine example, of successfully coming out of massive crisis, quickly, and through left measures, the opposite of the failed masochism of our political class, may be a good resource for us. Didn’t they ask in the 70s, when Japan germany and Italy were having their own miracles and we were the sick man of Europe, “who won the war?”?!
#9 “Callaghan gone to the cuntry in 1978 ”
reminded me of the old joke “when we were an empire we had an emperor, when we were a kingdom we had a king, now we’re a coutry we have Margaret Thatcher”!
http://michaelrosenblog.blogspot.com/2012/01/start-week-capitalism-is-dead-long-live.html
A pretty limp defence of Balls, right slap-bang within the framework of not-very-left social democracy. Len McCluskie is rather more forthright
http://www.guardian.co.uk/politics/2012/jan/16/ed-miliband-leading-labour-destruction
Keynsianism isn’t socialism. It’s better than neo-liberalism, but any system that depends on capitalism as its economic base is depending on the exploitation of the working class in the first place.
The profits of capitalism are only the ‘swag’ stolen from the working class in the first place.
The more we can get back the better, but no form of capitalism can ever be fair or just… or stable.
Here is the original article by McCluskie
http://www.guardian.co.uk/commentisfree/2012/jan/16/ed-miliband-leadership-threatened-blairite-coup
Pretty good analysis for a left official. He understands the dynamics of what happens when all the parties unite to ram austerity down the throats of the population, unlike some of the dream-boat Stalinoids here who grovel to the crassest lesser-evilism. The new Miliband/Balls policy will win Cameron the next election.
This is a good point by McCluskey
#15
Robert P. Williams,
*sigh*
Here we go again; but even if there was a blood-red in tooth and claw socialist government, they would still inherit the actualy existing economy, and also have to trade in the actually existing global market.
#15
Sorry, did you even read the article above. I argue that Keynesianism is limited by the private ownership of capital, and we need public ownership to control the economy.
And yet Labour is still doing well in the polls:
http://www.leftfutures.org/2012/01/labours-standing-in-the-polls-is-a-poor-excuse-for-knocking-ed/
#20
Apparently , according to Mary Ann Sieghart (yes,I know), further on in that Yougov poll most Labour supporters do not believe Milliband to be Prime Ministerial material:
http://www.independent.co.uk/opinion/commentators/mary-ann-sieghart/mary-ann-sieghart-what-happens-when-even-your-supporters-dont-believe-in-you-6290193.html
Shallow maybe but the best favour Miliband & Balls could do for themselves would be to take a few tips on how to come across on the telly as normal & likeable rather whingey/weird (Miliband), blustery/overexcitable (Balls). That’s all the swing voters seem to want. I know it’s easier said than done, but when they’re being beaten off the park in the “guy middle England would rather go for a beer with” stakes by a pair of utter twats like Cameron and Osborne, then questions need to be asked.
Who have Labour got – other than Ken – with the real knack of connecting with people? No point of going to Yvette Cooper or Caroline Flint. They really haven’t got it either.
This is an interesting article but I think the limits were and are being overestimated.
Private investment can be stimulated by government through a variety of quite mild measures- through raising the corporate tax rate and providing deductions for investment, and providing low interest loans linked to certain investment/output targets.
The former would also raise government revenue (in general) but also precisely at the time when private corporations are not investing- leading to an automatic increase in the government funds available for public expenditures.
The idea is to put in place a series of carrots and sticks to modify private (firm level) investment decisions- with punitive taxation on those that horde or disburse their profits, and low or even negative net transfers from corporations that have a very high reinvestment of profits ratio.
These measures could be called ‘socialism’ but the ability to paint them as such is restricted by the fact that similar measures have a long history, being implemented in mild form even by conservative governments.
Re at Robert Williams/Andy Newman exchange above- arguably the moral problem with profit is in proportion to the extent to which it is a means to increase luxury consumption. A private firm that reinvested all its profits, distributed no dividends and had modest executive pay would be equivalent to a socialist enterprise. Of course, this is unrealistic, but the rate of profit reinvestment could, for example, plausibly be pushed from ~30% to say 60%, thus doubling the rate of private capital formation with no additional relative sacrifice from workers- i.e no reduction in the wage share of GNI.
The variability in investment functions (the relationship between the rate of return to capital and investment) is discussed in chapter 4.3 of this paper- incidentally China obtains much more investment for a similar ROR than the U.S. for reasons that Andy has hinted at.
http://usyd.academia.edu/KieranLatty/Papers/1121749/1_Income_distribution_growth_and_social-welfare_towards_an_economic_solution_to_the_growth-equality_trade-off_problem
This might be an interesting read for all those concerned with reducing equality without imposing costs in terms of reduced growth and efficiency (in a mixed economy).
#23
The issue here Kieran is that such incentives you mention have limited effetiveness unless private corporations are already minded to invest; and there is confidence in economic growth. A private company faced with the system of carrot and sticks that you suggest could simply choose to place its investment in another country which did not have such stringent requirements; or would threaten to withdraw, as leverage to nehotiate away the punitive measures.
It is very hard to even establish whether a corporation is disbursing its profits when it uses its own transfer prices within a corportion to make sure that profits arise where the accountants wish them to arise. For example, the oil companies selling crude to their own oil refineries at a elevated barrel price in order that the profit arises in the low tax producer country, not the higher tax regime where the refiney is located.
There is a very big differnce between coprorate behaviour in periods of general growth and general stagnation, that in a boom corporations will respond to both government stimuli towards investment, and to government indicative planing targets.
In a period of stagnation, there is a disconnent between what is rational behaviour for the syetem, and what is rational for the individual corporation; in a general recession only a brave private corporation will commit to major productive inivestment,
@ 18. *sigh* Here we go again; but even if there was a blood-red in tooth and claw socialist government, they would still inherit the actualy existing economy, and also have to trade in the actually existing global market.
Let’s try thinking through that bit about having to “trade in the actually existing global market”.
1. It is unfashionable to mention this but, the UK has a chronic balance of payments deficit. Despite the 25% fall in its value, the £ remains relatively stable. Market mechanisms are not working to eliminate balance of payments deficit. Perhaps the sale of assets, AKA inward direct investment, has something to do with this.
2. We also have mass unemployment.
3. Reinventing British manufacturing industry would go a long way towards tackling both 1 and 2
4. It is difficult to see how achieve 3 without taking on the City.
5. The article does nothing to say we might go about breaking the power of the City. Further, throwaway remarks such as “the sort of “fresh start” that would leave us all scrabling for turnips on our allotments, as the economy slumps into isolation and depression” smack of defeatism.
At the very least, the turn by Miliband and Balls has been a PR disaster, reflected in the fact that Harriet Harman appeared on this morning’s Today programme trying to put out the fires created. Len McCluskey’s piece was welcome and penetrated to the heart of the problem, which is the chasm that has opened up between Miliband’s leadership and the thousands of union and party members who voted for him outside the ranks of the PLP.
It seems obvious that the timing of these statments on the economy is no accident. Miliband’s poll ratings are horrible and he’s feeling the pressure. This was the wrong response.
I don’t agree with the central thrust of Balls’ speech that across the board spending cuts are inevitable. There is now no clear water between Labour the the Coalition, apart from a weak mantra of cutting less quickly. Where is the focus on the rich, the banks, executive pay, and so on. On this Vince Cable is now more progressive than Miliband and Balls. I really do feel they’ve capitulated.
Andy makes some cogent points on the difficulties faced by any government trying to steer a path between public need and private profit in the context of a globalised economy. The neoliberal consensus that dominates the West has yet to be broken, despite the recession. But breaking it is absolutely vital if we are going to get out of this recession and begin to regain any of the massive ground lost over the past 30 years.
For me, recent events illustrate that Labour, even after Blair, remains incapable of doing that.
Yes, these limitations do exist and that is why additional forms of public intervention are desirable.
In order to be effective, incentives must leverage the fact that firms adopt a somewhat longer term view- and therefore at some discrete price investment is individually rational (even if in the short run it is unnecessary) on the grounds of its future utility. Of course, this price may be so low as to make such incentives inefficient and undesirable.
On this point, it is also worth stressing that the utility of many investments are not rigidly linked to expansion in capacity and demand- investments can be in material/energy/labor saving technology, which increases profits through reducing cost rather than enabling expanded sales to match increased demand. Green technology is an excellent case here- for example at a suitably high carbon price wind power may be highly profitable even in a contracting energy market. (And being more capital intensive, substituting wind power for coal implies a large investment demand)
Additionally, the demonstration effect is also important- a credible (forceful enough) expansionary policy can effectively re-animate the ‘animal spirits’.
Regarding transfer pricing, there are options to limit the abuse of such measures, including regulations mandating mark-to-market accounting of inter-firm cross-border sales. (of course such options for profit shifting do not exist for non inter-firm transfers- which account for the vast majority of transactions)
I agree that additional policies of direct intervention are required and are desirable, but it is not the case that short of massive direct investment little can be achieved.
In other words, even a policy constrained government has more social-democratic economic options than it if usually inclined or willing to implement.
To put this in the form of a numerical example, the fact that there is an 8% (of GDP) shortfall in private investment does not necessitate that pubic investment must rise by 8% of GPD to compensate (a policy which could be described as ‘socialism’) but rather a 3% rise in public investment, front loaded to achieve a demonstration effect, combined with sufficiently strong incentives may bring on a rise in private investment on the order of the remaining 5% of GDP required to bring investment back to pre-crisis levels. That this could be called ‘socialism’ is a little more far fetched.
It is simply not true that a prospective labour government has no potentially effective economic options other than (politically unpalatable) ‘socialism’.
#26 Nicely put George though point five I’d say the remark smacks of hostility not defeatism. Newman doesn’t seem to believe that socialist measures are either possible or desirable or necessary. In actual fact it is a matter of great urgency that the available productive work be shared and full employment realised; that the bail out of the banks be ended and a monopoly of credit seized by the state to ease the credit crunch; that the economy and environment destroying monopolies are socialised and brought under democratic control; that the democratic aspirations of the nations of the British isles are addressed and the EU renegotiated in accordance with socialist principles and finally that and US-sponsored globalisation transcended by a socialist commonwealth of the world’s nations.
I liked this New Statesman article by Richard Morris, in which he argues that the Labour Party is “the West Ham United of politics”:
http://www.newstatesman.com/blogs/the-staggers/2012/01/long-ball-labour-party-playing
Does that make Sam Allardyce the “Ed Balls of football”?
#28
Indeed, but this still needs the state to create the conditions where individual firms are confident that there will be sustained growth over the longer term. To use your example of green technology, the state would need to remove the planning obstacles, and could either provide or act as guarantor for bridging finance to cover the initial capital costs to be repaid by the later revenue gains.
Well quite so, as the PRC has demonstrated this is the case. The current structure of global capitalism means that access to capital investment and high technology is often outwith the control of states, and to access it, then the state must construct a win-win relationship with capital. In the case of the PRC offering access to their huge internal market, as well as the incentives of the SEZs.
The issue of state ownership is however crucial, not in the traditional sense of government funds being used to build plant; but that it allows government economic policy not only to propose but also to dispose. For example, in response to the recent recession, Chinese owned state manufacturing brought forward already existing investment plans and borrowed money to do so. State ownership allowed both the manufacturers and the banks to act in the societal interest.
Traditionally in the West state ownership has been in basic inputs like coal and steel, and servcies like transport, rail, mail and ports; where they are operated at a loss as an effective subsidy to private industry.
What is required is more strategic ownership, in partnership with the private sector, so that state owned corporations can take the lead in aligning themslves with the givernment’s economic policy.
Agreed – that is exactly what I am proposing, and to effectively implement that requires an extended footprint of state ownership than we have at present.
Whether or not this is “socialism” depends upon whether it is combined with state policies to eradicate inequalities of wealth and power in favour of working people; and whether there is democratic control of the process through negotiation with organised labour.
#27
Well maybe so; but if they are incapable, then every other route is even more unlikely.
There is at least a mechanism for Labour’s policy to be changed, by winning the argument in the affiliated unions. There is actually a precedent for this with the TGWU and NUM shifting the policy of the party to Keynesianism in the 1930s
#26
The type of economic autarchy you are proposing is no longer possible, given the globalised nature of manufacturing. It is debateble whether it was ever really possible.
Off topic, i know, but it was sad to hear of the untimely death of Rob Windsor. He was a decent chap and genuine. The few times i met him were always enjoyable and he was open to socialists, who as Tariq Ali said of Paul Foot, carried ‘different initials to his own’. A real loss – condolences to his family, etc. More here, http://www.coventrytelegraph.net/news/coventry-news/2012/01/16/ex-coventry-city-councillor-rob-windsor-dies-aged-47-92746-30132535/
#22 Tom Watson strikes me as someone who could, if he applies himself to the Tories in the way he did to News International =) But the key problem is the lack, as John says, of clear water between the parties. Maybe a stronger, more confidant leader than Ed Miliband might be more able to avoid capitualting; maybe not though, especially if they really WANT to capitualte, as David seemed to in his leaked victory speech
#34 Very sad to hear that, he seemed a really good guy when I heard him speak at a Defend Tommy Sheridan rally a few years back
#33 `The type of economic autarchy you are proposing is no longer possible, given the globalised nature of manufacturing. It is debateble whether it was ever really possible.’
What are you on? We live under economic autarchy. The means of production, distribution and finance are thoroughly monopolised and wealth is concentrated in fewer hands than it ever has been and the bail out is set to exaggerate that even further. Socialism, i.e. the socialisation of private property in the means of production and exchange, by turning the means of production into social property, seeks to remedy this fact.
#37
David, how do you propose putting this socialist transformation into effect?
Given where we are now in concrete terms, that is.
Re Andy at 31: Okay, we agree.
The question is if what is required as a second best solution (as outlined somewhat jointly above) is politically unrealistic for a constrained labor government to implement.
Consider that Milliband articulated a platform of the following type:
‘We are suffering from a severe investment shortfall that is threatening to burden Britain with a long lasting legacy of low productivity and lead to a lost generation, cursed by unemployment and rising inequality. This outcome is a direct result of policies persued by the previous Conservative government. In these exceptional circumstances, we propose a modest rise in government investment, to rebuild basic infrastructure and foster skills and human capital via increased expenditure in public schooling. However, we see the major lifting being done by the private sector. In combination with the above, demand augmenting public investment policies, we propose an additional set of incentives to encourage and bring forth private investment. Combined, we see this policy combination returning Britian to a path of growth in employment, opportunity, prosperity, and equality.’
Maybey I am bad writer of prose, but the above does not really come across as some impossibly ultra-left platform.
I should add, that, in the above posts, my use of the term of ‘socialism’ is not as some bar for progressives to jump or target for end game politics, but rather some constraint on public policy, i.e a barrier beyond which policies to the left of this line become impossible for a labor government to implement (without some sort of major change in the political terrain. i.e it is a projection and acceptance of some sections of the public’s prejudices.
29. #26 Nicely put George though point five I’d say the remark smacks of hostility not defeatism.
Thanks. You are too kind.
You are right there is a certain enmity about the phrase “scrabbling for turnips on our allotments”. However, I still feel that these are the words of a beaten man.
See 33.
#26 The type of economic autarchy you are proposing is no longer possible, given the globalised nature of manufacturing. It is debateble whether it was ever really possible.
(9) If thather only won the 83 election with 3 million umemployed due to the flaklands, how come she won the 87 and Major the 92 ones?
#33
I find that statement curious for a socialist to make. Surely both through the power of legislation to more closely regulate private revenue streams and the ability of the State to unilaterally take over enterprises (including plant and logistical operations) for more socially beneficial purposes ,including production for export markets, it’s entirely possible that a socialised ecomony can still participate effectively in a globalised economy,no?
The Guardian is now carrying an article reporting that the GMB has raised the possibility of disaffiliation as a result of the Labour leadership’s turn on the economy.
http://www.guardian.co.uk/politics/2012/jan/17/union-rebellion-ed-miliband-grows
#43 Well that would be a profound step in the right direction as long as a new democratic workers party coming out of the unions replaced the Labour link. We’ve had enough of Hard Labour!
@29 In actual fact it is a matter of great urgency that the available productive work be shared and full employment realised; that the bail out of the banks be ended and a monopoly of credit seized by the state to ease the credit crunch; that the economy and environment destroying monopolies are socialised and brought under democratic control; that the democratic aspirations of the nations of the British isles are addressed and the EU renegotiated in accordance with socialist principles and finally that and US-sponsored globalisation transcended by a socialist commonwealth of the world’s nations.
I broadly agree though I would prefer to phase these ideas without using words such as ‘democratic’ and ‘socialist’.
How about the following?
It is a matter of great urgency that in order to protect both social cohesion and our natural environment we need to:
• Share out all available productive work and ensure full employment;
• Ensure that the production and transport of goods is conducted in a manner that is ecologically sustainable
• Reduce inequalities both within the UK and on a world scale.
These objectives are not those of big business and finance. On the contrary, big business works against these ends. The financial system in particular is clearly dysfunctional and needs to be completely restructured so that it is both stable and serves the interests of the mass of the population.
Unfortunately, none of the mainstream political parties (Conservative, Liberal-Democratic and Labour) have challenged the power of big money. This is because the entire British political establishment and the mass media are its creatures.
If change is to come, therefore, it must come from the bottom of society through the involvement of the mass of ordinary people directly asserting their interests against those of the establishment.
A distinction needs to be drawn between what can be done in the UK and changes in a world-scale. Obviously, Britain cannot impose its will on Europe or the rest of the World. However, it can lead by example. Just as successful popular measures in Argentina and Iceland help locally they can also inspire others to take similar actions. This could demonstrate that the alternative to predatory ‘globalisation’ need not be a narrow and selfish nationalism.
OT sorry – TC, is the text going to a narrower column something you’ve done on purpose, or not?
Cheers
#43
Interesting, I wouldn’t want to second guess Paul Kenny, but this looks like a shot across the bows for the two Eds, that will be combiined with some fairly frank talking in private.
The forthecoming dispute with the government over public sector pay is a potentially major battle, and the Labour Party needs to consider its positioning very carefully.
#47
I agree. It is now obvious that the two Ed’s have made a hash of this entire episode. By not consulting the unions or wider membership, it appears they’ve panicked in the face of pressure from the press and right wing elements within the party. This refusal to call upon the social weight of the unions to bolster their position and ideas has to end. Blairism is dead as a pillar of Labourism. Its burial is overdue.
Labour is humped.
Well it is a very good question.
increasingly, the globalisation of manufacturing, and the defensive use of patents to protect IPR would complicate the idea of wholesale nationalisation and import substitution within a national economy; what is more, any manufacturing which did not fully take advantage of the economies of scale in the global division of labour would be producing comodities for sale with a greater than socially necessary amount of labour, and they could only be exported either at a loss, or by exploiting an articfically devalued currency, which would probably mean making it non-convertible. There would be a danger that such subsidised exports would be subject to tarriffs from other states.
Such an economy would be at a long term competitive advantage both in terms of access to high technology, and attracting capital investment.
I become more persuaded that socialists can do no more than aspire to use the state as a counterbalance to private corporations, in a similar way that we use the bargaining position of organised labour to stand up to the power of capital without transcending entirely the relationship between capital and labour. i.e, the period where it was possible to hypothetise about a state socialism (or even a relatively autarchic state capitalism) is increasingly past, due to the increased globalisation and power of multi-national corporations.
What we can imagine though is the growing trend – following the Chinese example – of states defending their economic and political soveignty, as a mechanism for exerting popular control over the economy based upon negotiation with capital from a position of strength.
#41
Her policy of mass unemployement did indeed cut inflation, which meant that those who remained in work were better off in real terms, and the windfall stimuli of the privatisation give-aways did benefit millions; there was a consequent boom of SME start ups as well.
Enogh people benefitted materially from Thatcherism for her to win elections in an increasingly polarised and unequal Britain.
I’ll buy some of that.
and:
Well quite so, but we also do need thereofre to play the longer game to shift the political viability of more radical solutions, which also means arguing for things transitional between where we are, and where we could be.
#48
Well yes, but winning the argument that the unions should choose to use their social and political weight – as they have in the past – is a longer term process; requiring culture change, and also requiring the unions to have a more proactive rather than reactive approach to Labour’s politics.
This weekend’s problematic statements on public sector pay by the two Ed’s have further complicated this.
Andy Newman,
“What we can imagine though is the growing trend – following the Chinese example – of states defending their economic and political soveignty, as a mechanism for exerting popular control over the economy based upon negotiation with capital from a position of strength.”
You raise some good points, and I don’t possess sufficient economics knowledge to give a worthy rebuttal, but I will say China, by virtue of the massive potential market it represents (as does India), is a special case. It is able to utilise leverage when dealing with international capital because of the promise of riches for those servicing this market. In the case of the UK, for instance, while nothing to sneeze at, such leverage may be more difficult to gain. It would come at the price of massive wage reductions and transfer of wealth upwards in order to keep capital “at home”, which is and has been happening for some time, anyway. So I’m not convinced that this reliance on private investment ,even in “partnership” with the state, is the highest that socialists should aim. Surely, with the advances in technology , mass production will become easier and easier to realise in the coming decades and therefore easier for a centrally planned economy to provide for it’s population?
increasingly, the globalisation of manufacturing, and the defensive use of patents to protect IPR would complicate the idea of wholesale nationalisation and import substitution within a national economy; what is more, any manufacturing which did not fully take advantage of the economies of scale in the global division of labour would be producing comodities for sale with a greater than socially necessary amount of labour, and they could only be exported either at a loss, or by exploiting an articfically devalued currency, which would probably mean making it non-convertible. There would be a danger that such subsidised exports would be subject to tarriffs from other states.
As people on this site often observe, it is hard for a state to go bankrupt. However, the UK has a chronic balance of payments deficit so there is a danger that such subsidised imports could actually cause this to happen.
In comparison, import substitution and making do with commodities that have a marginally greater than socially necessary amount of labour (as measured by the world market) looks an attractive option.
There are other choices:
a) subject our, effectively subsidized, imports to tariffs
b) devalue our currency
Then again we could just persuade the rest of the World that they owe us a living.
George Hallam,
I’ve heard it argued, George, that if we impose tariffs on imported goods (especially from China) then many of the goods,especially electronics and appliances, that are accessible to low-income earners would become unattainable once again which would be regarded as a reduction in living standards if a general rise in wages did not occur. What are your thoughts?
61, surely she won the 83 election with millions unemployed, for the same reason she won the 87 won, For the recond in dagenham thurrock and Basildon Ymeployed peopel who got their council houses given to them for next to nothing were voting tory, and Inflationw as falling in 1979, So saying that the 76 U-turn on cuts, resulted in unemployemnt and was responsbile for labour losing in 1979, yet thathcer won with high unemploymetn followingthe same polices seems illogical.
#83
No JOhn, the Falklands War revived her popularity, and she also benefitted from the treachery of the Gang of Four, and the defection of the Labour right to form the SDP.
Much can be made of the supposed lack of credibility of labour’s manifesto at that time, but remember that Mitterand had won an election in France in 1981 on a radical programme of nationalisation.
There are a number of political considerations, firstly that Callaghan’s government encouraging unemployment and restraining wages for low paid workers caused Labour voters to desert the party. Similar policies by the Tories played to the instincts of the party’s core support. So the same policies benefitted the Tories in both cases.
Secondly, between 1983 and 1987 Britain became increasingly poliically polarised, but despte high levels of unemployment, there was a consumer boom, and many of Thatcher’s policies – such as selling off council houses – were sufficiently popular to tilt enough voters away from labour to the tories to allow them to win.
If you are going to argue that thatcher being suffciently popular to win elections vindicates her policies, then why don’t you just get on with it and join the Tories?
@56. if we impose tariffs on imported goods (especially from China) then many of the goods,especially electronics and appliances, that are accessible to low-income earners would become unattainable once again which would be regarded as a reduction in living standards if a general rise in wages did not occur. What are your thoughts?
This is a fair question.
I don’t dispute that tariffs on imported goods will make them more expensive and this will mean that less are sold. Inevitably this will have a greater effect on those with low incomes.
I will try to give you a straight answer.
If imported goods were more expensive then domestic producers would become more competitive. This would create one of the conditions for a re-establishment of British manufacturing and therefore more real jobs. This would not happen immediately or automatically, but without there can be no hope of reducing unemployment. I believe that more expensive manufactured goods (e.g. electronics and appliances) are a reasonable sacrifice to make in return for ending mass unemployment.
The key question is how much more would we have to pay and how many jobs could we create.
Now a quibble. I would prefer to use control of the exchange rate to tariffs. But the effect you are concerned with – more expensive imported goods – would be the same.
Tariffs get a bad press but most of the arguments don’t apply in Britain’s case. We have a chronic and ultimately unsustainable balance of payments deficit. Given our massive unemployment and underemployment problem, import substitution is a better solution that a push to conquer overseas’ markets. Tariffs are a precision instrument, ideal for protecting specific industries. We have a general problem: we can’t afford all the goods we import.
So how much would the price of imported goods rise if the value of the pound fell.
The answer is: not as much as you’d think.
Try this thought experiment.
Suppose the value of the pound was suddenly rise, what would happen to the price of a bottle of Champaign?
The answer depends on where you buy it.
Suppose the pound doubled in value.
If you are on holiday in France then, measured in pounds, a bottle of Champaign would have halved in price.
But what about buying a bottle in a shop in London?
The reduction would be less. This would be true even if the shopkeeper passed on all the reduction in his costs. The reason is that the wholesale purchase price of a good is only part of a retailer’s costs. The rest relate to rent, storage, heating and lighting, staff wages, etc. These costs are determined by the domestic economy. Often these costs are 50% or more of what you pay.
Now reverse the exercise.
Suppose the pound halved in value. (this is more than would be needed but it makes things simple).
In France then, measured in pounds, everything would automatically be twice the price.
But in shops in the UK prices would rise by less because the domestic component would not have risen at all.
If you are going to argue that thatcher being suffciently popular to win elections vindicates her policies, then why don’t you just get on with it and join the Tories?
I Never said that it was you gave the explanation that ,she won in 87 for different reason s than in 83 becuase of the consumer boom,
As for the SDP spltting the Anti tory vote, Seeing as George brown had alreadly left labour and said vote tory in 79, and went to the SDP when they formed surely the SDP took votes from teh Tory party too, afterall when teh SDP split up in 1991 David Owen said vote Tory at the 92 election, If the treachory of Bill rodgers being deselected by Militant casued him to join the SDP in 81, someho resulted in Thatcher winning the 83 an 87 elections, you must feel it was wrong For lufthur hafman to have stood as A independent and that the Tory vote fell by 800,000 from 79 to 83 but wnet up to that much in 1987, Yes millions of laobur voters stayed at home in 1983, and came back in ’87 ,but for everyone of those who defected to teh SDP in 83 there were Tory voters who voted SDP in 83 who went back to the Tories in ’87 as the SDP vote only fell by 100,000 from ’83 to ’87.
It wasn’t only Blairites that realisied Wilson was wrong to let Militant infultrate the party,same as introducing the closed shop, HAttersley Kinnock felt wilson was wrong on that too.
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