A recent New Political Economy Network and Compass event was charged with developing a centre-left, Labour alternative to the economic plan laid out by the Coalition in the June budget and recent Comprehensive Spending Review.
What emerged from the meeting (and NPEN’s ebook) was a clear dividing line. The Coalition is the party of deficit reduction and a Labour should be a party of economic growth: Tory cuts v Labour growth.
Labour’s economic strategy – rooted in the common-sense orthodoxy of Keynes – is that this growth can only be delivered by investment and consumption, with the emphasis on the former.
While private finance has allowed a fragile consumption-led economy to grow through expanding personal debt, it has failed to deliver the investment in non-financial industry that can create wealth and jobs. So the role of the centre-left is to articulate a social narrative and according political strategy that can deliver investment and more stable consumption.
The solution – outlined in both the meeting and ebook – is for the state to play a central role in fostering both. Why? Financial markets find it more lucrative to take short-term positions in financial products than to take long-term positions in industry. There is a market failure. The state – in the spirit of Keynes – should step in and socialise finance and instead – as part of a wider industrial strategy – pick winning industries to nurture with investment and protection to bring the economic growth that will generate wealth and jobs.
We see it all over the world – Germany, South Korea, Thailand etc – and the same strategy delivered Britain its golden period of post-war growth. It is common-sense social democratic economics. What’s the problem? Selling it.
Progressive voices spend all their time trying to mobilise the political power that can change the ravages of the market. This was the strategy laid out by the Compass and NPEN event, but rarely happens. The danger is if you gain political power – as New Labour did – without the economic power, you can’t deliver fundamental reform. It’s no coincidence that the era of strong unions, mobilising their power in the market, was the era of genuinely social democratic politics but I feel like the left sees it the other way round.
With this in mind I think the state v market dichotomy, outlined routinely by left and right needs considering. It’s assumed that the state – by definition of being democratically elected – acts socially while the market – supposedly a forum of individuals – acts privately. Yet the Labour government’s bailed-out banks failed to act socially, while the market’s private banks acted as a block that was able to use taxpayers money to finance its industry-wide enrichment.
The dichotomy is a hangover from the great political economist Karl Polanyi who insisted that when markets were ‘disembedded’ (dergulated) from society, crises would follow which would demand their immediate re-embedding (via the state). Free markets v the state. The problem is that you lose the fact that markets are always embedded in society, a fact the term ‘free market’ obscures.
The free housing market is embedded in the institutions that make it and is shaped to those who can rally power accordingly. Banks, existing owners, the construction industry etc work to create a speculative market that enriches themselves more than anyone else. Yet if people can mobilise themselves differently to shape a market in their image, it can deliver social outcomes. The labour market, for instance, as a meeting of unions and employers delivered social ends.
A centre-left political economy has to address this and not allow the market to become a preserve of the right. Creating market mechanisms that increase the economic leverage of the majority is essential. In our economy, powered as it is by finance and consumption, finance is the obvious place to start. Savings are always socially organised and easier to mobilise in union than disparate 21st century employees.
*Warning, this now becomes a tad (more) speculative*.
A London social housing bank, for example, could leverage savers’ cash to fund a building programme of affordable housing. The arrangements of renting would be that tenants have to save (in addition to pay rent to) the bank which grows accordingly and is better placed to fund a new round of leveraging and building. If big enough it could then be a better position to demand social terms from the contractors it employs, like a unionised workforce or certain environmental standards.
Which relates to the last point of the NPEN meeting and ebook. There was widespread agreement that finance – again in the spirit of Keynes – had to be reined in. The asset bubbles which have underpinned the last 15 years are depicted as a type of false consciousness (reckless finance, exuberant etc). At its peak in 2007 the total (nominal, and fairly impressionist) value of global finance was estimated at $194trillion – 343% of global GDP. Existing theory demands we think of this swollen figure as a type of ‘mistake’. Finance has got carried away. But instead of busying ourselves with what our theory says should be the case why don’t we look at what is the case? Yes finance is leveraged on the productive economy but when that relationship has loosened to the tune of 343%, perhaps our theory should loosen with it.
Developing social methods of working the dynamism of finance – especially when the productive economy has been in steady decline since the 1970s in the UK – is essential to any project aimed at bringing the economic power to the left which can then underpin a political transformation.