In which I aim to convince you, dear reader, that the title contains not the slightest hint of irony.
Let us cast our minds back to the series of limp Conservative party leaders that followed Tony Blair’s 1997 landslide; a massive electoral victory only equaled by David Cameron’s recent gargantuan landperturbation that was voted for by an overwhelming majority of people of all ages of pensioner and all shades of white from off pink to slightly yellowy pink to ever so mildly tanned. There was William Hague, Ian Duncan Smith, Michael Howard and David Cameron, a list which cannot be said aloud without a descending cadence into melancholy. The volume of political ideas from those four is too big to mention but I will try. There was the Big Society. There is no such thing as Big Society. The sole political idea has been a reduction in the size of the state from 42 to 36 percent of GDP. British fiscal conservatives may regret their confidence in the miraculous effects of such an economic strategy.
In this scheme Jeremy Corbyn occupies the same position as Ian Duncan Smith. Any fair minded observer would have to admit it is difficult to say Ian Duncan Smith was significantly less ridiculous or hopeless. In this post I will offer a summary of the single biggest issue, economics, and why Osborne is weaker than he may appear and Corbyn stronger. Fundamentally I think it comes down to the inaccessibility of the counterfactual and the current strange state of affairs where any growth is considered a miracle of perfect fiscal and monetary policy (in nominal GDP let alone real GDP or god forbid real per-capita GDP). The real economic question should be ‘how much lost output?’ I admit I will leave aside foreign policy and other key parts of political thought. Jeremy Corbyn is clearly a million miles from the mainstream belief that there is no possibility the killing of perhaps a million people for no clear reason may have been a mistake. It is worth remembering that taking the most modest estimate of 150,000 deaths leads to a ratio of the worth of American to Iraqi lives at 150,000:3000 ~ 50:1. Nevertheless, let us constrain the debate to ‘economic competence’.
The madness response to the financial crash
“The definition of insanity is doing the same thing over and over and expecting it to come out different” – various attributions including Jefferson and Einstein.
The Labour party response to 2008 I would sum up as ‘we were wrong about free markets stabilizing themselves and that government intervention is always wrong’. The Conservative party response has been ‘what problem? lets get back to business as usual’. Therein lies the bizarre logic of the last two elections. The incredible feat of positioning by George Osborne was to persuade the minds of ‘sensible’ people that the global financial meltdown that started in the American sub-prime mortgage industry was caused by the UK budget deficit. This economic illiteracy (or mendacity, which may or may not be worse) will be tested as soon as a budget surplus coexists with a recession or more likely fails to materialise, both of which are very real possibilities. The only real difference between the two tribes is that we fools on the moderate left actually believed the efficient market hypothesis for a few heady days at the start of the millennium. The right always knew the credit cycle could never be controlled, they just saw the opportunity to blame inherent economic structure on the ridiculous hubris of Gordon Brown’s The End of Boom and Bust. As a straight forward piece of arithmetic you must accept that reducing the size of the state is not identical to eliminating the deficit and controlling debt.
“The dream of the welfare state is over”
The New Labour approach to let the UK have one industry, financial services and services for those required to maintain financial services, with a little bit of tax to ease the worst off in society has been proved unsustainable and it will take a large amount of intellectual heavy lifting to come to a new model of economic management. The benefit of a weak leadership is it allows all this debate and formulation to go on. This is a much better state of affairs than simply trying to brush policy inconsistencies under the carpet and waiting for the government to fail. That approach invariably succeeds at some point under some leader who wants success but has no ideas. There has been no leader since Thatcher who has based their politics on ideas and not mere personal competency. I saw a great moment of truth in Cameron’s famous slip that ‘this is a career defining… country defining election’. Do we want a politics of ideas or a politics of competent professional managerialism. The left has this opportunity under a leadership schism to produce new ideas. Imagine we had some magic 3D printer that we could use to build the perfect leader in any image we chose, would this help in any way to produce a desirable Labour party? Of course the answer is no, there is work to be done in building the next Labour government.
The twin deficits
The trade deficit and the budget deficit are intimately related. George Osborne’s attempt to eliminate the trade deficit by artificially removing the budget deficit is arithmetically bound to fail and this presents an enormous opportunity for the left. The only real question is whether the left can be ready to capitalise on George Osborne’s inevitable failure to remove the budget deficit by 2020. The truth is that it probably can’t be ready for a decade but this is a necessarily long project and the violent outburst that is the current leadership is a better way to reform and regroup. A political party has to be much bigger than its leader, it has to be a whole body of thought put together by academics, journalists and technocrats in addition to supporters in general. It takes time to formulate a full set of policies before it is eventually handed to a leader who can tie it all together into a simple narrative and sell it to the country. The democratic leadership of open splits and disagreements speeds this process along. There is a real sense of the need for ideas in developing a new economic model. The UK cannot continue to be a nation which buys more than it sells and has no real economic productivity, only the global financial bureaucracy of the City of London. The myths and nonsense spouted before the last election will fall to pieces and there will be a space for new ideas. Perhaps we might be so optimistic as to believe the average British brain can handle a more complicated analysis than ‘they forgot to fix the roof while the sun was shining’. Eventually the central logical flaw in the idea of a long term economic plan to centrally plan an economy in such a way as to insure it is not centrally planned will be revealed. Has there ever been a more perfect example of Orwellian double-speak than a ‘long term economic plan’ for free markets? We have the space now to reveal this fallacy.
Entrepreneurship and “Business”
Show me an entrepreneur and I’ll show you someone whose primary concern is access to capital and not the top rate of income tax, which they could only dream of hating. The financial services industry are not really capitalists in that they aren’t speculatively investing in new firms at a risk. What we need is more capitalists and the City of London simply will not provide them. My fundamental argument here is that the umbrella term of “Business” could not be more misleading. The difference between small and medium size enterprise (SME ~ 1 to 250 employees) and big business could not be more drastic. Feel free to lump them together but the fact is policy that is good for one is not necessarily good for the other. I claim the Conservative party is the party of big business, and that the Labour party should aim to be the party of SMEs. This would in a sense be a sort of new Thatcherism in which it is not free markets but government that drives a massive increase in small firms. Entrepreneurship could be encouraged with regional investment banks and increased funding for commercially driven research. Meanwhile taxation could be targeted more at big firms, and especially in those sectors with low employee to profit ratios. The rise in self employment is a major socio-economic shift that should be the natural home for leftist thinking. Managing risks to individuals in setting up new businesses is surely a way to boost variety in the commercial ecosystem and have a more healthy spread of company sizes. The added benefit of small firms is that they are far less likely to be foreign owned and are less free to move overseas. While middle income homes will obviously be the predominant battle ground the whole new social class of the self employed, the freelance, the small business person and the ‘precariat’ can be one important battle ground if we chose it to be.
Osborne’s weakness on business: A case in point.
If you desire evidence for my claim that Osborne is bad for SMEs consider the following policy. The government plans to replace the once yearly HMRC self assessment with four quarterly returns. You may or may not know that cash flow is one of the single biggest problems facing small firms. That is, while the balance of payments in the long term may be profitable they often struggle with short term problems of cash flow. For instance perhaps the VAT bill is due in a week and they are waiting on a customer to pay for a large invoice which they have just sent in full knowledge that small company is often late due to cash flow problems. Now ask yourself the following question: What is more harmful to cash flow 1) having to pay 100 pounds in a year, or 2) having to pay 25 pounds in three months and again in six months etc. Think about that for five seconds and then also consider the extra accounting and bureaucracy costs associated with filing your accounts four times as opposed to once. The only business that can help is accountancy. Perhaps accountancy firms have good lobbyists? Finally, if this move is so helpful to ‘business’ why are large firms exempt? Perhaps large firms have good lobbyists?
One final example: the citizen’s wage
I want to make one further case for why the left and a mixed economy is a natural bed-fellow with SMEs: The effect of personal risk on entrepreneurship. Consider the following analogy. If the safety of cars increases, what effect does it have on the average speed of road users. To put it another way, are you more likely to risk starting a new business if failure means misery for you and your family or if it means merely a year of lost earnings and a return to employment. Surely, you can see then how socialising personal risk is good for entrepreneurship. Consider the effect radical leftist policy such as a citizens wage might have on entrepreneurship. Perhaps people who would otherwise take a precarious job at Sports Direct might instead try to engage in some form of self employment. Perhaps a majority would chose instead to stay in their bedroom at their mum’s and play Fallout 4 but there would absolutely be an increase in entrepreneurship. Another source for mediating risk than inherited wealth could have a truly transformative effect on business innovation as well a reduction in miserable low paid work. We have already socialised the risks of high finance so why not do the same for low finance?
Conclusion
Clearly the assumption has to be that Jeremy Corbyn will fail to win in 2020 as Ian Duncan Smith did in 2005 (remember my comparison of the stages of opposition). However, the scene will then be set for a coherent left to build a new economic consensus and regain power. George Osborne will likely pay no electoral price for not running a surplus by 2020 (or by fudging one with asset sales; is there some new gold reserve? Hospital contracts?) but the lack of ideas and intellectual foundations of the modern right will be revealed. The Labour party will then be the only party that can offer an alternative to the Thatcher-Blair consensus that ultimately led to the crash of 2008. Put simply, the UK must be built on actual economic output and not depend so heavily on incompetent financial services which must be periodically socialised. The absence of an actual long term economic plan from the Conservatives is the main source of this fantastic opportunity for the left. A left based on the consensus of academic economists not the ‘serious economists’ who work in journalism. After the second world war did that great socialist state the USA take a hands off free market approach to Germany and Japan? And was the result so disastrous? A left which accepts the delicate interplay between state and private enterprise in sectors such as pharmaceuticals and other high tech industries. A left which recognises the core economic investment of a good education for the whole population. A left which champions the great economic energy generated by programs that socialise personal risk such as the NHS as well as other more tendentious examples such as guarantees for high street banks and regulating to protect them from the risks of investment banking.
A crisis of leadership and ideas is appropriate and beneficial. This is a decade long project to create a new economic settlement, which fosters real productive economic growth and a more balanced economy. Neither major party currently has a serious package of reform to deal with this and the democratic, unsteady and presumably already failed leadership of Labour will allow us to exorcise our demons (economic and otherwise) far quicker than the ‘perhaps we can get a better looking leader who is good at presentations, sales and PR and not produce any new ideas’ approach of the Conservatives 1997-2010.
The only other alternative, no matter how improbable, is that Jeremy Corbyn succeeds. No-one could claim this to be impossible. A large recession for instance would drastically change the political debate and surely after ten years claims of ‘the mess we inherited’ would start to ring false. Perhaps this is what is really believed to be the true danger for the Labour party? Perhaps the Overton window will prove a fickle mirage and a more serious criticism than unelectable will have to be found.
Let me finish with an important reminder of the unsteady intellectual vulnerability at the heart of our current government, which may provide some context for evaluating the state of the UK Labour party:
“Vote Blue, Go Green” – David Cameron, 2009.
