The reaction to John McDonnell’s announcement that he would aim for a balanced current account, whilst maintaining borrowing for capital investment, revealed a recurrent fault line within left-wing economic thought. At its most banal McDonnell was accused of signing up to George Osborne’s ‘austerity charter’, whilst more sophisticated critics argued such policies would weaken demand and harm economic growth. This article will not address the technicalities of figures and whether Labour should borrow limited amounts rather than aim for a balance (see a critical account here). Instead we will focus on the key political division the fallout from this announcement has revealed, and what it says about the character of ‘Corbynomics’, and the barriers it faces.
During the last thirty years of political setbacks, socialist economic policies have taken a particular battering. This has been very apparent in the predominant responses to the onset of austerity since 2008. Rather than proposals for a fundamental restructuring of the economy, the main left response has been both defensive, and grounded in an argument for why “ideological” cuts are unnecessary and harmful. Invoking mainstream Keyensian economists such as Joseph Stiglitz and Paul Krugman, the argument has gone that government could stimulate an economic recovery through borrowing at cheap rates. Insofar as it went this was welcome, but it was a more or less passive argument that could unite trade unionists, and political forces of the ‘centre-left’ from Labour, to the SNP and Plaid Cymru. At best, the Keynesian approach amounts to a tepid intervention and stimulation of demand.
McDonnell’s proposals are a sharp break from this perspective. They unapologetically place the redistribution of wealth and power at the centre of economic policy, where it belongs. In total this is a buoyant attempt to shift the argument about what macro-economic policy is for. The proposals for a National Investment Bank (NIB), a ten pound an hour minimum wage, and raising taxes on the rich and enforcing corporate taxation signal a major change in the vision of the economy that Labour is putting forward. This was summed up in his Labour conference speech when he spoke of an “entrepreneurial state”, stimulating innovation and its commercialisation, the NIB and an invigorated trade union movement replacing the “rich elite” who presently hold sway.
This brings the core questions of ownership, control, and democracy to the forefront. Rather than economic policy being dictated by concern for the confidence fairy and ‘light touch regulation’, predicated on the seminal importance of how certain the rich are in making a profit, democratic forces will reshape our economy. This is fundamentally tied to a vision of actual rebalancing, through a ‘green new deal’ fostering economically secure and environmentally sustainable manufacturing employment.
However, this is where the big ifs and buts occur. The character of the NIB ranks alongside Trident as a major factor in the future of Corbyn’s policy. Will it merely be an auxiliary to Britain’s globalised financial sector that gives assistance to firms for reasons that extend beyond immediate profit motives, or will it be a tone setting body exercising control over it? This raises the spectre of capital controls, and even how you attempt to collect the taxation that corporations are so expert at avoiding. There’s a reason the centre-left doesn’t propose these sorts of policies anymore. Capital controls were an accepted part of UK regional policy under Labour and Tory governments to distribute industrial investment from the ’core’ South East and Midlands to ‘peripheral’ from the 1940s to the 1970s, but were dismantled in the 1980s as the financial sector we know today took off. Attempting to exercise the form of control that an effective redistributive policy requires would necessitate overturning a political as well as economic paradigm. A connected issue relates to asset bubbles and house prices. With property speculation sucking up so much of UK investment resulting in little to nil productive outcomes, rent control policies would be welcome, but much more is required. Public sector house building would need to be accompanied by investment controls and redirection.
Corbynomics is not nostalgic; redistributive measures and the empowerment of workers must be at the forefront of any socialist economic agenda. But it also remains a malleable entity. Naturally, McDonnell is cautious in outlining policies seen as revolutionary in a country where the political bubble has become fundamentally decoupled from even mainstream economic thinking. The rise of Corbyn and a mass membership and participatory Labour Party has created space and an urgent necessity to have these arguments. As has been said many times before, “economics is too important to be left to economists”: it’s down to all of us.