Tribune, 4 December 1992
As Gordon Brown and his advisers chew over their options after Norman Lamont’s autumn statement, Paul Anderson and Ben Webb take a look at what left economists are saying
In the wake of last month’s autumn statement, Labour is having to do some serious thinking about its economic policy. The party’s line on Norman Lament’s “recovery package” remains that it is no such thing. “Too little, too long delayed and too inadequate to boost confidence for more than a weekend,” said Gordon Brown, the Shadow Chancellor.
But even at Labour’s highest level there are worries that Lamont stole some of Labour’s best ideas for his autumn statement: tax breaks for industrial investment, an end to car tax, lease-buying of trains, relaxation of constraints on the use of receipts for council house sales, easing of Treasury rules on capital spending, direct intervention in the housing market.
There is a consensus among Labour policy-makers that, although the party can in the short-term make much of the small scale of Lamont’s measures and attack the spending cuts that were the other side of his autumn statement, in the medium-term Labour needs to come up with some new ideas. This view is reinforced by a widespread belief that the economic policies on which Labour fought the last election failed to convince voters that Labour would make very much difference to Britain’s dire economic plight.
Brown is now taking soundings on the options from economists and advisers with a view to presenting a major new policy package early next year. What he will come up with is not yet clear, but there are indications of his direction in the policy document he launched immediately before the autumn statement, Labour’s Campaign for Recovery.
On one hand, the document calls for a “British New Deal for the nineties” with an emergency employment programme at its core. This is, for the most part, familiar stuff except that it would be paid for not by income tax increases but by keeping stamp duty on share transactions and by slapping a one-off tax on the profits of privatised utilities.
Brown justified the abandonment of income tax increases by arguing that they would depress consumer demand at a time of deep recession, but he is clearly also looking for ways to raise money for public spending which do not leave Labour as vulnerable to Tory attack as it was last April.
More significantly in macro-economic terms, the document also backs co-ordinated international action to stimulate the economy (dubbed “new Keynesian”) by the Group of Seven leading industrial countries and the European Community, According to aides, Brown is now taking very seriously the European recovery package proposed last week by Jacques Delors, the EC President.
It is another matter whether Brown swallows the argument that reflation in one country will not work, as advanced by several influential Labour economists, including Meghnad Desai and Stuart Holland.
According to Desai, a Tribunecolumnist and a key Labour economic adviser in recent years, “capitalism has reconstituted itself through its crisis in the seventies as a global system in which nation states are no longer able to exercise autonomous control over capital”. The EC, however, as a relatively closed economy, might be able to institute Keynesianism as applied by individual nation states in the fifties and sixties.
Holland, the author of the most coherent outline of Labour’s Alternative Economic Strategy of the seventies and early eighties, The Socialist Challenge, has long since abandoned the AES’s package of “Keynesianism in one country” plus import controls and more public ownership. Most recently, the former MP for Vauxhall has been examining the possibilities of an ambitious European reflation programme, far bigger than that suggested by Delors, which would see the EC gain borrowing and lending facilities and give a “social dimension” to economic policy. His number-crunching is the basis for the European Recovery Programme launched at Labour’s Europe conference last month by Ken Coates, the Labour MEP for Nottingham.
According to the Coates manifesto, joint action for European recovery “should be led by the European Commission and co-ordinated with member Governments. Not only will this be easier than the arrangement of convergent national initiatives outside the framework of the EC, it will provide a necessary catalyst to cross-border flows which can be calculated to maximise development possibilities and the multiplier effect which these can exert.”
The idea of a co-ordinated European reflation, let alone an EC-based recovery programme, has plenty of critics. Most obviously, there are many, particularly among Labour’s Eurosceptics, who question the very premise that reflation in one country is no longer possible.
Bryan Gould, the MP for Dagenham and an unashamed advocate of “Keynesianism in one country” and interventionist industrial policies, says: “What the economy desperately needs is reflation. We are suffering a terrible hangover from Thatcherite policies, and we ought not to be afraid to adopt Keynesian policies, which have a very respectable pedigree. We have to get back to the notion that monetary policy is not a given. For Labour to opt out of the debate on monetary policy is really quite remarkable. We are in danger of capitulating to the views of those who have always created recession and depression.”
Further to the left, Seumas Milne, a Tribune columnist and one of the authors of Beyond the Casino Economy, a recent restatement of the most left-wing version of the AES, argues that advocates of Euro-reflation have massively underestimated the continuing role of the nation-state in macro-economic management.
According to Milne, a staunch opponent, like Gould, of the Maastricht treaty, Britain needs a lot more than old-fashioned Keynesian reflation: “The events of the last few months have forced back on to the agenda policies, such as exchange controls and public ownership, that were previously suppressed in the name of realism”.
But not all the critics of the European road to reflation are old-fashioned Eurosceptics or nationalisers: some even have Brown’s ear. Dan Corry, a senior economist with the Institute for Public Policy Research who was one of the architects of Labour’s economic policy in the run-up to the last election, says: “I don’t think Europe will rescue us. If we could have co-ordinated European expansion, I’d say: ‘Fantastic!’ But I’m not convinced. It would be simple if we all had the same problems but it’s not very helpful to tell people to leave it all to Europe.”
At the same time, however, Corry is sceptical of home-grown cures. “Brown is being criticised for not being Keynesian enough,” he says. “But he has to consider the complications: a ballooning public sector borrowing requirement as well as balance-of-payments problems and a huge debt overhang. That said, he could be more relaxed, and use the space to explain the case for public investment. Then, the old anti-taxation rhetoric might not have such resonance.”
According to Corry, the difficulty is as much political as strictly economic. “Explaining multiplier effects to political journalists is not easy, as I discovered in the last election. The alternative to making a case for investment was to go out of our way to sound decent and sensible, which is what we did. Today, it really comes down to whether Labour would put something like £10,000 million into the economy. If Labour proposes to do that, it will have to explain itself.”
Corry’s point of view is echoed by Andrew Gamble, a former AES supporter who has written several books on the British economy and was one of Marxism Today‘s main writers in the eighties. He is doubtful about the political possibility of a Europe-wide recovery programme and sees any plan for independent reflation as “extremely risky”.
“The British economy is much more vulnerable than in the sixties or seventies,” he says. “It was difficult enough then to pursue independent policies. The changes put in place through the eighties, particularly the removal of exchange controls, make it hard to conceive today. It is difficult to imagine a Labour government standing up to the pressures exerted through the financial markets. A co-ordinated European reflation is probably the most attractive route and should still be a priority for Labour, but the tactical problems in securing co-operation across Europe would be immense.
“There is also the domestic route. First, find a way of keeping the financial markets happy and devise a policy that puts all the emphasis on infrastructure and education and training, This would be a targeted policy, fiscally prudent and crafted to direct money to particular areas of the economy that would yield disproportionate gains.”
There would, however, be political costs in such an approach: spending would have to be held down, and so probably would pay claims. It is a project that Michael Heseltine would probably feel more comfortable with than Labour. Gamble believes that Labour could get away with it only if it sold the programme as part of a long-term strategy for transforming British society.
Andrew Glyn, an economist at Oxford University who was one of the main left critics of the AES in the early eighties, is also sceptical about the options available to Labour. Although “the worm is beginning to turn” in economic thinking and “the pro-marketeers are on the defensive”, it is difficult to work out what the left ought to be saying, he argues. While “it is very hard to dispute the view” that reflation in one country has become highly problematic, there are other ways of restoring high levels of employment.
“The alternative, which is hardly explored, is to expand public services, in other words to redistribute income to the social wage. It is possible to have much higher levels of public spending. There’s not some economic logic that puts a natural limit on public expenditure.
“This is precisely what was done in Sweden in the eighties. But that case is instructive, because it shows that you need popular support to do it, and you can go too far. It reached a limit in Sweden, but at a hugely higher level of welfare than here. So if people object, and you lose political support, you’re up a gum tree.”
Unsurprisingly, there is no consensus among left economists about the direction in which Brown should be moving: just about the only thing they can agree about is that, whatever Labour opts for, it will not provide a miracle cure for Britain’s economic malaise and it will be difficult to implement. More than ever before, breaking with economic orthodoxy is more easily proposed than executed.
