THE CASE FOR REFORM – NOT REVOLUTION
If memory serves, bookmakers offered odds of 200-1 against Jeremy Corbyn becoming leader of of Britain’s Labour party, a contest he then won by a very comfortable margin. Though their politics are diametric opposites, Mr Corbyn and Donald Trump do have one thing in common – an uncanny ability to put red faces on the “experts” by pulling rabbits out of electoral hats
As recently as a week ago, some of these experts were suggesting that Labour might struggle to get even 25% of the vote. This was a prediction which always flew in the face of logic. My hunch has long been that pollsters would understate Labour’s support by at least 5%, because many of Mr Corbyn’s most committed supporters are not the kind of people who answer pollsters’ questions. If that rule-of-thumb is right, he could yet confound the pundits again, this time by becoming Prime Minister after Thursday’s vote or, at the very least, by taking away the government’s slender majority.
It isn’t hard to understand why Mr Corbyn might garner a large enough proportion of the vote to pull off a shock. Average wages have been falling adrift of inflation since 2009, and of the cost of household essentials for even longer, and security of employment has been weakening for at least as long. Rightly or wrongly, many people think that a wealthy minority is prospering at the expense of the majority. These are fertile conditions for a popular repudiation of “the establishment”.
Strikingly, this is an election which, as the Prime Minister’s critics allege, quite probably was only called because incumbent Conservatives expected a huge victory. If this is the case, it’s another instance of the same sort of complacency that we have witnessed before, notably over the Scottish independence referendum and the “Brexit” vote on EU membership. As so often in recent times, the establishment – in this instance, the government, its advisors, the “experts” and the mainstream media – just don’t seem to “get it” where the popular mood is concerned.
There really is no excuse for such complacency. Where purely economic issues are concerned, there are two factors guaranteed to make an incumbent government unpopular. One of these is hardship, and the other is a perception of unfairness – and both have been present in abundance in the UK in recent times.
Hardship, at least, is factual. According to a recent report from the Joseph Rowntree Foundation, 19 million people – almost a third of the British population – are now struggling to get by on “inadequate” incomes, up from 15 million (25%) six years previously. Comparing 2016 with 2009, a 12% rise in average wages has been exceeded both by CPI inflation (of 16%) and by the cost of household essentials (22%). By the latter measure, at least, the average wage-earner has now been getting poorer for a decade. This is a longer period of deterioration even than the 1930s, and might be unmatched since the 1840s, or even earlier. Neither does anyone really expect a reversal any time soon, not least because of the increase in inflation following the slump in Sterling after the “Brexit” decision.
Anyone who thinks that this can make an incumbent government popular needs to get out more.
If hardship is electorally bad, perceptions of unfairness are truly toxic, and such perceptions cannot be countered by official statistics. A fair summary is probably that, whilst income differentials haven’t widened over the past decade, inequality of wealth certainly has. Monetary policy, including ultra-low interest rates and “quantitative easing”, has inflated the value of assets – and you can only benefit from this if you had assets in the first place. Back when ZIRP and QE were introduced, those of us who believed there was an imperative political need to accompany asset-inflating policies with higher taxes on the resulting capital gains (and lower taxes on income) were ignored.
The popular narrative, then, and rightly or wrongly, has been that policy has benefited a wealthy minority at the expense of the everyone else. Until quite recently, government ambition in this field was limited to helping the very poorest, which is no answer at all to those who, whilst not in absolute poverty, are hard-pressed to make ends meet.
Beneath the surface issues, a motivating perception is that politicians of all parties have abandoned “the working class”. Under Tony Blair, “new” Labour adopted essentially the same economic policies as the Conservatives, and sought to claim radical credentials on grounds not of redistribution but of “identity politics”. This sense of abandonment by “the establishment” has included not just economic but social issues as well, notably immigration. The estrangement between governing and governed almost certainly proved decisive over “Brexit”, where each and every plea from politicians, business leaders and “the commentariat” for a “Remain” decision probably drove more voters into the “Leave” camp.
One of the more striking features of the “populist” – or simply “popular” – backlash against Western elites has been the failure of politicians of “the left” to capitalise on it. Essentially, social democratic parties are perceived to have sold out – and it’s hard to be a credible campaigner on issues of economic inequality once you’ve bought the second home in Tuscany and packed the children off to expensive fee-paying schools. This is one of two reasons – the other being immigration – why angry voters have veered to “the right” rather than “the left”.
This is where Jeremy Corbyn is different. Because its stilted, “first past the post” voting system effectively reinforces established parties and prevents the rise of a Syriza, a Podemos or an FN in Britain, very limited routes exist for a popular backlash against the elite. The “Brexit” referendum was one such opportunity, and voters took it. But the only other realistic democratic route for challenging the establishment was to seize control of one of the major parties, and this is what Mr Corbyn did.
In the election called by Mrs May, a big part of what is really being put to the test is the extent to which the voters want to kick the establishment in the teeth.
The irony is that Mrs May is not a quintessential establishment candidate in the mould of Tony Blair or David Cameron. She seems to recognize the need for reform, and for narrowing the divisions which have widened alarmingly between the winners and losers from two decades of essentially neoliberal policies in a context of globalization. When she famously told her party to its face that it was widely seen as “the nasty party”, many seem to have failed to recognise that her call for changes to party policy would extend to the economy as well as to social issues.
As the election campaign has unfolded, the sure-footedness of the Corbyn camp has contrasted strikingly with the stumbling of the Conservatives. Voting choices are as often about perceptions of competence as they are about policy. Apparent attempts to frighten voters away from Mr Corbyn seem to have misfired, whilst he has been as determined to distance himself from his own party’s recent past as from his opponents.
The view taken here, which will not surprise readers, is that the Western elites have failed, and nowhere has their failure been more conspicuous than in America and Britain. Allowing market capitalism to mutate into corporatism has been damaging, both socially and economically. A large part of Donald Trump’s appeal was simply that he wasn’t an establishment figure in the mould of Hillary Clinton. In Britain, Jeremy Corbyn has been winning over voters simply by distancing himself from the elite. He has set out to prove, were proof necessary, that he isn’t another Tony Blair or David Cameron.
In reality, Mrs May isn’t another Blair or Cameron either, but this differentiation has proved difficult to establish.
Mr Corbyn is right, then, about many of the ills that he identifies. The economy has indeed been mishandled, which is one reason why Britain is now – in the words of Bank of England chief Mark Carney – dependent on “the kindness of strangers”. The economy has become progressively less balanced, with a continuing decline in manufacturing output contrasting with growth in the real estate and financial services sectors. The majority have indeed suffered, not just through deteriorating real wages but also through the increasing casualization of employment as well. The authorities – though ironically Labour, not the Conservatives – did bail out bankers as well as banks. Not enough has been done to break up the domination of critical sectors by small numbers of companies, or to ensure that those at the top – not just in business, but in the public services as well – are held to account for their mistakes. There has been a failure to recognize that secure, well-paid employment is a necessary basis for robust demand.
Where Mr Corbyn goes wrong is in his solutions. In this respect, by far the most dangerous of his proposals is nationalization. He seems not to realize that a current account deficit of 4.4% of GDP, or £85bn, means that Britain must – stress, must – attract matching capital inflows. In a very real sense, the UK depends to a truly frightening extent on foreigners – those overseas investors who buy British businesses, invest in Britain, retain their profits in Britain, and lend Britain money.
There are plenty of reasons why foreign investors might already be getting nervous. “Brexit” may not be a bad thing, but the uncertainty around it is undeniable. One of the more persuasive bear arguments lies in the deterioration in wages, because low-and-falling real wages are bad news for any business trying to grow its sales. The current account and fiscal deficits combine to suggest that neither the economy nor the government appreciates the need to live within its means.
The danger of a Sterling crisis is quite palpable, as is the failure of politicians and planners to recognize its implications. If the threat of nationalization turned the inflow of capital into an outflow, there is a very real danger that Sterling could crash. If this happened, not only would inflation spike – to the detriment of wage-earners – but interest rates could soar as well, the latter causing the property market to crater.
Britain does need to wean itself off a diet of cheap credit by moving rates up – not least to counter the alarming deficits in pension provision – and would benefit, over time, from letting property prices drift lower.
But nothing would be gained, and a huge amount could be lost, if these things happened suddenly, in an atmosphere of panic. Britain survived “Sterling crises” in 1967 and 1976 – but the risk of “third time unlucky” is perilous.
From an avowedly pro-capitalist – but anti-corporatist – perspective, Britain needs to break up (but not nationalize) over-concentrated sectors, do much more to help small and medium-sized enterprises (SMEs), empower consumers, tilt the balance towards innovation and away from speculation, and re-commit itself to the mixed economy. But swinging from failing corporatism back to already-failed collectivism isn’t the solution.
The best outcome – the one likeliest to pluck the flower of safety from the nettle of danger – would be a Conservative government with a workable majority, led by someone committed to popular capitalism rather than to corporatism, and robustly opposed by a Labour party that has gone back to its roots.
The worst outcome could be a government committed to nationalization, barely opposed at all by a Conservative party tearing itself apart in a welter of recriminations.