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 Tribune
columnist 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.
