Labour’s economic policy won’t work

By Nicky Dempsey

Labour’s recent National Policy Forum was a missed opportunity on economic policy, one with potentially grave consequences. There was no attempt to address the economic crisis that Labour will inherit in 2015. As a result, the Labour leadership has also made it harder to win an overall majority next May, even when the Tories are flat-lining close to 30 per cent in the polls shows they cannot possibly win.

A host of commentators have pointed out that the latest ‘recovery’ in Britain’s GDP data is three years after the main group of industrialised countries. Worse, because investment remains in a slump, the news jobs being created are low-skill, low-paid ones and consumer spending is being financed with new debts or lower savings.

Source: FT

The only way to resolve this crisis remains an increase in investment, with the state leading the way because the capitalists refuse to. But the Labour leadership has set up an entirely false obstacle to this approach, arguing that it needs to be ‘tough’ on spending, and even that a Labour Chancellor should aim for budget surpluses, as its predecessor Philip Snowden did disastrously during the Great Depression.

The flimsy objections to state investment were revealed during the debate on what became the totemic issue of rail renationalisation. The leadership asserted that the move would be unpopular, which is patently false. Without any campaigning in its favour, an overwhelmingly majority of the population already supports renationalisation because they experience the shoddy service and inflated prices of the private rail franchisees. The second line of defence, that it would be too costly to renationalise the rail industry is equally bogus. The private rail firms already operate with a larger subsidy than was ever given to the public rail system.

The same is true of a host of other areas, from energy, to the banks, the NHS, PFI, and so on. Taking control of these industries, removing subsidies to private shareholders and using the proceeds to invest would ultimately provide a huge saving to government finances. They would also be hugely popular.

Labour has correctly posed the question of the cost of living crisis as central to most voters. But it refuses to provide answers to its own question, which has already led to a slide in the polls from the low 40s per cent to the mid 30s.

It should be clear that the opposition within Labour is not because they are unpopular- these policies are vote winners. Equally, they are not because money is tight, they would save money. Ultimately, Labour’s policies are wedded to the interests of capital, not to the class its name might suggest. The austerity policy is designed to restore the profitability of the capitalist class and renationalisation in the interests of the economy and of society at large would run counter to that.

Unfortunately, the political and economic consequences of these decision are likely to be severe. The current recovery cannot be sustained on rising consumer debt. Living standards and wages cannot rise without increased investment.

Every Labour government which disappoints its own supporters leads to disillusionment and the growth of the far right. Unlike its predecessors this Labour leadership is already whipping up racism. In the current crisis, this combination is likely to produce a severe reaction.

At the NPF there was the emergence of small left wing based in the constituencies which argued in favour of investment. This seems set to grow in the period ahead. The actor which has spoken few words in Labour’s drama is the unions. There was no mention of the public sector pay squeeze, which Labour intends to continue beyond May 2015. But this is not what its voters, or its union activists will be expecting. Big struggles are a possibility, and not all Labour representatives will tow the leadership line.

All of this could be avoided if Labour set its policy on the line of investment-led growth. Unfortunately that is not the case and big clashes lie ahead.