Labour’s (and our) dilemma
Now that Labour has its feet under the table, what are its chances of succeeding? If its early spate of announcements are anything to go by, it could achieve a lot. But on the one thing that really matters — getting the economy back on track with growing investment and productivity — things don’t look so good. The reasons why matter. They portend an existential crisis for Labour (and for the rest of us).
The heart of the dilemma
Labour has always found itself on the horns of a dilemma. To what degree is it a party dedicated to challenging capitalism and achieving socialism (whatever that means)? And to what degree does it present itself as a party capable of managing capitalism better, so that all citizens benefit from it?
Historically, electorates have shied away from the former, fearing the risks of destabilising change, especially since state socialism seemed to have failed as an economic alternative. In this context Keir Starmer’s determination to present a ‘changed’ Labour Party committed to ‘stability’ and ‘wealth creation’ did the electoral trick, resulting in what some are calling a ‘loveless landslide’.
But behind this age old debate a worm has turned. What was historically true isn’t true any longer. Labour’s (and our) problems go much deeper than most are admitting or, perhaps, have even realised. They go to the heart of what ‘wealth creation’ looks like and how to achieve it.
Here’s the issue in a nutshell. The social democratic formula for success — the one currently being pursued by Labour — is based on a simple underlying assumption, that if the capitalist economy is successful at creating wealth then some of this wealth can be accessed and used by Governments (e.g. via taxes) a) to help capitalism work better and b) to address the problems this capitalist system creates, thereby creating a virtuous spiral.
This formula worked very well … for a certain period of time especially during the ‘Golden Age’ of the post-war boom. In this period, Governments invested in infrastructure (e.g. road, rail and electricity networks, health and education systems) that effectively subsidised the operations of capitalist firms by providing them with cheap, good quality inputs (including labour) and support. Governments also addressed social issues not addressed by capitalist firms, such as unemployment and the need for old age pensions, via the provision of a welfare state.
The problem with this formula is that for it to succeed its underlying assumption — that a capitalist economy is successful at creating wealth — has to remain true. But that stopped being true a while ago. This is the worm that has turned: a deep, fundamental economic shift that neither Labour nor the general populace has yet come to terms with.
Deindustrialisation
This shift has taken place at two levels, one at a truly fundamental economic level, the other at a more institutional, political level.
The truly fundamental shift is this. The old industrial age approach to wealth creation was based on capitalist firms using access to new-found sources of energy (fossil fuels) plus scientific and technical know-how to advance their ability to produce material goods by leaps and bounds. They employed millions of workers in order to do so, generating an economic boom.
But over time, this formula began to reach the limits of what it could do and, starting with the oil crisis of the 1970s, it started to unravel. Fossil fuels stopped being the means to lifting barriers to productivity and started becoming a problem in their own right. Rapid de-industrialisation, encouraged by Governments pursuing ‘free market’ policies since the early 1980s, swept away the industrial heartlands that had made the nation so wealthy.
Financialisation
On top of this, free market reforms transformed the nature of the institutions that govern and dominate the economy: they turned cancerous.
The net effect of 50 years of legislative and institutional reforms designed to ‘set markets free’ was to make it much easier and quicker for financial ‘investors’ to make money by manipulating financial instruments — using money to ‘make money’ — without bothering with the painful, intermediate process of making anything useful.
New, ‘free’ financial markets (and many of them are new, effectively created by financial deregulation) are no longer interested in actually creating wealth. All their ‘innovations’ are focused elsewhere: on fine-tuning multiple different ways not to create wealth but to extract it, just as a cancer sucks the nutrients from the body it is killing.
This now takes many, endlessly creative, entrepreneurial forms. They include lending/borrowing money to profiteer from asset price inflation (by buying and selling already exists assets such as land, stocks, shares and houses); trading bets on the future prices of these assets (so-called ‘derivative markets’); ‘private equity’ and leveraged buyouts (aka asset stripping); share buybacks (using any spare cash to line the pockets of shareholders rather than invest in the future) ; rentier corporate strategies (such as water companies borrowing billions to pay dividends to shareholders while not bothering to invest in the infrastructure they are responsible for), tax evasion on a monumental scale, and so on.
Seeking a past that no longer exists
But Labour, it seems, has not seen or does not want to see either of these changes. Instead, it seems to be in denial, seeking to go back to a past that no longer exists.
This can be seen clearly in its planned economic policies, which pin all Labour’s hopes on convincing financiers to start investing in wealth creation again.
You can see it in their talk about ‘stability’, their focus on reforms such as relaxed planning permissions, in their hopes of “stimulating investment through partnership with business” and of “crowding in private investment” (whereby the public sector puts up some cash for investments in the hope that this will attract more, private investors).
You can see it in their hopes that a fast growing financial services industry will provide a viable replacement of the industry that has been wiped away, with Rachel Reeves touting the financial services as “one of Britain’s greatest success stories” and promising to support further ‘innovation’ in this industry (when it was the last round of such ‘innovations’ that triggered the last great financial crash).
And, having experienced what can happen when today’s now-all-powerful financial ‘markets’ express their displeasure (as with their response to Liz Truss’s disastrous budget) Labour is keen to bend over backwards to reassure the financiers, in advance, that nothing will be done to rock their boat. Hence Rachel Reeves beating the drum of ‘fiscal responsibility’ and “not playing fast and loose” with public finances.
The strong message from Labour to financiers is, then, “no need to change!”. Which means they can and will continue to not bother investing in productive capabilities and will continue manipulating financial instruments to extract as much money as they can from what is left to the real economy.
They might offer a few sops to Labour along the way, to keep it sweet. But actually what Labour’s economic policies add up to is a determination to NOT address the structural crisis at the heart of the UK’s political economy. Labour has ‘changed’, so that the forces that now command the economy do not need to.
The search for a new formula
This may be politically expedient but it is doomed to fail. The only possible result of not getting to grips with financial cancer and deindustrialisation is the increasing immiseration of a growing proportion of the population.
If Labour really wanted to get the economy growing, it would have to do two things. First, it would have to break the power of the financial markets just as Margaret Thatcher set out to break the power of the unions.
Many would say that is impossible (it is not). It is, however, terribly frightening and risky (which breaking the unions was for Thatcher too). It’s also a really big ask because the UK’s populace is nowhere near accepting the need to do it. People voted Labour for a return to the good old days of ‘stability’, not change.
Second, there is no point taking on this risk and effort without a clear idea of what would replace it. What is the alternative if it is not state socialism (which didn’t work)?
This question goes deep. Really deep. We are almost certainly in the midst of social, political and economic transformation as big as the shift from a mainly agricultural feudal economy and society to an industrial capitalist one. A transformation that took centuries, and which left many people utterly bewildered as it unfolded.
In practical terms, it poses the question: If the old formula for wealth creation of ‘fossil fuels + scientific and technical know-how + the factory system’ is now spent, is there are new formula that can replace it? If so, what does it look like?
I think we can see inklings of the new recipe all around us. One ingredient is datafication (with data acting as a new pivotal resource that is increasingly replacing fossil fuels in two ways: opening up completely new opportunities plus new ways of being far more productive). Another ingredient is accelerating advances in life and information sciences (as opposed to physical sciences).
Together, they are shifting the focus from the production and consumption of things to other priorities such as improving health, wellbeing and flourishing — to much more intensive (rather than extractive), production processes that are much more sustainable, whose main output is improved human wellbeing (not just ‘consumption’).
If you want a soundbite slogan, it’s a shift from ‘the consumer society’ to ‘the circular wellbeing economy’.
Trouble is, as yet the ingredients of this new recipe for wealth creation haven’t been brought together, yet, in a way which makes them ‘gel’ (as Henry Ford’s moving assembly lines did for the industrial age). No one is yet quite sure how to bring them together. Which leaves Labour not knowing which way to turn.
We can afford what we can actually do
Just how big a transformation this could be is illustrated by the current debate about the level of public services the nation can afford. Given that the country faces its worst economic situation since the end of the second world war, Labour’s supposed iron-clad commitment to ‘fiscal responsibility’ means it is convinced we cannot afford much — as it keeps on saying.
But then, if we look back to the economic debates that raged around the end of the second world war, we find that back then financiers said the nation couldn’t ‘afford’ to rebuild because we didn’t have the money — that we can only do what we can ‘afford’. But others like John Maynard Keynes demurred. Keynes insisted that “we can afford what we can actually do”. That if we have builders, bricks, cement avaliable for example, then it is crazy not to get them working just because somewhere, somebody’s bank balances happen to be depleted.
‘We can afford what we can actually do’ has everything to do with practical, operational capabilities and flesh and blood people doing useful work. On the other hand, “we can only do what we can afford” is about placing power in the hands of those who hold the purse strings and the manipulation of financial flows. Labour is opting for the latter because it doesn’t know how to do the former. And it is not alone. The electorate is in the same position, which is why it voted Labour.
In her recent Mais Lecture Rachel Reeves said that what this country needs is “a fundamental course correction”. She’s right. We do. Labour’s dilemma is that it doesn’t know what this fundamental course correction looks like or how to achieve it. Hence its doomed attempts to go back to a past that’s already gone.
But this dilemma isn’t just for the Labour Party. It’s a dilemma for the whole populace. And it will only grow more intense the longer we fail to confront it.
