Corbynomics: can it work?

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Labour leader Jeremy Corbyn and shadow chancellor John McDonnell are championing economic policies that challenge the neoliberalism of the past four decades. Simon Guy argues that to make them work will require not just reforms in parliament, but workers' struggles from below.

‘What’s happening?’ Corbyn asked a young man with a ‘CORBYN OUT’ placard. ‘He’s refusing to give free gap years and iPhones to the under-25s’. ‘CORBYN OUT!’ Corbyn shouted. ‘DOWN WITH CORBYN! END THE CORBYN JUNTA NOW!’”

The Daily Telegraph’s depiction of a delusional, childish movement forever unsatisfied with so-called economic realities tries to distract from the key reason for Jeremy Corbyn’s rise — that he represents a popular break with austerity.

Corbyn’s campaign released a document in July that is a huge shift in thinking from previous Labour leaderships, which is to be welcomed. It says the key choice is “whether to accept austerity or whether to break free of this straitjacket” and asks how we “get some of the wealthiest individuals and biggest corporations to pay anything like their fair share”.

On the new economic advisory team is Thomas Piketty, the author of the best-selling book Capital in the 21st Century, which takes issue with inequality. He says of the Labour leader, “There is now a brilliant opportunity for the Labour Party to construct a fresh and new political economy which will expose austerity for the failure it has been in the UK and Europe.”

Corbyn has included in his team people who oppose Tory cuts and go further. Seumas Milne, now Labour’s Executive Director of Strategy and Communications, wrote in the Guardian in September, “For the past generation it has been the corporate embrace, the revolving doors, the privatised contracts, the ‘free trade’ treaties, European Union directives, and the removal of economics from democratic control under the neoliberal rules of the game that have set the boundaries of acceptable politics.”

Andrew Fisher, Corbyn’s head of policy, wrote The Failed Experiment, which argues that “politicians of all parties in government ceded power over fundamental sectors of our economy to a new oligarchy of corporations”.

What this adds up to is a breakdown in the dominance of neoliberal ideas in the Labour Party. The appointment of John McDonnell as shadow chancellor raises hopes of real change. Despite a wobble over the fiscal charter his impact has been positive.

Martin Wolf, chief economics commentator at the Financial Times, suggests their policies are not even that outlandish: “His hostility to fiscal austerity, the financial sector and nuclear weapons, together with support for rent controls, renationalisation of the railways and higher taxes on companies and the well off, could prove very popular, particularly if the economy did poorly.”

Despite this, during the leadership election former shadow home secretary Yvette Cooper said, “Printing money year after year to pay for things you can’t afford doesn’t work — and no good Keynesian would ever call for it.”

Investment

Keynes did reject the notion that workers’ living standards should be reduced to solve economic crises. He also proposed driving down the interest rate and increased expenditure by government. The idea was that lower interest rates meant people with more money were encouraged to spend, creating more of a market for goods and increasing investment.

Sometimes Keynes proposed radical solutions, including that there was something fundamental going on which caused investment to decline. This led him to assert “that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment”.

But he often tailored his proposals to make them more acceptable. He was worried about scaring capitalists off through capital flight.

Keynes was no revolutionary — he was forced by the crisis of the 1930s to propose drastic measures to attempt to save capitalism from itself. Nonetheless given the neoliberal consensus his policies can seem very radical indeed.

Some people are looking to Keynes in a world system which finds it hard to deliver reforms.

So far the government has spent £375 billion in quantitative easing (QE), essentially printing money and handing it to the banks in the hope it trickles down to investment. One of the Tory arguments against People’s QE, where the money is put straight into investment, is that it will drive up inflation.

During the four periods of QE in the UK, inflation has been on its way down after three of them. Inflation has been falling since the last bout in July 2012 from just above the target rate of 2 percent to just below zero.

In Japan, Abenomics — named after prime minister ShinzoōAbe — has, since 2012, involved trying to boost the rate of inflation to 2 percent by, in part, using QE. This has failed as it also stands at around zero. Core inflation inside the eurozone is stuck at 0.9 percent despite a ¤1.1 trillion QE programme.

The Tories oppose People’s QE, irrespective of its effectiveness or otherwise in solving the economy’s problems. They oppose it because it would direct the money towards initiatives that could benefit working class people, and not simply those presiding over the system who have seen their wealth grow through the asset price inflation triggered by QE. We must reveal the class nature of their arguments and put forward ideas which break free from the ideological constraints of capitalism.

The response to the crisis in the steel industry highlights the limitations of a reformist response to the pressures of the world market. Writing in the Daily Mirror, McDonnell said Labour would push to stop Chinese steelmakers “dumping cheap steel in European markets, undercutting British steel”.

Is protectionism the answer? The Chinese state will surely sell steel wherever people will buy it and will not respond to being discouraged. China faces its own problems and has massive overcapacity in steel production. To make protectionism work, McDonnell would have to impose tariffs. As Rosa Luxemburg said, “Given the condition of reciprocal dependence in which the various branches of industry find themselves, a protectionist tariff on any commodity necessarily results in raising the cost of production of other commodities inside the country.”

An alternative would be for the workers to take control of their steel works, call for nationalisation without compensation and under their control, and for the steel to be used for the public good instead of private profit. If Corbyn and McDonnell are to continue leading a transformation of society, it will be by championing this sort of struggle from below.

We know from Greece that parliamentary action alone is not enough. Syriza leader Alexis Tsipras was elected on a radical programme that broke with austerity. But this clashed with the priorities of capitalism — both Greek capitalists who took their money out of the banks and the wider structures of European capital. Faced with this Tsipras folded. We have seen similar patterns in Britain. Are Corbyn & co going to be part of a movement that is prepared to expropriate the rich of their power and wealth?

Confronted

In 1964 Harold Wilson became the Labour prime minister. He was confronted by the governor of the Bank of England who demanded immediate cuts in government expenditure in response to a run on the pound. Later Wilson said, “We had now reached the situation where a newly elected government with a mandate from the people was being told, not so much by the Governor of the Bank of England but by international speculators, that the policies on which we had fought the election could not be implemented; that the government was to be forced into the adoption of Tory policies to which it was fundamentally opposed. The governor confirmed that that was, in fact, the case.”

The history of Labour governments is a history of exciting promises strangled by international markets, and then later an acceptance of the existing order. The revitalised Labour Party, this new reformism, represents a break with the status quo but not with the logic that broke previous labour governments.

Tony Cliff and Donny Gluckstein, in their Marxist history of the Labour Party, wrote of the Wilson government:

The Labour government was a pawn in the hands of world bankers. Its promises were sacrificed to reassure them. The anarchy of competitive capitalism and the tyranny of its laws invade every unit of the economy.

Workers have much greater power in the workplace than they do at the ballot box. The importance of Corbynomics is not so much that it can resolve the crisis of capitalism. It is that it can inspire broader struggles to break with austerity. Socialists must be part of these struggles and argue that by harnessing the power of workers we can go beyond the logic of reform and begin to challenge the logic of capitalism.


There is a difference between proposals and policy but ideas that have been raised by Corbyn’s shadow cabinet include:

» Ending the tax gap by cracking down on tax evasion and avoidance

» People’s Quantitative Easing (People’s QE): continuing to “print money” but bypassing the banks who are not investing it anyway and using the money to buy the assets of local councils, housing associations, etc, and using an Investment Bank for spending on infrastructure

» Renationalising the railway network

» Returning the post office to majority public ownership

» Keeping a majority stake in RBS

» Scrapping tuition fees and restoring student maintenance grants — funded by higher taxes on richer earners and a higher corporation tax

» A national education service, offering free universal childcare

» Building 240,000 homes a year, changing right to buy to apply to the private sector and not council or housing associations—funded by higher borrowing or by imposing higher taxes on unused land with planning permission and unoccupied properties