Economics for the Many

Introduction

John McDonnell

The election of Jeremy Corbyn as Labour leader in September 2015 was the opening act in a period of political change and transformation in Britain. Thousands of campaigners and millions of voters, inspired by his message of hope, delivered the biggest rise in Labour’s vote share since 1945 in the general election less than two years later. Ten years after the Great Financial Crisis, the prospect of a Labour government elected on a platform to transform society is now very real and so, too, has been the extraordinary flourishing of new ideas on the economy to replace those that have so obviously failed.

The Chancellor of the Exchequer, Philip Hammond, said in 2016, ‘We have a problem – and it’s not just a British problem, it’s a developed-world problem – in keeping our populations engaged and supportive of our market capitalism, our economic model.’ Nobody should be surprised. Real wages in the UK today are still lower than in 2010: an unprecedented period of failure.

The crash of 2008 laid bare the failures of mainstream economic policy, otherwise known as ‘neoliberalism’. Neoliberalism is a set of policies and beliefs about the economy that have dominated government thinking in Britain (as across the world) since the crisis of the late 1970s. These rules hold it that markets are the best possible means to organise an economy, that wealth would automatically ‘trickle down’ from the top, and that impediments to corporate power – like regulation and trade unions – should be reduced to irrelevance, if not actually banned.

But since the Global Financial Crisis of 2007–8, we have been approaching the end of the road for this economic model. Growth in the economy has never fully recovered from the crash, and the growth which there has been has not been shared. The UK in particular is the only advanced economy where wages have fallen when the economy has grown.

Meanwhile, the system of in-work benefits which went some way to compensate for low earnings has been slashed, and austerity has cut to the bone the public services we all rely on.

The human costs of this economic failure are intolerable. As billions of pounds have been handed out in tax giveaways to corporations and the very richest in society, cuts have eroded the basic fabric of our society and the quality of the lives we lead. Our schools, hospitals and social care services have been deprived of the funding they need to adequately support us in our daily lives. Good-quality, secure and affordable housing, which should be a staple of any healthy society, is slipping out of the reach of an entire generation.

While the profits of big business and executive pay continue to soar, the proceeds of that wealth are not being shared by those who create it. Despite working some of the longest hours in Europe, for too many people in this country lower wages in often insecure jobs are preventing them from enjoying the basics in life, be it time spent with the family, an annual holiday away or simply a meal out.

Shamefully, it is the most vulnerable in our society that have paid the heaviest price for the economic vandalism of recent years. According to a UN committee, the UK’s austerity programme has led to the ‘grave and systematic violations’ of disabled people’s rights.¹ It demeans our society that, in the sixth richest country on the planet, record numbers of vulnerable children are pushed into care; women’s refuges, starved of funding, are forced to turn away victims fleeing domestic violence; and record numbers are sleeping rough on our streets.

Faced with the economic and social decay of neoliberalism, our core economic objective must be to create a prosperous economy that provides the richest quality of life possible for all our people and is at the same time environmentally sustainable.

The essays collected here represent just one small part of the ferment of ideas, which has flourished since the crash, around which that alternative will be built. These are the ideas into which Corbynism has sunk its intellectual roots. I hope that it will act as a spur to further discussion, debate and experimentation as the social movement that we must become develops its own policies and strategies. Since Jeremy asked me to become shadow chancellor, I’ve tried to help raise the level of the economic debate in Britain through the New Economics events around the country and the annual State of the Economy conferences.

The truth is that we know the next Labour government will end austerity and begin to repair the damage it has inflicted on our country: from the crumbling NHS to the obscenity of street homelessness. But we can’t build the best public services in the world on decrepit foundations, and the truth is that our economy is fundamentally broken. Even before the Tories’ botched Brexit fatally undermined business confidence, investment by businesses was already among the lowest in the developed world. Productivity, the motor of growth in incomes, is stagnant.

For decades, successive governments have told us that free markets were always best and private wealth should be left untouched. They ‘rolled back the frontiers of the state’ and were ‘seriously relaxed about people becoming filthy rich’. In theory, this was supposed to create opportunities for all, as wealth trickled down from the top. Yet wealth today piles up in a few hands and insecure work is at record levels. Meanwhile, the environmental damage our economy is inflicting is only too apparent in the rising annual deaths from air pollution.

We have to do better than this, but that means doing more than spending more on our public services – essential as this is. Nobel Prize–winning economist Joseph Stiglitz has elsewhere called for a ‘rewriting of the rules’ of our economies, changing the framework in which decisions are made.² We need to transform our economic institutions, and build new ones where they are needed, to create an economy that works for the many, not the few.

Ending Neoliberalism

A recent article by two academics, Joe Guinan and Martin O’Neill, characterised this as Labour’s ‘institutional turn’, highlighting the continuing influence of Karl Polanyi and his sweeping work of economic history, The Great Transformation. Polanyi argued that the creation of modern industrial society required the alienation of economic life from the social fabric. But, he argued, the violence of this process threatened society itself. This resulted in a ‘double movement’ in which society attempted to reassert itself against the demands of the market.

Polanyi’s description could sound like a prophecy of neoliberalism. By attempting to re-establish market rules and competition on the back of society, neoliberal governments have threatened the fabric of that society: from the extraordinary expense and failures of the privatisation of public services to the devastating social murder of Grenfell. Labour’s 2017 Manifesto promised to restore funding to services devastated in the last eight years by austerity and to bring public services back under public control. Calls for the nationalisation and public ownership of water, electricity, gas, the Royal Mail and trains were greeted with howls of outrage and derision from the press, but were (and remain) very popular, with enormous public support.

The intellectual traditions of the British left run deep, encompassing everything from Marxism to G. D. H. Cole and the guild socialists; from feminist economics to radical localism. If we want a movement that can provide a viable alternative, we need to know how to draw those strands together to weave a coherent, popular, democratic new narrative for our economy.

Breaking with Neoliberalism

We are, finally, beginning to shake off the great lie in British politics, pushed by the Conservative leadership since the crash in 2007, that somehow a crisis of global finance was due to the spending priorities of the Labour government in power at the time. The austerity policies this myth supported were a political choice by government, not an economic necessity. Antonia Jennings’s chapter in this volume describes how the general crisis of trust in our economic institutions could be dovetailed into support for an ‘austerity narrative’, which turned economic history and economic rationality on its head to create public support for the most devastating, inhumane cuts to public provision in generations. Similarly, J. Christopher Proctor’s chapter highlights the campaign to reform the teaching of economics in our universities and colleges, opening it up to wider sources than the neoclassical straitjacket enforced by too many curricula.

In order for Labour to be a genuinely transformative government in office, we will need a clear rule for our government’s overall macroeconomic stance. In an increasingly unstable economic world, in which major powers threaten trade wars, it will be vital to provide macroeconomic stability and certainty as we set about rebuilding the British economy. Simon Wren-Lewis argues here for a fiscal rule that a progressive government can use to keep the government debt and deficit sustainable. Labour’s Fiscal Credibility Rule, drawn up in consultation with Simon and other world-leading economists such as Joseph Stiglitz, provides exactly that robust framework.

Prem Sikka’s chapter takes up this point, providing a detailed account of the amounts potentially lost to evasion and avoidance and highlighting the ways in which a tax system with a sense of public purpose, properly staffed and with suitable resources, is essential to ensure our public services are properly funded. Özlem Onaran’s chapter builds on this to make a powerful case for government investment, not only in the physical infrastructure of telecommunications, housing or renewable energy, but in what she calls the ‘social infrastructure’ of spending on health, education and care that is fundamental to building a humane society.

Climate Change and Economic Statistics

As is increasingly recognised, many of our economic statistics do not fit the world we live in – or take proper account of its organisation. Gross domestic product excludes unpaid work, like care-work or housework, which means it excludes the work most often undertaken by women, as Özlem suggests. It does not account for the damage our economic activities inflict on the environment.

Perhaps the greatest of all these environmental challenges is climate change – which is happening, and happening as a result of human activity. In Africa and other parts of the world more exposed to its impacts, the results of rising average temperatures are already clear in the loss of farmland, poor harvests and pressure on freshwater supplies. Of the warmest years on record, three were in the last four years. The scientific evidence points towards these changes becoming horrifyingly clear over the next decade or so. One estimate has placed the potential costs of a three-month drought at £35 billion.³ These are cold, hard, economic risks arising from climate change and wider environmental degradation. Ann Pettifor’s chapter here presents the economic case for a ‘Green New Deal’, a major programme of investment in jobs related to climate change and driving through the change to a zero-carbon economy in a way that protects employment and livelihoods.

International Relations and Trade

Ann’s ideas here are already being taken up further afield, with Alexandria Cortez-Ocasio’s stunning Democrat primary win in New York building on a platform that included a ‘Green New Deal’. Similarly, the next Labour government will need to forge a new and better relationship between this country and our friends and partners in the rest of the world.

In an important speech to the United Nations in Geneva in 2017, Jeremy Corbyn spoke of the fundamental principles of Labour’s new approach to international relations: changing how we treat multinational corporations, so that we will seek to apply the same rules to them that bind individuals and governments to a common standard of behaviour, including in the areas of human rights and international obligations. More recently, Kate Osamor has defined Labour’s new approach to international development, stressing that we will be a government that fights for equality – and not just against poverty. In his chapter in this volume, Shadow Trade Secretary Barry Gardiner begins to detail how the next Labour government will work to create a new international trade regime that prioritises rights and standards and removes the gross inequalities of treatment that have otherwise characterised international trade.

It is the vote to leave the European Union that, of course, has shaped political debate over the last two years. Against the Tories’ extraordinarily bad handling of the process, torn as they are between Brexit ultras and the (increasingly insistent) demands of business, Labour will seek a deal that can work for the whole country.

However, the forces that helped drive the Leave vote, whatever the final deal, will not simply fade away. Like a by-election, in which in any number of issues can be piled together, the Leave vote contained a great many grievances. For the majority of England outside of London, which voted so clearly to reject membership of the European Union, the sense of having spent too long on the wrong side of an economic deal was palpable, as Tom Hazeldine has forcefully argued.⁴ Britain is, by some distance, the most geographically unequal country in Europe. It has the richest single area in Europe – central London – but also nine of the top ten most deprived regions in northern Europe. In their chapter, Grace Blakeley and Luke Raikes present the evidence for a persistent failure of our Westminster institutions to deliver the investment and support that the rest of the country needs to succeed, calling for a real devolution of powers and resources out from the centre.

Short-Termism and Finance

Neoliberal rhetoric usually insists on creating a crude opposition between private (good) and public (bad). This has always been wrong: as the work of Marianna Mazzucato on the ‘entrepreneurial state’ has conclusively shown, the boundary between the private and public sectors was never that clear, with apparently private sector innovations like Apple’s iPhone deeply dependent on original public sector funding for research.⁵

Short-term thinking of this kind has blighted our economy. Too often companies have looked to pay dividends to shareholders before putting their money into the skills and new technologies that will secure future prosperity. While the rest of the world moves into the fourth industrial revolution of AI, automation and robotics, Britain has the lowest usage of robots in manufacturing of any major developed economy.⁶

The recent report Financing Investment by GFC Economics and Clearpoint on Britain’s financial system drummed home this point: the roots lie deeper, but in the last few decades our financial system has come increasingly to focus on the short-term and unproductive at the expense of longer-term, productive investment.⁷ The report describes how, in effect, our financial institutions channel lending from manufacturing into real estate and proposes some critical changes to the functioning of the Bank of England. Johnna Montgomerie’s chapter looks at one part of this problem of ‘financialisation’, in which households are dragged further and further into debt, in some cases to the point where there is no realistic prospect of escape. Costas Lapavitsas’s chapter complements this with a detailed account of how our financialised economy promotes inequality and rent-seeking.

New Forms of Ownership

However, some of the worst examples of short-termism have been in our outsourced and privatised public services. Carillion, which had slowly crept into more and more provision of our public services before its spectacular implosion in early 2018, has paid out higher and higher dividends every year for the last sixteen years.⁸ It’s one glaring example of how short-term thinking poisons the real economy, and it’s why the next Labour government will bring private finance initiative contracts back in-house, ending the privatisation racket.

We need to create new forms of economic organisation instead, drawing on the best traditions of the labour movement. Where assets are moved back into public hands under Labour, they will be placed under democratic public control, instead of replicating the old ‘Morrisonian’ model. As Ken Loach showed in his brilliant 2013 documentary The Spirit of ’45, this could too often mean creating distant bureaucratic hierarchies that could seem as out of touch with workers and the public as any private sector monolith.

Moreover, democratic economic management needs to go beyond the public sector. When new firms are established to use new technologies, or older companies are changing hands, they can adapt new models of business organisation, drawing on the rich tradition of the cooperative movement. Taking a cue from Labour’s Alternative Models of Ownership report, published during the 2017 election campaign, Joe Guinan and Thomas Hanna argue forcefully for a ‘democratic ownership revolution’ in Britain. By breaking with the idea that the ownership of our economic assets should be left only in private hands and that control over those resources should be exercised only by a small number of people, they argue that we can build the foundations of a new, more democratic and fairer society.

Rob Calvert Jump’s chapter presents the business case for a shift in how our firms are organised: from ownership held in just a few hands to ownership that is spread out among the many, including the workers at those firms. Rob presents empirical evidence which demonstrates that not only does worker participation and ownership mean more democracy and transparency, it has clear benefits for productivity and long-term decision making, with those who work for a firm having an immediate concern with its long-term future.

The next Labour government will oversee a flourishing of these alternative models of ownership, from worker-owned businesses to local energy cooperatives. Already Labour councils are not waiting for the next election. Battered by austerity, they are being forced to think creatively to protect their local economies and public services. Preston Council in Lancashire has spearheaded the approach in the UK; its new leader, Matthew Brown, writes here with Ted Howard, Matthew Jackson and Neil McInroy about learning from US city councils that have attempted to return spending to their cities and support the growth of locally owned businesses. The Cleveland Model in the US has inspired the Preston Model in the UK, and Labour’s new Community Wealth Building Unit is already helping to support local councils following in their footsteps.

New Forms of Wealth

We also need new, more imaginative ways to put the wealth inherent in the vast pools of data that all of us generate into service for the public good. Nick Srnicek’s chapter raises the huge challenges posed to those seeking progressive reform through the rise of ‘platform capital’: the immense concentrations of power and wealth that have developed on the back of rapid advances in computing power and data processing via the internet. How future progressive governments deal with Big Data will be a central question. Nick has pointers to how we could bring the power of Big Data back under progressive control, including creating new digital rights, supporting open-source software and, as Labour policy is committed to, providing greater backing for ‘platform cooperatives’.

Municipal authorities such as Barcelona’s are using innovative new ways to bring local data infrastructures under democratic and public control. Francesca Bria is Barcelona’s chief technology officer, and her chapter provides an overview of the thinking behind the city’s radical approach to building a New Digital Deal for citizens, encompassing the idea of technological sovereignty with cities and towns at the forefront. As councils are bringing local public services back under local control, so too can localities begin to put the immense new wealth of the digital economy into service for the many. Guy Standing’s chapter points towards the challenges of the future, and what he argues should be the next steps for Corbynomics. The debates around the universal basic income that he favours will no doubt continue, as will the related conversations about universal basic services: extending the principle of free universal provision to things like transport, communication and housing.

The Future

The intellectual groundwork for these is critical. Christine Berry of SPERI has written recently about the work that right-wing intellectuals and influencers put in over decades to prepare the ground for the Thatcher–Reagan revolution.⁹ They had think tanks, academics, politicians and others scattered across civil society developing their ideas and arguing the case ahead of the ‘Thatcher Revolution’, providing the fertile intellectual soil in which the weeds of neoliberalism took root.

Unlike them, we don’t have decades to prepare the ground: the crises of austerity and the environment, and the emerging digital economy, have together forced a far more rapid pace of change on us. At the time of writing, we don’t even know how long this government will remain in power, or how they will deal with Brexit.

Yet the possibilities that are being created are immense, in the new technologies we have and the deepening understanding of the need for change. We have the capacity to solve these huge challenges, and to create not just a country, but to help create a world that works for the many, and not the few. We are seeking nothing less than to build a society that is radically fairer, more democratic and more sustainable, in which the wealth of society is shared by all. The historic name for that society is socialism.

In order to build it, we need to inspire people with an alternative to both the failing neoliberal establishment and the xenophobic nationalism which some promote as a replacement. There are no guarantees, but – forty years after Eric Hobsbawn wrote of ‘the forward march of labour halted’ – we have an incredible opportunity to put our economy on a new and better path.

For years we have argued that another world is possible. Today, that better world is in sight. In order to achieve it, we need to win the argument that we can get there and to inspire people with how we can all do so. I hope this book will prove to be an important contribution to that goal.

1

Democratising Economics

in a Post-truth World

Antonia Jennings

The Dominance of Economics in the Political Sphere

Whichever definition of democracy one subscribes to, it is a political exercise that involves input from citizens into