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Labour has already failed

Labour’s UK election victory last week might be seen as a triumph of cynicism.  The strategy – abandoning core “progressive” voters in metropolitan seats (who have nowhere else to go) in favour of marginal voters elsewhere – paid off handsomely – Labour winning 412 seats on a vote share lower than Blair’s post-Iraq war election in 2005, and far lower than Corbyn managed in 2017.  As anticipated, critics have already jumped on the obvious unfairness of the electoral system, which gave Labour 63 percent of the seats from just 34 percent of the votes, while Reform UK won just one percent of the seats on 14 percent of the votes, and the Tories were reduced to 19 percent of the seats from 24 percent of the votes.  But in terms of realpolitik, this is irrelevant, since the system is designed to produce five-year dictatorships in preference to the insecure forms of government produced by proportional systems.  Opposition parties can no more get rid of Labour before 2029 than they could get rid of the Tories between 2019 and 2024.

The Labour “victory” though, is rendered largely meaningless by the nature of the (many) crises facing the UK.  Because, while the labour government will have absolute control over legislation, almost all of the problems before us are administrative… and it has been several decades since UK governments last administered anything even remotely competently.  Indeed, within just a few hours of allocating the key government positions, Labour has already failed two key tests on economic and industrial policy.

First, new Chancellor, Rachel Reeves, took to the airwaves on Saturday to make the economically illiterate claim that there isn’t enough money to achieve Labour’s goals.  In part this is the usual post-election attempt to blame any immediate economic problems on the outgoing government.  But it also perpetuates the nonsense magic money tree version of money presented by a dangerously out of touch establishment media, which assumes that the government must somehow find money before it can spend.  In reality, and within limits, government can borrow or simply “print” as much money as it wants so long as it sets a sufficiently high tax rate to prevent inflation.  Moreover, it is a matter of choice where those taxes are raised – just because the Tories gave the already wealthy a free pass does not mean Labour has to follow suit.

Even more dangerous than this faked misunderstanding of money creation though, is Reeves’ determination to maintain Tory borrowing rules which attenuate economic crises by starving the economy of cash.  This is because the majority of money – around 97 percent – is borrowed into existence when banks make loans to companies and households… the remaining three percent is borrowed into existence by government (although it could simply create it directly at the stroke of a keyboard).  In periods like the present, when (across the western economies) banks have tightened lending standards, and thus lowered the currency in circulation, the last thing businesses and households need is for government to cut its borrowing too.  And yet, this is precisely what the Tory borrowing rules do – something that Sharon Graham, Head of the Unite union, has apparently failed to persuade Reeves to change immediately, correctly arguing that waiting for growth to appear will not work for the UK’s collapsing infrastructure and public services.

With the UK economy set to shrink further – GDP fell back to 0.0% in May, undermining the Tory claim that the UK was growing – the government might act as a borrower of last resort to mitigate the impact on services and critical infrastructure.  But by following an increasingly discredited neoliberal economic orthodoxy, Labour look set to add to the UK’s gathering collapse by attempting to “balance the books” during a downturn.  Nor is this simply a feature of fiscal policy.  The second area where Labour have already failed is in industrial policy, as the incoming Business Secretary has refused to overturn the Tory decision to allow the closure of the UK’s virgin steelmaking capacity – opting instead for the widely-criticised decision to rely on recycling instead.

This does not bode well for critical infrastructure and public services more generally, since the current iteration of Labour seems to be following the neoliberal Blairite approach of an earlier – and far more prosperous – era, when private investment could fill the gap left by a government constrained by European union state aid rules.  Indeed, one of the few positive – but unused – outcomes of Brexit is precisely that UK governments are now free to invest directly in industries – like steelmaking – which are vital to the future health of the economy, even if they cannot be run profitably in private hands.

In both fiscal and industrial policy then, Labour has eschewed pulling some of the few levers which might allow them to affect change.  Meanwhile, even as the new government ministers were finding their new offices, key infrastructure that is bound to be needed in future was being closed.  Not just one of the blast furnaces at Port Talbot, but also the 2GW coal-fired Radcliff-on-Soar power station (which has kept the lights on during cold snaps in the last few winters) and the demolition of two car factories in Bridgend and Swindon (partly due to Brexit, but more to the looming ban on new ICE vehicles at the end of the decade).  This in addition to a general increase in business closures and redundancies across the UK as the economy slows.

We needed a new economic philosophy to replace the discredited neoliberal consensus.  But Labour’s dismally predictable response is just more of the same, with mythical foreign investors riding to the rescue of an otherwise doomed UK economy.  This might have worked in the Blair years when the oil was flowing and there were still a few public assets to sell off.  But modern Britain is no longer a place that attracts the investment capital it used to, even as the need for such investment has grown exponentially.  And as the economic storm clouds gather, despite the new occupants of Versailles-on-Thames, failure is already built-in.

As you made it to the end…

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