Friday, 5 October 2018

What to expect if Labour comes to power

The Labour party has recently finished its annual conference and, unacknowledged by most major Brexit-obsessed news outlets, it’s unveiling a very radical plan for government. The party leadership has been advancing a series of proposals that would see British capitalism re-oriented towards working-class income and democratic control. Worker shares in companies; workers on company boards; democratised forms of public ownership; a financial transactions tax; a clampdown on tax avoidance; increases in corporate tax rates. All are massively popular and all are likely to be in a forthcoming Labour manifesto. This is in the context of a government floundering over Brexit negotiations and desperate for a way out. The one thing standing between us and another general election is the disaster that befell the Tories the last time they tried it. If there were an election, there is a good chance Labour could become the largest party and maybe even snatch a small governing majority.

Naturally, people are wondering what awaits Britain if the most left-wing leader of any major party in the UK’s history becomes prime minister. The World Transformed - the annual get together of the Party’s new radical left - has rippled with concerns about how the establishment might try to stop or water down the programme. What’s the likely reality facing an incoming Labour government?

Some people have talked about Labour needing a massive governing majority to implement its programme and a much more left-wing parliamentary party rooted in local struggles in working class communities. If there’s an election imminently, that is not going to happen. Efforts to reform candidate selection and to build the party’s local institutions are yet to get off the ground. So let’s assume the most favourable possible election outcome is a Labour majority of one composed of the current orthodox parliamentary party and a few new left-wingers. Let’s also assume that the SNP and even some Lib Dems will back some aspects of Labour’s social and economic programme to offset the most right wing Labour MPs and the obvious uniformity of Tory opposition.

In this - not impossible but far from certain - scenario, Labour could feasibly hope to run a functioning government, at least when it came to passing some moderate reforms. But of course what happens in parliament is only part of the story. What can be expected to take place in wider civil society - one marked by long decades of class war waged by the rich against the organised working class?

  1. Expect the pound to weaken
As the Labour party arrives in government, foreign investors will switch from holding sterling to euros and dollars. Even before Labour comes to power, the richest, most mobile (and - to be honest - least productive) rentier capital will flee. Anticipating inflation and a more interventionist government, others will rapidly dump the pound once Labour is in power. Labour could introduce capital controls to prevent the most egregious forms of this. But its unlikely to be able to do this given the current balance of political forces. Much will therefore depend on the speed and persuasiveness of the Bank of England’s response. The Bank of England can sell its own foreign currency reserves and buy up sterling in order to defend the pound’s value (perhaps letting its slide somewhat to boost export competitiveness). If these interventions are not definitive, however, markets may attempt to game the Bank, anticipating a lack of future commitment to the pound. A fall in itself is not disastrous: it makes imports more expensive, but accompanied by the right stimulus can also boost exports. Any initial slide will have to be accompanied by immediate stimulus to the productive, exporting sector of the UK economy. At first there will need to be a focus on industries with a comparative export advantage. Later this can spread to a more comprehensive, state-backed revival of productive capacity. What needs to be avoided is a downward spiral in the early days. This might be why Shadow Chancellor John McDonnell has been relatively emollient towards the Bank’s Governor Mark Carney. The left should not anticipate full, unquestioning support from the ‘independent’ Bank, which has its own mandate and a political culture quite divorced from that of the Labour party. 
  1. There may be a spike in the yield on British government debt
The British government partly funds itself through tax income and partly through issuing debt. It was controversy around the growth in public sector debt during the financial crash that led the Tory party to embrace austerity - as so called automatic stabilisers (the fall in government tax income and the rise in unemployment spending that take place in a recession) kicked in, government borrowing rose. The deficit was the difference between what the government was bringing in in tax income and what it was spending during the recession. Cuts to spending during a weak recovery helped prolong the agony of the crisis and did little to reduce the rate of public debt growth, since lower income led to lower tax returns. Labour will be seeking to boost government spending. But it isn’t this alone that will drive up the yield (or interest rate) paid on public sector debt (or bonds). Bond yields may rise where investors anticipate inflation and a depreciation in the currency in which public sector debt is denominated. Once again, the central bank can intervene to bring yields back down by buying up government bonds in secondary markets, which supports the face value of the bonds and drives down the yield. Once again, events will turn on the decisions of the Bank of England and the emerging political relationship between it and the new government. There is talk of altering the mandate of the Bank, if not of ending outright independence (instituted by Gordon Brown during the first Blair government). Central banks from the US Federal Reserve to the European Central Bank have emerged as possibly the central actors in the global economy in the era of financialisation. They can be relatively open to unorthodox policy, but are nevertheless the apex of the financial pyramid of advanced capitalism. There is no guarantee that a lack of haste or truly persuasive intervention in bond markets or the exchange markets couldn’t place huge pressure on the government.
  1. Inflation will rise
Just as inflation rose following the Brexit vote as imports became more expensive due to the massive drop in the value of the pound, inflation is bound to rise in the wake of a Labour election victory. One of the spectres that haunts the left is a currency run combined with runaway domestic inflation. The French Socialist government of Francois Mitterrand is supposed to have been brought down by just such pressures. In truth that government chose to defend an uncompetitive currency peg to the Deutschmark as a member of the Exchange Rate Mechanism rather than press ahead with its domestic agenda. A Labour government will be defending no such currency peg. Yet it will likely still be forced to defend itself by largely conventional means. As Simon Wren-Lewis has pointed out, if inflation rises due to domestic growth, an interest rate rise will follow. Indeed, given the low interest rates elsewhere, international  finance may even respond positively to such a rate rise. Anticipating rising interest rates, international finance could even seek out sterling assets in search of higher yields. 

So far I’ve listed the almost ‘automatic’ market conditions that a Labour government will precipitate and suggested the kind of elite political relationships that will have to hold for the government to avoid collapse in its opening weeks. With a responsive central bank, the government can probably afford to reverse the worst effects of austerity - lifting the public sector pay cap, raising public investment through new borrowing and increased corporation tax, new welfare measures for early years education, putting extra money into most public services - especially the NHS, maybe even saving some money by ending the costly, inefficient welfare assessments. There is some degree of consensus in the party around these measures and they are widely popular. The SNP might support a Labour minority government on some of these measures - resisting them would certainly hurt SNP and, to a lesser extent, Lib Dem support. If decisive action is taken in the opening weeks of the government, there need not be any long-term investment strike - with capitalists postponing investment decisions due to uncertainty about future growth, interest rates and profit margins. Signs of a fiscal expansion - convincing signs - can encourage preemptive activity - so long as markets buy it.

But there are formal and informal political mobilisations which will emerge as obstacles to the government in the first few weeks:
  1. The state will seize up
There’s a bit of a cliche on the left that the ‘bureaucracy’ of the state will undermine socialists in government. It’s easy to demonise the civil service - whether reactionary or merely patrician. But this thinking - which leans towards conspiracy - neglects state structure. Power in the capitalist state can relocate. From being relatively concentrated under a Tory government, it can appear to disperse across a range of institutions when a radical government comes to power. This goes beyond the Sir Humphreys of English legend to the outsourced, semi-privatised provision of public services, the imbrication of the Treasury with the expertise of the major banks, the hybrid ‘independence’ of the Bank of England, the revolving door between conservative media, government and even some aspects of academia. A multi-leveled intersection of institutions - from local government to the lords to NGOs, pressure groups, and organised representatives of international capital - extends the material power of the state out into civil society. In normal times, this hodgepodge assemblage is dysfunctional and conflictual, but never fatally so. The state crystallises and materialises the complex struggles between social groups in society at large. It is deeply imbricated with the workings of the wider economy, but the nature of the ‘interventions’ of the capitalist state in the economy are necessarily limited - the state institutions are simply not well-equipped to defy capital too directly. This is a major threat. A radical government will profoundly disturb the delicately arranged balance or ‘hegemony’ that operates across state and civil society institutions. In other words, they will seize up, move at a snail’s pace, lack coherence and coordination. This will make passing legislation slower and will be discouraging for more conventional politicians in the government. Defections, resignations, and rebellions will follow. Leaks to the right-wing press will be constant. The left’s response has historically been based on the concept of working class ‘counter power’ - there currently isn’t much of that, but some forms of organised working class power do still exist. The question of big institutional support from trade unions will be crucial here.

  1. Civil society mobilisations will apply pressure through organised and disorganised ‘spectacles’ 
We are likely to learn quickly that it is not only the radical left that can organise a protest - think of the Tea Party or the pro-EU demos, at different ends of the spectrum. We can brush aside the march of landowners and street thugs alike, but when it’s small business owners, ‘pro-business’ students, or the offended middle classes, an air of chaos will descend on the government. This will, to some extent, be a PR battle: who is acting in the broader interests of society? And as the Thatcher government knew, we cannot govern purely by consensus. Though a radical Labour government won’t resort to the state authoritarianism of the Blair or Thatcher governments, it will need to be resourceful in how it fights these challenges. The worst - but most likely - outcome is a tactical retreat to the formal confines of respectable, technocratic government - striking a moderate, reasonable pose in the face of relentless opposition. Counter-mobilisations will be important if the PR war is to be won.

If this all sounds depressing and dispiriting, that’s because it will be. Who on the left wants to mobilise to defend the very modest programme of a social-democratic government? We all want to push it ‘further’ left. We want to stop it ‘backsliding.’ This view fundamentally misunderstands the dynamic of the left in power. Our mobilisations will be exhausting, unrewarding media spectacles designed to offset the most visible opposition to the government. By nature, this sort of activity is unsustainable.

When the Attlee government came to power in 1945, it won a huge parliamentary and popular majority. The trade unions were powerful and the population had high expectations - even if there was little in the way of a combative popular movement against capitalism. There was a high degree of policy consensus on the left and in liberal circles about the need for a welfare state and the creation of a national health service. The party and especially the leadership had been integrated through the joint war effort into the respectable apparatus of the state. Though far from united, the parliamentary party formed a much more coherent bloc than today. Still, the government was exhausted by its third year. Despite considerable achievements, it was ejected from power after just six years (although it won the popular vote in 1951).

An incoming Labour government will have none of these advantages. This perhaps is why McDonnell is placing so much emphasis on the first hundred days of its tenure. Without significant, popular achievements, it will be exhausted far sooner than the Attlee government. It also needs to publicly sell what it does and explain clearly what it is trying to do and who is trying to prevent it. It needs to name and own its successes as well as naming its enemies.

There is a lot of talk on the left about the need for a ‘mass movement’ to support or to push the government where necessary. Yet it isn’t always clear what - practically - a mass movement can do. In the face of tedious call outs to hold placards in Parliament Square and oppose the constant dull drumbeat of opposition, burnout is an inevitability. For what little leverage it gives, it will fruitlessly consume energy, emotion, and time. As I suspect many in the movement already realise, the mass movement would be better off building its own, durable institutions that will outlast the beleaguered government.

The reforms enacted by the Labour government should be treated as an opening to build up leftist resilience. A prime example is the unions. If the government can repeal anti-union legislation, we should take it as a spur to renew union activism and to expand union membership. Once reforms are embedded, new intellectual and academic work can build and promote new policies. Community activists and worker cooperatives can take advantage of the funding opportunities that come from public investment. Ideologically, we can argue that the government’s policy successes show that real wage increases and a rejuvenated public sector are good for the country, not just a drag on private enterprise. We can demonstrate that livelihoods don’t have to fall in order for the country to ‘pay its way’.

None of this is to foreclose the possibility that the government could come through on some of its more radical policies - in particular, the democratisation of the economy. It could also be pushed to the left on prison reform, immigration, security, foreign policy and policing (on which it is frankly inadequate). Early victories could create leeway. A serious economic crisis could widen the space for improvised, emergency measures to reform the economy and demoralise capital in the process. One reason we can expect such bullishness from organised capital is that it escaped 2008 unencumbered by reform. It likes this feeling of invulnerability. Disciplining it will be that much harder. 

But these are hopes, not expectations. There are things that the left can do regardless of the pace of change at the level of central government. 



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