Labour should promise radical reform of the UK economy in 2015

January 6, 2013 1:46 pm

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George Osborne’s decision to use the recent Autumn Statement to cut social security payments in real terms provided something of a call-to-arms for many on the left. John McDonnell and Joe Dromey made impassioned arguments opposing the changes on LabourList, and Ed Miliband gave a forceful performance at the subsequent PMQs, saying the changes would hurt people that the Tories ‘never meet and whose lives they will never understand.’ LabourList has subsequently provided analysis showing how the number of people who lose out in key Labour target constituencies significantly exceeds the Tory majority.

The enthusiastic response contrasts significantly with the lukewarm reaction every time Ed Miliband talks about reforming capitalism. And this question of whether Labour wants to make radical change to whole economic system part of its message at the next general election, or to forensically oppose specific public spending cuts, and ruthlessly target the voters affected.

It is understandable if Labour supporters feel galvanised by the party’s commitment to uprate social security payments in line with inflation.

Whatever the merits of this decision in policy terms (and most progressives surely back the notion of supporting those facing the hardest struggle in life), it’s rare and refreshing that it appears to have been taken on the basis of principles rather than political expediency, and has been defended in an open and impassioned manner.

By contrast, the Conservatives shouldn’t derive a great deal of pride from their depiction of social security recipients lying in bed all day. There’s an obvious nastiness about this naked attempt to scapegoat the unemployed and working poor as an entire class. But with the use of stock image photos and obviously leading questions in the subsequent advertisement campaign, there’s also a high level of naffness. I think they are laying it on a bit thick if they want to win over the public, and certainly the Autumn Statement have done nothing yet to address the Tories problematic poll ratings.

However, the assertion repeated by multiple commentators after David Cameron and Ed Miliband clashed at PMQs – that the issue of social security payments was of huge significance in terms of setting dividing lines for the next election – is still a bit disconcerting.

The debate around whether cuts are necessary and where they should fall is frustratingly narrow in its scope. While households receiving social security payments shouldn’t be stigmatised or ashamed for doing so, it isn’t a lifestyle that Labour should want for people. The party should make radical reform of the UK economy the centre of their electoral offering, with the aim of substantially reducing the number of people that need state support in the first place.

If that sounds like slightly right-wing language, it shouldn’t. Tackling inequality and out of control pay at the top of the income distribution is one of the most important ways of improving the lives at the bottom. One way of reducing dependency on in-work benefits would be to take a tougher line on big companies that make colossal profits but don’t pay the living wage. The wage share of the national income has fallen from 65% to 53% over the past 35 years, and policies are needed to address this. Stronger Trade Unions and greater workplace democracy are an important part of this.

We are now five years on from the worst financial crisis in most people’s lifetime. Growth remains stagnant, while levels of inequality in the UK are amongst the worst in the OECD.

Case studies from ICI (which collapsed after pursuing a disastrous course of speculation and acquisition rather than concentrating on its core business) to BP (which ended up with a $100 billion clean-up bill for the Gulf of Mexico oil spill after undertaking dangerous cost-cutting measures) show how UK businesses obsession with short-term share price increases encourages behaviours that are immensely damaging in the long run. Economist Andrew Smithers argues that corporate resources invested in share price manipulation through stock buyback rather than genuine innovation is inhibiting the economic recovery, and that this is currently incentivised by the conditions of executive bonuses (again linked to share price increases). This explains why business investment in the UK is lower than in France, the US, Germany and Japan, and why our few remaining world class companies are concentrated in the financial services and commodity extraction sectors.

With the UK public’s trust in business the fifth lowest across 25 countries surveyed as part of the Edelman Trust Barometer survey, there has never been a greater need or popular appetite for radical economic policies. Merely redressing the balance through more generous social security payments than the Tories would provide just isn’t enough.

To his credit, Ed Miliband has recognised this with some tentative moves towards tackling the problem of inequality at source through the ‘predistribution’ agenda. His responsible capitalism agenda articulates the idea of a private sector that benefits society as a whole, while Sir George Cox is chairing a policy review into business short-termism.

These are undoubtedly positive steps, but it is perhaps a little worrying that they don’t seem to have fired up the party or the wider left in the same way that the much narrower issue of social security payments has done.

Luke Hildyard is Head of Research at the High Pay Centre

  • Alexwilliamz

    Not sure what is right wing about wanting to cut the number of people that need state support. I thought that was the long term purpose of any left wing political movement? The need for state support is actually a symptom of capitalism’s failure to provide a structure in which all of society can derive a decent standard of living, than anything inherently left wing.

  • robertcp

    I agreed with most of this article but I think that we should avoid the word radical. It makes people nervous, so social democrats should argue for gradual change in the short term.

  • Monkey_Bach

    Somebody once told me that: “Fear, fire and capitalism make good servants but poor masters”. Difficult to disagree with that. Experience teaches that fear can be overcome by steeling oneself, manning up, and doing what is necessary, come what may, and that you can tame a flame with a fireplace, furnace, extinguisher and so forth. But capitalism? Until Ed Miliband outlines some concrete measures as per reforms, regulation, and intervention (in the markets) we’ll all be none the wiser as far as how Labour intends to domesticate and harness the power of that violent and destructive beast for the benefit of all. If the creation of a benign capitalism were politically feasible wouldn’t somebody, somewhere, have achieved it somewhen already?

    Eeek.

    • jaime taurosangastre candelas

      You cannot domesticate capitalism. It is international (or more accurately, it recognises no boundaries). It also will not be harnessed unless you offer it the most attractive harness, or at least more attractive than other harnesses. If your harness is not to capitalism’s taste, it will go elsewhere.

      Many people may like the idea of capitalism going elsewhere, but the “flip side” is that they also would not like the idea of very expensive money to pay for the over-spending.

      Alternatively, reduce the reliance on the immediate availability of money by reducing the spending.

      • Alexwilliamz

        Such fatalism in one so young. Of course capitalism can be guided, it is not as if there is a genuine free market anyway, that is what laws and regulations do anyway. A lot of people like to pretend that it companies can just move here there and anywhere but that i not quite the case and they don’t do that lightly. The key is not to create some fee for all safe haven for the ultra rich to do as they please, but to create a situation where everyone gets a fair crack of the whip, that will attract small and more innovative companies, the multi national dinosaurs can go and get extinct elsewhere, if they are not up for a fair fight. What is often needed is for gvts to act as a counterweight to capitalism from eating itself up.

        • jaime taurosangastre candelas

          I’m talking about money, not companies. Companies are the micro-level, and as you say, cannot move instantly. Companies are also the servant of capitalism – merely holding receptacles (often temporarily) for money. Companies are not the problem, nor are they capitalism.

          Money moves around the world in seconds, deciding to fund this, or buy that, bet against a Government or in favour of ocean fishing licences, or selling something else. I read once that a single electronic dollar on the New York Stock Exchange may be involved in a thousand transactions a day, with every continent.

          If any particular country makes itself unattractive to money, it will pay a very expensive price if the country then wants to borrow.

          • Alexwilliamz

            I’m not even going to go into this discussion as soon as money is treated as some kind of entity divorced from an object I kind of lose the will. If society or gvt is to have any meaning it is certainly going to have to tame ‘money’ as money should only exist as a tool of man and not its master as you seem to be suggesting. Following a logic of surrendering all control to it will lead to revolution of that I have no doubt. I still will not believe (as you may?) that individual gvts can do nothing about it and countries merely become empty vessels prostituting themselves for the favour of this ‘divine’ force. The multinational challenge should lead any gvt to build international coalitions to give people and countries back self determination. Hopefully this sounds suitably naive.

          • jaime taurosangastre candelas

            You will find no approval in my words for money as some form of separate entity. Merely it is a current reality, and until the surrounding context changes, it is what it is, every Government wants it, and money picks and chooses the winners and losers according to its’ own rules. It would be foolish to ignore such reality.

            So, to change the world. Very difficult. But changing one single country among about 170 countries is not the best way to go about it. Money will simply make life very expensive in that country for a few years expecting there to be a change of Government and policies (and in its’ expectation, probably correct).

            In my opinion, removing demand for money is the most effective way to reduce its’ influence. That can be done unilaterally and at a national level, and money can do nothing to stop it. It is called a balanced budget.

          • http://www.facebook.com/people/Mike-Homfray/510980099 Mike Homfray

            Which will mean Tory social policy.
            We need to accept that globalisation has not worked and must return to much more localised production – and also say goodbye to the culture of endless replacement of consumer goods just because they go ‘out of fashion’. Replacing something when it breaks down is sustainable. Changing it to get the latest model isn’t. Particularly when this consumer madness does little but increase the race to the bottom with regard to wages….

          • jaime taurosangastre candelas

            It depends upon for whom you mean globalisation has not worked. It has worked for the owners of money, and indeed “sort of worked” for several billion people in the non-West, although imperfectly. It has also “worked” for the rich in the west.

            It has not “worked” for the poor of the west, and we can certainly agree upon that.

            But, the poor of the west, and the parties that represent them in their politics, are “minnows” on the world stage, so your coherent and understandable demand for a return to something of our past is in fact, swimming against a global tide.

            I had not previously thought of this, but if you were to give everyone in the world an equal and single vote, and asked them to vote “for” or “against” globalisation, I suspect the overwhelming majority**** would be “for” globalisation.

            **** Merely as an example, the population of all 4 BRICs plus the richer half of Europe and richer half of the USA is a total of half of the world population, by itself. All beneficiaries of globalisation, to say nothing of another billion or so in the rest of south east Asia, and at least another half a billion in western countries such as Canada, Australia, or westernising countries elsewhere (Indonesia, for example).

            See http://www.wolframalpha.com/input/?i=%28population+brazil+%2B+india+%2B+russia+%2B+china+%2B+%28europe+population+%2F+2%29+%2B+%28USA+population+%2F+2%29%29+%2F+world+population

          • Alexwilliamz

            Ahh but would the population of the bric economies vote that way? Globalisation can be a force for good and bad. Where I disagree is that as with everything for things to change, there needs to be someone or some group to take the lead. If a country can develop a plausible way forward that promotes the best of globalisation, a sustainable future and a more equitable society, who knows what will follow. Now I don’t envisage such a project could happen overnight or even in a decade, but perhaps our challenge should be to put the foundations in place. Part of that is probably finding a solution to how states pay for themselves, how do we square the circle of social demand vs economic cost. But it must also be about making bold decisions about how we deal with using the wealth and power of the state to direct the kind of things that short term lasseiz fayre economics will never deliver. Just some thoughts anyway.

          • jaime taurosangastre candelas

            Well, of course no-one knows how the BRICs or even the world at a whole would vote. The question is too dangerous to pose to them. My main point is that Mike Homfray consistently has this view that “globalisation has not worked” and therefore X, Y, and Z should happen, normally in a UK perspective. My riposte is to challenge his basic assumption, but not from our comfortable UK perspective, but from that of the world, and to offer some figures for contemplation.

            Mike will not be pleased that tonight we ate some mange-tout vegetables grown in Kenya, sold in Tesco in Cambridgeshire, having had an aeroplane flight to get here while fresh, and criminally “out of season”. This is the sort of globalisation that he would like to shoot on sight, while being silent on the impact of the Kenyan farmers having their revenues reduced. Just do not ask him from where his clothes originate, his car tyres come from, the magnets in his mobile phone come from, the software coding in his computer……

          • Quiet_Sceptic

            Ultimately fiat money is useless and valueless, it only has value because it can be exchanged for REAL values; assets and the goods and services produced by businesses and entrepreneurs.

            What matters in a capitalist society IS the businesses, the companies, the organisations and those they employee, who produce the goods and services that money is used to purchase because without them money has no value.

  • Daniel Speight

    Any government has at least one easy to use power in order to pressure companies to follow that government’s policies. It’s called taxation. Companies following social & economic policies supported by a future Labour government could receive lower tax bills while the opposite could be true for those that do not.

    In fact we can see something similar in the suggested Leveson bills on the press. Newspapers that join the new press standards system would face lower maximum penalties for breaking laws than those which don’t.

    • Amber_Star

      I’t’s hard to use tax incentives to modify corporate behaviour when the corporations don’t pay any tax! Which, of course, is a big part of the problem!

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