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| Photograph: John McDonnell MP, with residents and supporters of Grow Heathrow outside Central London County Court in 2012, by Jonathan Goldberg/Transition Heathrow (License) (Cropped) |
John McDonnell, Labour's new socialist shadow chancellor, has moved to rebuild the party's economic reputation by appointing an economic advisory council (BBC, 2015). The council is, by all estimations, a supergroup comprised of the rockstar economists of anti-austerity thinking: Thomas Piketty, Joseph Stiglitz, Mariana Mazzucato, Anastasia Nesvetailova, Ann Pettifor and David Blanchflower.
There are two clear aims to this move. The first is to show that, not only is austerity thinking flawed, but that there are clear alternatives. The second is win back for Labour the credibility on economic policy that they had lost, fairly or not, by 2010.
It has been argued, seemingly endlessly, that without both credibility and a clear alternative, Labour's reputation - and so its ability to win elections - will not recover (Elliott, 2012; Kendall, 2015; Reid, 2015). So it is important to know what kind of alternative Labour's new advisors would have them construct.
The resumes of Labour's new advisors
Thomas Piketty is a French economist who had a large impact, in political and economic circles, with his 2013 book Capital in Twenty-First Century. In that work, he puts forward a simple premise and explores it in depth.
Piketty's thesis is that the concentration of wealth, resulting from the rate of return on capital being in the long term in excess of economic growth, is as much a political problem as an economic one. In his assessment, the access to capital brought by inherited wealth and the 'rentier' power it gives, prevents the competition and distribution for which the free market is lauded.
That is an assessment agreed with by the OECD, the Organisation for Economic Co-operation and Development. They argue that their findings show that income inequality in fact strangles growth, with countries that have a more even income spread actually performing better (OECD, 2014).
Piketty's proposed solution is for progressive taxes to be levied upon wealth and coordinated globally to suit the globalisation of capitalism. The failure to pursue this, in the French economist's eyes, means standing by as the rich consolidate control over society, crushing democracy in their wake by leaving the poor dispossessed and powerless (Naidu, 2014).
This concern with regards to inequality is shared by Joseph Stiglitz, former Clinton advisor and critic of the management of market globalization (Stiglitz, 2000). Stiglitz's work The Price of Inequality argued that inequality was as much the concern of the 1% as the 99%, as 'their fate is bound up' with how the other side live (Roberts, 2012).
To tackle inequality, Stiglitz argues that there needs to be a change in norms. He argues that free markets in fact need the protection of strong regulations and transparent accountability (Edsall, 2012), in order to break the monopolies on power that are used to influence selfish terms - to, in essence, reclaim capitalism.
For Mariana Mazzucato, reclaiming capitalism begins with reimagining the role of the state (Mazzucato, 2013). Mazzucato envisions the state as a risk-taking innovator, the creator and shaper of markets, and the natural agent to act in the 'common good' where privatisation is poorly suited and will not stop public subsidy (Mazzucato, 2013{2}).
She argues that this includes the provision of essential public services like education or health; investments in public infrastructure; investment and support for entrepreneurs, whether in business, for research, or for science and technology - all areas where steady, engaged, long-term investment commitments are needed.
Yet Mazzucato is not arguing for nationalisation or a growing of the state, but rather for a smarter state (Mazzucato, 2014) - bold and able to take risks. Quoting Keynes, she argues for a state that opens up new markets and regulates them:
There are two clear aims to this move. The first is to show that, not only is austerity thinking flawed, but that there are clear alternatives. The second is win back for Labour the credibility on economic policy that they had lost, fairly or not, by 2010.
It has been argued, seemingly endlessly, that without both credibility and a clear alternative, Labour's reputation - and so its ability to win elections - will not recover (Elliott, 2012; Kendall, 2015; Reid, 2015). So it is important to know what kind of alternative Labour's new advisors would have them construct.
The resumes of Labour's new advisors
Thomas Piketty is a French economist who had a large impact, in political and economic circles, with his 2013 book Capital in Twenty-First Century. In that work, he puts forward a simple premise and explores it in depth.
Piketty's thesis is that the concentration of wealth, resulting from the rate of return on capital being in the long term in excess of economic growth, is as much a political problem as an economic one. In his assessment, the access to capital brought by inherited wealth and the 'rentier' power it gives, prevents the competition and distribution for which the free market is lauded.
That is an assessment agreed with by the OECD, the Organisation for Economic Co-operation and Development. They argue that their findings show that income inequality in fact strangles growth, with countries that have a more even income spread actually performing better (OECD, 2014).
Piketty's proposed solution is for progressive taxes to be levied upon wealth and coordinated globally to suit the globalisation of capitalism. The failure to pursue this, in the French economist's eyes, means standing by as the rich consolidate control over society, crushing democracy in their wake by leaving the poor dispossessed and powerless (Naidu, 2014).
This concern with regards to inequality is shared by Joseph Stiglitz, former Clinton advisor and critic of the management of market globalization (Stiglitz, 2000). Stiglitz's work The Price of Inequality argued that inequality was as much the concern of the 1% as the 99%, as 'their fate is bound up' with how the other side live (Roberts, 2012).
To tackle inequality, Stiglitz argues that there needs to be a change in norms. He argues that free markets in fact need the protection of strong regulations and transparent accountability (Edsall, 2012), in order to break the monopolies on power that are used to influence selfish terms - to, in essence, reclaim capitalism.
For Mariana Mazzucato, reclaiming capitalism begins with reimagining the role of the state (Mazzucato, 2013). Mazzucato envisions the state as a risk-taking innovator, the creator and shaper of markets, and the natural agent to act in the 'common good' where privatisation is poorly suited and will not stop public subsidy (Mazzucato, 2013{2}).
She argues that this includes the provision of essential public services like education or health; investments in public infrastructure; investment and support for entrepreneurs, whether in business, for research, or for science and technology - all areas where steady, engaged, long-term investment commitments are needed.
Yet Mazzucato is not arguing for nationalisation or a growing of the state, but rather for a smarter state (Mazzucato, 2014) - bold and able to take risks. Quoting Keynes, she argues for a state that opens up new markets and regulates them:
"The important thing for government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all."
As for the others on Labour's select list of economists?
Ann Pettifor predicted the severity of the economic crisis with her 2006 book The coming first world debt crisis and, in a very Keynes-esque manner, has worked hard to make clear the dangerous role that debt has played in events (Cooper, 2015). She has also argued that the debt crisis exposed dangerous collusion between governments and the finance sector that broke the 'link between risk and reward' and so chained 'free' markets (Pettifor, 2014).
David Blanchflower, a former member of the Monetary Policy Committee of the Bank of England, has spoken out against the idea that Labour 'caused' the 2008 financial crisis and against the economics of austerity (Blanchflower, 2015). Blanchflower was amongst the signatories of a letter during the Labour leadership campaign - along with Mazzucato - that argued Jeremy Corbyn's economic policy was in fact the moderate, mainstream response and it was instead George Osborne's austerity that was extreme (Blanchflower et al, 2015).
And finally there is Anastasia Nesvetailova, whose work Fragile Finance warned in 2007 of the fragility and instability of the finance-based economy, upon which the whole political and globalised economic house of cards was based (Nesvetailova, 2007).
The respectable face of economic opposition
So what kind of economy do these ideas combine to form?
In a definite stance of opposition to the dominant, and austere, conservative approach, the consensus running through Labour's new advisors is for the state to have a strong role - though not through nationalisation. The emphasis is placed upon the work the state does to create a framework for society - on infrastructure, on social security, on regulating market activity.
In fact, looking over the recommendations is almost like a review of German economics in the late twentieth century during the time of Germany's Wirtschaftswunder - its 'economic miracle'. The social market, so-called Rhine Capitalist, system that underwrote that economic boom was plush with public-private partnerships.
Inspired by German Ordoliberalism, the state was to act as regulator and facilitator in the Rhenist system (Guerot & Dullien, 2012). The aim was to ensure greater equality, and widely enjoyed prosperity, all while retaining an appreciation for free markets - so attempting to get the social aims and a vibrant market to go along hand in hand.
The ideas also bear some resemblance to those of Liberals and Liberal Democrats in the UK over the decades. Setting themselves apart from the Conservatives and Labour, their approach was to argue that it was not about a large or a small state, but about what the state is and what it does (Brack et al, 2007) - so Liberals might pursue the most efficient solution with the least interference with the individual.
In these similarities with liberal ideas, the approach of Labour's new advisors marks a kind of sharp change for the party, away from the centralised and overbearing managerialism it has pursued since the Second World War. But what stands out most is that, if we can accept that austerity represents a purely right-wing form of economics, the vision these economists are putting forward represent the mainstream - the democratic economics of the centre.
Building an alternative
With these very much mainstream, Keynesian-esque, ideas - based on broad analysis critical of austerity but friendly to markets - accomplishing the task of recovering Labour's credibility should not be such a long shot. Even reaching out to reintegrate the unhappy New Labour-ites should not be impossible.
For restoring their respectability, it is now a matter of building that model and presenting it to the public, which - if done right - could create the base from which the Conservative approach can be disassembled.
That would mean embracing Keir Hardie as Jeremy Corbyn did, in his first speech to the Labour Party conference as leader (Kennedy & Grierson, 2015). The existence of a credible alternative to the rigours of austerity allows the party to challenge the necessity of the suffering it has caused, and to try to 'stir up divine discontent with wrong'.
And yet, while the dry and balanced macroeconomic mainstream vision is the economist's dream ticket to government office, it is not hard to imagine these technical reforms falling short of progressive expectations.
There are radical ideas with not touched on here.
Citizen's income (Razavi, 2014), mutuals and co-ops (Webb, 2015), shorter working hours and the possibilities that automation are bringing (Mason, 2015) - these are all ideas tied closely to questions of equality, accountability and innovation.
However, there is likely more to come from the team of Corbyn & McDonnell - not least the pursuit of rail renationalisation (BBC, 2015{2}) and community owned energy companies (BBC, 2015{3}) - than is being accounted for here. Those extra measures are needed.
If we are to have more equality and accountability in the economy, there needs to be more co-operation. Which means more say for workers in the running of their workplaces and a greater mutuality of aims.
And if people are to enjoy full balanced lives, they also need enough time to embrace more than just their universal human rights to fair paid work and 'rest and leisure'. They need the resources and time to study, to raise families, to assemble, to debate and to act.
And if people are to have both of the above with freedom, from both want and coercion, they need the basic guarantee against poverty and homelessness afforded by a Citizen's Income.
As it says in the old Liberal Party's Yellow Book (1928), written under the deep influence of David Lloyd George and John Maynard Keynes:
Ann Pettifor predicted the severity of the economic crisis with her 2006 book The coming first world debt crisis and, in a very Keynes-esque manner, has worked hard to make clear the dangerous role that debt has played in events (Cooper, 2015). She has also argued that the debt crisis exposed dangerous collusion between governments and the finance sector that broke the 'link between risk and reward' and so chained 'free' markets (Pettifor, 2014).
David Blanchflower, a former member of the Monetary Policy Committee of the Bank of England, has spoken out against the idea that Labour 'caused' the 2008 financial crisis and against the economics of austerity (Blanchflower, 2015). Blanchflower was amongst the signatories of a letter during the Labour leadership campaign - along with Mazzucato - that argued Jeremy Corbyn's economic policy was in fact the moderate, mainstream response and it was instead George Osborne's austerity that was extreme (Blanchflower et al, 2015).
And finally there is Anastasia Nesvetailova, whose work Fragile Finance warned in 2007 of the fragility and instability of the finance-based economy, upon which the whole political and globalised economic house of cards was based (Nesvetailova, 2007).
The respectable face of economic opposition
So what kind of economy do these ideas combine to form?
In a definite stance of opposition to the dominant, and austere, conservative approach, the consensus running through Labour's new advisors is for the state to have a strong role - though not through nationalisation. The emphasis is placed upon the work the state does to create a framework for society - on infrastructure, on social security, on regulating market activity.
In fact, looking over the recommendations is almost like a review of German economics in the late twentieth century during the time of Germany's Wirtschaftswunder - its 'economic miracle'. The social market, so-called Rhine Capitalist, system that underwrote that economic boom was plush with public-private partnerships.
Inspired by German Ordoliberalism, the state was to act as regulator and facilitator in the Rhenist system (Guerot & Dullien, 2012). The aim was to ensure greater equality, and widely enjoyed prosperity, all while retaining an appreciation for free markets - so attempting to get the social aims and a vibrant market to go along hand in hand.
The ideas also bear some resemblance to those of Liberals and Liberal Democrats in the UK over the decades. Setting themselves apart from the Conservatives and Labour, their approach was to argue that it was not about a large or a small state, but about what the state is and what it does (Brack et al, 2007) - so Liberals might pursue the most efficient solution with the least interference with the individual.
In these similarities with liberal ideas, the approach of Labour's new advisors marks a kind of sharp change for the party, away from the centralised and overbearing managerialism it has pursued since the Second World War. But what stands out most is that, if we can accept that austerity represents a purely right-wing form of economics, the vision these economists are putting forward represent the mainstream - the democratic economics of the centre.
Building an alternative
With these very much mainstream, Keynesian-esque, ideas - based on broad analysis critical of austerity but friendly to markets - accomplishing the task of recovering Labour's credibility should not be such a long shot. Even reaching out to reintegrate the unhappy New Labour-ites should not be impossible.
For restoring their respectability, it is now a matter of building that model and presenting it to the public, which - if done right - could create the base from which the Conservative approach can be disassembled.
That would mean embracing Keir Hardie as Jeremy Corbyn did, in his first speech to the Labour Party conference as leader (Kennedy & Grierson, 2015). The existence of a credible alternative to the rigours of austerity allows the party to challenge the necessity of the suffering it has caused, and to try to 'stir up divine discontent with wrong'.
And yet, while the dry and balanced macroeconomic mainstream vision is the economist's dream ticket to government office, it is not hard to imagine these technical reforms falling short of progressive expectations.
There are radical ideas with not touched on here.
Citizen's income (Razavi, 2014), mutuals and co-ops (Webb, 2015), shorter working hours and the possibilities that automation are bringing (Mason, 2015) - these are all ideas tied closely to questions of equality, accountability and innovation.
However, there is likely more to come from the team of Corbyn & McDonnell - not least the pursuit of rail renationalisation (BBC, 2015{2}) and community owned energy companies (BBC, 2015{3}) - than is being accounted for here. Those extra measures are needed.
If we are to have more equality and accountability in the economy, there needs to be more co-operation. Which means more say for workers in the running of their workplaces and a greater mutuality of aims.
And if people are to enjoy full balanced lives, they also need enough time to embrace more than just their universal human rights to fair paid work and 'rest and leisure'. They need the resources and time to study, to raise families, to assemble, to debate and to act.
And if people are to have both of the above with freedom, from both want and coercion, they need the basic guarantee against poverty and homelessness afforded by a Citizen's Income.
As it says in the old Liberal Party's Yellow Book (1928), written under the deep influence of David Lloyd George and John Maynard Keynes:
'We believe with a passionate faith that the end of all political and economic action is not the perfecting or the perpetuation of this or that piece of mechanism or organisation, but that individual men and women may have life, and that they might have it more abundantly.'
A true progressive alternative to conservative economics needs to embrace big ideas. It needs to reform, it needs to challenge and it needs to spark hope of a new way forward.
References
'Labour conference: Economists Piketty and Stiglitz to advise Corbyn'; on the BBC; 27 September 2015.
Larry Elliott's 'Labour still has a long way to go to restore its economic credibility'; in The Guardian; 30 September 2012.
Liz Kendall's 'Speech at Reuters'; from John Rentoul's 'Liz Kendall’s speech at Reuters'; in The Independent; 30 June 2015.
John Reid's 'If Labour wants to win in 2020, it must choose Liz Kendall as leader'; in The Guardian; 5 July 2015.
Thomas Piketty's 'Capital in the Twenty-First Century'; Editions du Seuil/Harvard University Press; 2013/2014.[Buy Now]
Suresh Naidu's 'Capital Eats the World: Piketty’s Capital in the Twenty-First Century shows that not everything in mainstream economics is worthless'; in Jacobin Magazine; 30 May 2014.
'Inequality hurts economic growth, finds OECD research'; from the OECD; 9 December 2014.
Joseph Stiglitz's 'The Price of Inequality'; W.W. Norton & Company; 2012.[Buy Now]
Joseph Stiglitz's 'The Insider'; 17 April 2000.
Yvonne Roberts' 'The Price of Inequality by Joseph Stiglitz – review'; in The Guardian; 13 July 2012.
Thomas B Edsall's 'Separate and Unequal: 'The Price of Inequality,' by Joseph E. Stiglitz'; in the New York Times; August 3, 2012.
Mariana Mazzucato's 'The Entrepreneurial State: debunking public vs. private sector myths'; Anthem, 2013.[Buy Now]
Mariana Mazzucato's 'Let's rethink the idea of the state: it must be a catalyst for big, bold ideas'; in The Guardian; 15 December 2013.
Mariana Mazzucato's 'Smart countries are the ones creating and shaping their own markets'; in The Guardian; 20 July 2014.
Ann Pettifor's 'The coming first world debt crisis'; Palgrave Macmillan; 2006.[Buy Now]
Cameron Cooper's '6 economists who predicted the global financial crisis'; on In The Black; 7 July 2015.
Anne Pettifor's 'We can end the despotism of finance, at a price'; on Open Democracy; 24 February 2014.
David Blanchflower's 'Labour is being far too reticent: it didn’t cause the global financial crisis and Coalition austerity policies have stalled the recovery'; in The Independent; 6 April 2015.
David Blanchflower and other signatories' 'Jeremy Corbyn's opposition to austerity is actually mainstream economics'; in The Guardian; 23 August 2015.
Anastasia Nesvetailova's 'Fragile Finance: Debt, Speculation and Crisis in the Age of Global Credit'; Palgrave Macmillan; 2007.[Buy Now]
Ulrike Guerot & Sebastian Dullien's 'The Long Shadow of Ordoliberalism'; in Social Europe; 30 July 2012.
Duncan Brack, Richard Grayson & David Howarth's (ed.) 'Reinventing the State - Social Liberalism for the 21st Century'; Politico's, 2007. [Buy Now
]Maev Kennedy & Jamie Grierson's 'Who are the inspirational figures quoted by Jeremy Corbyn in his speech?'; in The Guardian; 29 September 2015.
Lauren Razavi's 'A citizen's income of £71 a week per person would make Britain fairer'; in the New Statesman; 18 August 2015.
David Webb's 'Labour’s future lies in co-operation and solidarity, not managerialism and party politics'; from the Newcastle University Institute for Social Renewal; 23 July 2015.
Paul Mason's 'The end of capitalism has begun'; in The Guardian; 17 July 2015.
'Labour conference: Rail nationalisation now official policy'; on the BBC; 29 September 2015{2}.
'Labour conference: Nandy backs community-owned energy plants'; on the BBC; 29 September 2015{3}
'Yellow Book' or 'Britain's Industrial Future: being the Report of the Liberal Industrial Inquiry'; Ernest Benn Ltd, 1928. [Buy Now]
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