by Michael Roberts
Over 1000 people packed into a London college to take part in a
day of analysis of the state of the British economy. And hundreds had
been turned away. This was a conference called by the new left-wing
leadership of the opposition Labour party in Britain. The hardworking
and dedicated activists within the Labour party that had backed Jeremy
Corbyn, the new leftist leader, had turned out in droves to discuss with
due intent what is wrong with capitalism in Britain and what to do
about it. It was an unprecedented event: the leadership of the Labour
party calling a meeting to discuss economics and economic policy and
allowing party members to discuss.
Labour’s finance leader, John McDonnell opened the conference by
saying the aim of the various sessions was to see how Labour could “transform capitalism” into delivering a “fairer, democratic sustainable prosperity shared by all”. We needed to “rewrite the rules”
of capitalism to make it work for all. He argued the British capital
was failing to invest for growth and jobs. We needed to break with the
‘free market’ ideology of the neo-liberal agenda and “reshape the narrative” with “new economics”.
What was this new economics? Well, I’m afraid it was not new but
really a rehash of old Keynesian arguments and policy proposals. As
McDonnell said, the aim was to “transform capitalism” with new rules and state intervention, not to replace it.
The key note speaker at the conference was left Keynesian Cambridge
University economist Ha-Joon Chang. He delivered an entertaining and
amusing presentation, the gist of which he had already written in an article for the British liberal Guardian newspaper that week.
Chang presented a compelling argument that the strategy adopted by
previous right-wing and Labour governments of weakening manufacturing
and industry in favour of finance, property and other unproductive
services (in other words, turning Britain into a rentier economy) was a big mistake.
British capitalism was failing to compete in world markets with a
record high deficit on trade with the rest of the world – see graph
below (all graphs in this post have been researched by me and are not
those of any speaker).
And its people had seen no rise in real incomes for eight years since
the global financial collapse. British economic strategists reckon
that the UK economy did not need a thriving industrial base and could
rely on its financial services – just like Switzerland. The irony was
that Switzerland is actually the most industrialised economy in the
world, as measured by manufacturing output per person (see below).
In contrast, British manufacturing has been in fast decline as a share of total output among major capitalist economies.
Chang reckoned Labour should aim to boost industry, R&D and
investment, because those sectors can raise productivity for all sectors
and incomes. But he did not expand on how
that was to be done in an economic world where banks and hedge funds
rule, loans are made for property, while businesses hold back from
In the finance workshop, the poverty of analysis and policy was very
evident. The main speakers were Frances Coppola, who has worked as an
economist in many banks and now runs a blog on economics; and Anastasia Nesvetailova, who is a professor at the City of London university on finance and has spoken before at
the series of ‘new economics’ meetings run by the Labour party.
speakers basically told hundreds before them that the regulation of the
banks would not avoid a future financial crash – indeed by making
regulation ‘too tight’, it was strangling the ability of the banks to
lend. A financial transaction tax would not work either in controlling
risk-taking by banks, particularly in new finance areas outside
regulation. Breaking up the big banks or separating their speculative
operations from basic banking would not work either. Indeed, nothing
would work to avoid yet another crash in the future: “we just had to prepare for one”!
So our finance experts had not a clue what to do. Staring them in the
face was the obvious answer. If the big banks are still engaged in
risk activities, in greedy laundering and in paying grotesque salaries
to their top executives, despite regulation, why not take them into
public ownership under democratic control so that banking becomes
a public service for the people to help investment and growth? This
policy move was never even considered by these banking experts and yet
Britain’s own firefighters union have produced an analysis showing why it was the best way forward,
which was formally approved by the trade union federation. I was told
that state-owned banks would not work because they are corrupted by
politicians – sure, as opposed to privately-owned banks that are as pure as snow.
At least in the session on fiscal and monetary policy, Michael Burke
provided a coherent account of how the weak economic recovery in the
major economies including the UK was not due to a lack of consumer
demand as the Keynesian ‘experts’ keep arguing, but to one major factor:
the failure of business to invest. The graph below for the UK shows how
it was investment that collapsed in the Great Recession not
consumption. It was the same story in all the major economies.
The large companies were hoarding cash, small business were just
hanging on and governments were cutting back on public sector
investment. Indeed, British capital has the lowest level of investment
to GDP of the major capitalist economies (see black line in graph
Weak and even falling investment had lowered growth rates and so held
down incomes. The answer was a new plan for growth based on public
The conclusion of the day’s conference screamed out to me. The
capitalist sector had caused the crash, not the public sector. But the
public sector had to pay with increased debt and a reduction in the role
of the state as support for growth and as a safety net for those who
lost their jobs, homes and incomes.
So instead of trying to “transform capitalism”, Labour needs to develop a programme to replace
capitalism by bringing into public ownership the major banks and
business sectors under democratic control to be integrated into a plan
for investment in people’s needs not profit. Instead, Labour’s advisers
and experts offered just some old ideas that had been tried and failed
before to direct or regulate capitalism to make it work better. No new
- AFSCME Local 444 negotiations assesment 1997
- Preparing for Revolution: A discussion document
- The Internal lives of Revolutionary Organizations
- Socialist Alternative members: Questions and Answers
- Sanders: Our Alternative
- The Nature of the New European Left
- Catastrophic Climate Change: Caused by Capitalism
- University of California workers and Unions
- An Invitation to Our Readers