The British Labour Party leader (for now) Keir Starmer gave a – Keynote Speech – to the Annual Conference of the Confederation of British Industry in Birmingham on November 22, 2021. If you read it or heard it you will know that his leadership marks the return of British Labour as class traitors. He started by saying the “Labour is back in business”, which should have been ‘Labour is the agent of business’ He played up the line that Britain’s future depends on the business sector profits growing stronger than they are now and that everyone benefits when profits are high and growing. Even at the most elementary level that statement defies the evidence. But for a Labour leader to make it spells trouble for the Party. So what else is new.
Starmer fell into the neoliberal storyline easily – “our public finances are in a fragile state”.
What does that mean?
What would be a non-fragile state?
He emphasised Labour’s fiscal rules represent a “commitment to fiscal discipline”.
What does that mean?
Well, apparently it means Labour:
… will never spend money just for the sake of it … We really don’t think that the solution to every problem is to throw cash at it.
No government should spend money for the sake of it.
Fiscal policy has a purpose – to advance societal well-being.
That goal has many dimensions which are varied enough to ensure a rich diversity of spending initiatives are required in the face of a non-government sector that rarely desires to spend all its income in each period.
That state ensures that the government has to run a fiscal deficit on a continuous basis or drive the economy into recession.
I discussed that requirement in this blog post – The full employment fiscal deficit condition (April 13, 2011).
With Britain running an external deficit of around 1.5 per cent (or slightly more) of GDP, then the fiscal deficit has to be at least 1.5 per cent of GDP on an on-going basis for the private domestic sector to break even.
If the private domestic sector desires to save overall (and thus be able to reduce its high indebtedness) then the fiscal deficit has to be higher to finance that overall saving.
Fiscal discipline is working within these constraints to ensure that people have jobs and opportunities.
At the Labour Party Conference in September, the shadow Chancellor made these comments in her – Speech:
… we would put in place fiscal rules that will bind the next Labour government to ensure we always spend wisely and keep debt under control, so that we have the means to transform schools, hospitals and communities, and pay for investment in the new industries and jobs that our country desperately needs.
Notice the problem.
Labour thinks that fiscal rules provide the “means” for the British government to spend on necessary items.
How does that work?
How does a self-imposed rule – some spending ratio or another – stop the Bank of England crediting bank accounts on behalf of the Treasury?
And what does keeping “debt under control” mean other than stating the obvious – the issuance of debt by the British government is always under their control – they can do it or not.
How much they issue – is under their control.
What maturities they issue – under their control.
What yields they will pay – totally under their control via the Bank of England.
This sort of talk about debt going out of control leads to the ‘threshold industry’, where wannabee economists manipulate data to come up with levels of public debt beyond which the government risks insolvency.
We saw during the GFC where that led us – down the slippery slope of spreadsheet shenanigans – Rogoff/Reinhardt style.
The current Labour rules seem to be closely related to the – 2-17 Fiscal Credibility Rule – which was basically unworkable.
You can see my critiques of that idiocy in this blog post – The British Labour Fiscal Credibility rule – some further final comments (October 23, 2018) – which contains lots of links to the critique as I built it over time.
Note, just before the 2019 general election, they changed the Rule without any major announcements because they worked out I was right. It was inconsistent and unachievable in its entirety.
The morning before the Speech to the CBI, Starmer wrote an Op Ed piece for City.AM (November 22, 2021) – Political drama has served as a distraction from the crises facing British businesses – which served to define his agenda.
He played the “labour shortages” card, when there is growing evidence that there is less of a shortage than there is an unwillingness of some firms to pay reasonable wages after being able to suppress wages to low levels for years.
But then he claimed that Labour is:
… the party of business.
Not the party of workers, from which it gets its name.
But the party of business.
And then he claimed:
When business profits, we all do. And the role of government in supporting that is unquestionable.
Whether you take a macroeconomic perspective or a sectoral (micro) perspective, that assertion doesn’t appear to stack up with the facts.
It would have been better for a Labour leader to say ‘when wages go up, we all benefit’.
It all depends on what we mean by benefitting.
I consulted my databases.
The following graph shows the evolution of the wage and profit shares in the UK from 1948 to 2020.
So the wage share is the total wages bill (from the Blue Book National Accounts) including wages and salaries and employer contributions as a percentage of nominal GDP.
The profit share is total corporate profits as a percentage of nominal GDP.
I have scaled the axis to get more spread in the lines in order to aid interpretation.
The cyclical patterns and the trends are important to distinguish.
It is clear that the profit share has been increasing while the wage share has fallen sharply over this period. That trend accelerated under the Callaghan Labour government (with Dennis Healey as Chancellor) when they turned Monetarist.
Margaret Thatcher’s government just continued that process.
There is no way you can conclude that during this period the increasing profits (in absolute and share terms) was good for everyone.
The vast majority of workers went backwards during this period.
Further, after 2002, the profit share started trending upwards again as the wage share fell.
On a micro scale, I recall reading a few months ago about the disaster that the privatised regional water authorities have become in England.
This UK Guardian article (July 9, 2021) – England’s water system: the last of the privatised monopolies – for now – reported that the water authorities have failed to protected the water system (leaking sewarage into rivers and killing animals), destroying local farming etc.
The authorities have wracked up massive debts which has been used to profit shareholders (via huge dividend payments) rather than “fix leaky pipes or treatment works”.
Over the same period (since privatisation):
… customers’ water bills have increased by 40% above the rate of inflation. It is the water users who have paid for upgrades to the network, such as they are, while shareholders walk off with cash paid for by higher debt.
On June 5, 2018, the GMB Union released the results of a study with Corporate Watch that are summarised in this press release – Water fat cats trouser £58 million as bills soar.
The results speak for themselves.
The bosses of the privatised water authorities banked big salaries and bonuses while wages growth for workers was tepid.
So at this level, Starmer’s claims are vapid.
I could dig into a number of micro examples that would show the same thing.
I was reminded of how dire the progressive narrative is in the UK when I read this article in the allegedly with-it media outlet The New Statesman (January 14, 2019) – Why 70 per cent tax rates would require capital controls.
People keep sending it to me with the message – see, if you MMTers have your way, the global financial markets will close Britain down.
They quote various so-called ‘Left’ characters in public life in Britain as authorities for that statement.
Starmer’s reasoning is consistent with the folly expressed in this article.
The article rehearsed all the anxieties that the Left are obsessed with in the UK, which has hampered the Labour Party since the mid-1970s, when Dennis Healey lied to the people and claimed the government had run out of money and had to borrow from the IMF.
The article, for example, uses the famous austerity turn by François Mitterrand in 1983 as an example of how global capital could successfully engage in economic blackmail of a sovereign government that issues its own currency.
I comprehensively demonstrated that was a false conclusion to draw in my book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015).
We provided more evidence in – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, September 2017).
There was no blackmail.
The Finance minister Delors had become obsessed with a ‘franc fort’ strategy as he embraced the Monetarist kool-aid. He convinced Mitterand that the only way forward for France was to act like Germany and become obsessed about ensuring the franc was strong, which would allow France to dominate moves to integrate further within Europe.
If the French government had have pulled out of the ERM at that time and told the financial markets to go jump, no austerity would have been required.
They wimped out because they had embraced neoliberalism and abandoned the Socialist path.
The real giveaway passage in the article – which really defines the demise of the British Labour Party as a collective voice for advancing workers’ well being is this one – it talks about increasing tax rates on the high income earners (and the same logic would apply to increasing the deficit to help workers):
… but any socialist government that attempted to do so would be punished severely by “the markets”.
This is why the Labour Party thinks it has to be the party of business.
I get this thrown at me all the time by British media people who interview me or by Labour Party hacks who attack my views.
They need to answer the question – how can the markets actually punish a sovereign government like the British government that floats its exchange rate and issues its own currency?
The proponents of this view point to events in the early 1990s leading up to Black Wednesday (September 16, 1992), which forced Britain out of the ERM after Soros and his thugs attacked the pound.
The problem with that example is that it does not apply to a flexible currency in foreign exchange markets.
Short-selling a currency that is fixed against other currencies and when the speculators know that the government is intent of protecting the parity is one thing.
But trying to do the same speculative strategy when the currency floats and the government declines to intervene is a recipe for disaster for the short-sellers.
None of the proponents of this – ‘the City will kill the pound’ narrative – have been able to articulate exactly how that would happen.
The reality is that capital controls might as some points be required in extreme cases.
But long before that need arises, a sovereign government like in Britain has all the ammunition it needs to render speculative selling unprofitable.
Just ask the speculators who have lost billions trying to short the Japanese government 10-year bond over the last three decades.
There is not a lot of joy for any of them.
Until the British Labour Party breaks out of this mindset – that somehow they have to appease the business lobby, and, specifically, the financial gambling sector, they will come up with wrong-headed policies and risk electoral defeat.
That is enough for today!
(c) Copyright 2021 William Mitchell. All Rights Reserved.