The Right has lost the plot, leaving fantasy economics to fill the void
Jeremy Warner, 25-9-2017
There used to be a City maxim known as the “Forty Year Rule”. This held that really serious banking crises only happen after all those old enough to remember the last one have retired or died out. The reckless then once again triumph over the prudent, and the excesses of the past build up anew.
Something similar applies to the political cycle. To those of us old enough – just about – to remember the economic disasters of the 1970s, it seems almost beyond belief that the tried and failed hard left policies of yesteryear should be making such a popular comeback. Labour won its longest ever period of uninterrupted government – under Blair and Brown – by repudiating such nonsense.
Their modus operandi was to hug the centre ground, and cosy up to business and the City. “A bigger cake,” Margaret Thatcher said when talking about the economy, “means a bigger slice for everyone.” Let the wealth creators thrive and everyone would be better off for it. Blair’s Labour seemed wholly to buy into Thatcher’s philosophy.
But then along came the financial crisis, and the tables turned. Big business and finance became quite widely seen as a stitch up, and their friends in Government as part of the same racket. The more Labour swings to the left, the more unaffordable its spending promises become, and the more it pledges to soak the rich to pay the poor, the more its electoral prospects seem to improve.
Len McCluskey, general secretary of Unite, is in a sense right in his claim that Labour won the last election; in spirit if not in practice, Labour did indeed win. However unrealistic its goals, there is a dynamism and optimism on the Left which seems to have all but deserted the Tories. Obsession with delivering Brexit has blinded the Right to the deeper causes of social discontent.
Not that this erosion in the centre ground is a peculiarly British phenomenon. This week’s German election demonstrates much the same disillusionment with past solutions, together with the rise of populist alternatives. In rebuilding for the future, Germany’s Social Democratic Party might think it wise to abandon moderation, which plainly didn’t work for them in the election, and follow Jeremy Corbyn out to the Left. Attention has focused on the rise of the nationalist Alternative für Deutschland, but the success of the far Left party Die Linke was in some respects equally striking. Polarisation is the name of the game. The pressure is on for the centre ground to adopt some of those positions.
John McDonnell’s response to the same phenomenon in Britain – with Theresa May’s Tories desperately scrambling to ape some of Labour’s populist policies – is to double down. Having already promised to renationalise the water, electricity, rail and postal industries, at confiscatory prices in some cases, the shadow Chancellor now threatens arbitrarily to cancel hundreds of private finance initiative contracts.
Nevermind the damage this challenge to the sanctity of legal contract is likely to inflict on foreign investment in the UK, these are I’m afraid to say policies which are striking a chord with the public.
People seem wholly to have forgotten the disgrace that British Rail was at the time it was privatised – investment starved, accident prone and delinquent. Similarly with the water industry, which would routinely poison our rivers and coastal waters, and sometimes our drinking water too, without recompense. Our apparent nostalgia for this “golden age” of collective ownership sits oddly with the reality of the appalling standards of service and public accountability that then ruled.
Yet however irrational and economically damaging the urge for renewed public ownership, it can’t be fought unless it is first properly understood. Small wonder people think capitalism a racket when so many of our utilities are registered offshore and have debt laden capital structures deliberately designed to pay little or no corporation tax. Small wonder that people have lost faith in business to raise their living standards when barriers to entry are made so high and its titans find such easy succour in monopolistic, rent seeking activity. Small wonder too that so many Private Finance Initiative (PFI) contracts stand discredited when even City professionals admit in moments of candour that they are an outstanding deal for investors but a lousy one for the taxpayer.
It pains me to admit it, but McDonnell is substantially right about the PFI. He’s also partially right to blame the Tories. The PFI – a way of bringing private money into public infrastructure investment – was invented under John Major, and later became one of Britain’s most successful exports. But it was under Blair and Brown that the real abandon took place. Justified as a mechanism for risk sharing and bringing private sector disciplines to public works, many public private partnerships were in essence just a con trick, or way of keeping substantial amounts of debt off the public balance sheet. The private sector would finance the investment, and the taxpayer would expensively pay for it over time.
It is one thing to stop signing up to this kind of stuff – though the present Government shows little sign of it having recently sanctioned the scandalously expensive Hinckley Point C – quite another to renege, as proposed by Mr McDonnell, on past contracts initiated by his Labour predecessors and essentially confiscate the assets. The shadow chancellor says Labour has already war-gamed for a run on the pound in preparation for election victory. The admission at least has the merit of realism, because a sterling crisis is pretty much guaranteed if even so much as a watered down version of McDonnell’s policy agenda comes to pass.
According to the Nuffield Trust, ending the NHS’s PFI contracts alone would cost about £50bn. The cost of renationalising water, electricity and the Royal Mail would meanwhile run to the thick end of £200bn. Even acknowledging some appropriation, it’s going to take an awful lot of gilt issuance to pay for it all, and that’s before we even get to the costs of abolishing tuition fees, ending the public sector pay freeze, lowering the age of entitlement to the state pension, free child care… I could go on, but space prevents it.
It is not yet clear what the centre right’s path back to political legitimacy might be; it is plainly not sufficient simply to denounce the left’s policies as fantasy economics, even if that’s what they are. Nor will going the other way, and adopting a kind of Corbyn-lite position, work either. But we had better figure it out fast, or Brexit will be the least of the economy’s challenges in the years ahead.
