Agreeing not to differ

5 Dec 11
David Lipsey

Labour’s historic remedy of state intervention in the economy is the only key political difference with the Conservatives. So why isn’t it advocating such a policy?

Ed Miliband is trying to nudge it open a bit, but the gap between Britain’s big political parties is now as small as it has ever been. As both parties follow the late Philip Gould’s injunction to seek the middle ground, old fissures have all but disappeared.

No longer do the representatives of the bourgeoisie take on the class warriors of the Labour Party or reactionary Conservatives confront socially progressive socialists. On many issues, from equality of opportunity to gay rights, Labour and Conservatives are like Tweedledum and Tweedledee.

This makes the one emerging difference all the more significant. It is simply this: that the Tory party on the whole believes that economic systems are ultimately self-stabilising and Labour does not.

It is this that underpins the present argument between the parties about whether the UK needs a ‘Plan B’ to restore growth. Plan A reflects the Tory philosophy of rebalancing the economy and cutting the deficit to avoid a Greek-style debt crisis. But that creates a problem: employment in the public sector diminishes. What will improve it? The Tory answer is that after a nasty shake-out, the entrepreneurial spirits of liberated capitalists will nurture green shoots from the baked earth. These views reflect a Tory belief system that long predated Margaret Thatcher and is perhaps most eloquently expressed in the works of economists Joseph Schumpeter and Friedrich von Hayek.

The roots of Labour’s belief in the contrary are also deep. They can be traced back to a thinker rejected by New Labour: Karl Marx and his theory about the crisis of capitalism. More respectably, they follow the teachings of John Maynard Keynes, a capitalist to his roots (and given to speculation on the Stock Exchange) but one who believed that it required state action to prevent recurrent slumps. Less remembered is the Labour tradition of support for economic planning, dating from the economist and MP Evan Durbin in the 1930s and finding its futile expression in Harold Wilson’s Department of Economic Affairs, which was finally abolished in 1969.

You would think in the present climate it would be game, set and match to the interventionists. After three years, Europe seems to be heading for double-dip recession, the traumas of finance capitalism appear to be strangling productive capitalism and  the source of the spontaneous regeneration of growth is not obvious.

Yet the interventionists are not winning, economically or politically, as the feeble state of the European Left shows. A few demonstrators on the steps of St Paul’s notwithstanding, the public mood is far from Left-wing. Indeed, the zeitgeist is anti-bureaucrat, anti-benefit and anti-immigrant.

The classic interventionist instruments for combating the crisis without challenging capitalism have all failed. Interest rates are near zero; we have quantitative easing; the fiscal deficit could hardly be enlarged – yet signs of growth there are none. Shadow chancellor Ed Balls’s refrain ‘too far, too fast’ hardly holds out hope that prosperity is coming shortly.

What handicaps the Left is that any radical challenge to the Tory let-it-happen-naturally philosophy requires state action. It was after all a huge programme of public works that made Roosevelt’s New Deal such a success in the US in the 1930s. But no one now has faith in the ability of the state to effectively manage such a programme.

In a recent article for Political Quarterly, Roy Hattersley and Kevin Hickson argue that Labour should favour a revived state. They criticise those in the party, notably Blue Labour, who want less state and more community power.

But it isn’t chance that has turned Labour less statist. It is the fact that public trust in politics is low, and so the state is seen as being in the hands of the untrustworthy. It cannot simply be magicked back to its old glory by a Labour act of will.

David Lipsey is a Labour peer

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