Four problems with ‘In the Black Labour’


3:00 pm - December 5th 2011

by Don Paskini    


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I enjoyed the ‘In the Black Labour’ report, by some of Labour’s brightest and best bloggers and thinkers, which argues that Labour should adopt ‘fiscal conservatism’.

Here are a few thoughts in response, explaining why I am not convinced by the case which they make.

1. I am not an economist, but…

The paper argues in favour of setting firm goals on tax, borrowing and spending, with the Office for Budget Responsibility getting increased powers to act as a watchdog, and calls on Labour to pledge to run a surplus on the public finances.

Leaving aside for a moment the politics of this, I am not convinced that this approach is going to be the most effective way of maximising wellbeing and social justice. Setting fixed rules for fiscal policy which are monitored by an independent (unelected) quango seems to me to be especially problematic at times of economic uncertainty. It is essentially impossible to predict what the key economic challenges will be in 2017, but it is easy to imagine a situation where running a modest deficit would make more economic sense than committing to running a surplus.

From a purely good governance standpoint, retaining the flexibility to respond to the economic situation as we find it seems more sensible than trying to put rules into place for many years into the future.

2. ‘Fiscal conservatism’ is an awful name

The term ‘fiscal conservatism’ suggests that conservatives are responsible with the finances. I don’t think it would help the Labour Party if they named their new economic approach after George Osborne’s key message. Hopi argues that they are supporting “good, small-c conservatism, not big-C Osbornomics”, which sounds to me like a bad case of getting onto the complicated side of the argument.

Talking about fiscal conservatism also cuts this idea off from its natural origins – the people who ran budget surpluses and combined this with social justice are the likes of Bill Clinton and Clement Attlee, not Ronald Reagan or Maggie Thatcher.

3. It is awfully vague

The paper argues that we need to “acknowledge that social justice is advanced far better by bold reform and well-targeted investment than public spending… welfare mechanisms are never preferable to a genuinely productive and balanced economy that raise the living standards of those on low and middle incomes”.

I find the assertion that there is a trade off between welfare mechanisms and a genuinely productive and balanced economy unpersuasive, and it would be nice to see some examples of these ‘bold reforms’ and ‘well-targeted investments’. Similarly, the authors call for ‘zero-budgeting’, questioning every line of public spending, but have no examples of what this approach would mean in practice.

4. Politically, it is very ‘courageous’

Supposing that Labour decided to adopt this plan in full at the next election. They set out plans to match George Osborne’s spending plans, but differ from the Tories by (say) pledging to take away bus passes and winter fuel allowances from better off pensioners, and to hold down public spending on the NHS and schools in order to invest more in a state investment bank and more support for entrepreneurs. This would involve short term pain for the ‘squeezed middle’ in return for the promise of longer term rewards.

Now, clearly, this manifesto would be suboptimal for leftie voters, but I guess Labour could hope that these voters would have nowhere else to go (I don’t personally agree with this strategy, but it is a plan). But the evidence from the focus groups (based on research published by Lord Ashcroft) is that swing voters think that there is very little that the government can do to improve the economy.

So the pitch to swing voters is that Labour would cut their living standards, in order to pay for policies which the voters think won’t achieve much. This is not an obvious election winner.

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About the author
Don Paskini is deputy-editor of LC. He also blogs at donpaskini. He is on twitter as @donpaskini
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Reader comments


1. Luis Enrique

I guess I need to read the whole thing, as they say … are they opposed to tax increases?

I read Adam Lent’s post as arguing the following:

1. We need to fund spending with taxes not borrowing
2. We need to adjust to being poorer than we thought

but the virulent reaction from everybody else in the comments suggest that either I have misread Lent, or propositions 1 & 2 are more controversial than I imagined. You can be fiscally responsible by raising taxes.

“The paper argues in favour of setting firm goals on tax, borrowing and spending, with the Office for Budget Responsibility getting increased powers to act as a watchdog, and calls on Labour to pledge to run a surplus on the public finances.”

This paragraph alone demonstrates a belief in the modern notion that it’s good to separate economics from politics, rather than recognising the essential politics in economic policies. Perhaps it was OK to hand responsibility for interest rates to the Bank of England, after all so many chancellors created election booms to our later detriment, but taking it much further removes too much power and responsibility from those we elect to deal with such matters.

There must be a better way to achieving growth and stability. Handing it over to unelected technocrats is an abdication of responsibility.

3. Solomon Hughes

What gets me is that the Policy Network people who publish this report arguing about “social justice ” being ” advanced far better by bold reform and well-targeted investment than public spending” are more or less the same New Labour crowd who argued for absolutely terribly targeted investment (PFI, FireControl, NHS programme for IT anyone), and rubbish reforms (look at how well they regulated banks and financial markets) . The “new labour” legacies of the last government are all pretty terrible (the above plus added war) , while the “old labour” legacies like the minimum wage are the few worth hanging onto.

Problem number 5 – “lets pretend that our centrally imposed conservativism hasn’t lost us Scotland, and looked like losing us Wales until we let Rhodri Morgan do his own thing”

Problem number 6 – “lets ignore the fact that in 97 we managed to have policies that appealed to animal rights people, anti-road builders, people wanting a windfall tax on utilities etc and still won a landlside.”

by (say) pledging to take away bus passes and winter fuel allowances from better off pensioners, and to hold down public spending on the NHS and schools in order to invest more in a state investment bank and more support for entrepreneurs. This would involve short term pain for the ‘squeezed middle’ in return for the promise of longer term rewards.

Which is bonkers, of course. When it comes to healthcare “short term pain” means real pain or death for real people; for education “short term pain” means damning a cohort of young people. It is neither civlised nor good practice.

The public are aware that there is nothing wrong with borrowing so long as you intend to pay it back. Many of us do this when we take out a mortgage, and although I dislike using such analogies, the public do accept that long term loans can be beneficial. It’s called investment. Labour should advocate targeted investments, show the public what the money will be spent on, and when it will be paid back. The problem is that the Conservative spin machine successfully created the impression that Labour spends and never pays back. This is untrue, since until 2003 Brown was paying off the national debt. The reassurance should not be that Labour would not borrow, but that they will repay whatever they do borrow.

If Labour maintains spending on the NHS and education to avoid the majority of the “short term pain”, they could easily make the case for borrowing for “more support for entrepreneurs”. After all, if the entrepreneurs are going to make us all extremely wealthy then sure the public will be happy for a government to break the no-borrowing rule? On that subject, in 2006 Brown paid off the last tranche of our post-war loan from the US. Labour does pay off loans.

“I guess I need to read the whole thing, as they say … are they opposed to tax increases?”

No. Indeed, one thought experiment that I tried involved making the ITBL case but using leftie examples/rhetoric. So, for example, it could involve running a surplus by means of cancelling Trident, slashing defence spending, restricting tax breaks for higher earners, introducing a mansion tax and putting up income tax, with the goal of creating full employment and inspired by the spirit of past reforming governments including the 1945-51 Labour government (which ran budget surpluses while building the New Jerusalem).

I haven’t been so excited since I heard of Blue Labour.

8. Alisdair Cameron

@ 1. I think the (well-deserved) responses were because the tenor of the piece was more like
1. Do what the Tories are doing (even if it’s not working)
with a touch of
2. Meaningless, very New-Labour-ish phrase making along the lines of “hardwiring equality into the economy through pro-active growth strategies and reform” Very much underpant gnome stuff.

9. Green Co-operator

So, there’s a crisis of capitalism, and voices in Labour are suggesting that they should align their economic policy (which, in times of strife is the only policy which matters a damn) more closely with the Conservatives. Haven’t we been here before?

This colour business is awfully confusing. I suggest National Labour.

This analysis accepts the tax gap as permanent and unchallengeable, and thus hardwires neoliberalism into the economy; the state doing less to alleviate the inequality caused by the people who have withdrawn their taxes to impoverish both the state and society. Insane.

Thank you for engaging with this Dan. Just some quick fire responses on-the-fly:

1. Yes, navigation is difficult in the wind and the rain. All we can do is take a best guess. There needs to be flexibility – and, for example, that would leave the door open in this environment to a short-term stimulus that doesn’t add to the structural current deficit. What we are proposing is targets with accountability – and more freedom for the OBR, eg to suggest alternatives. When targets are likely to be missed a warning signal will be sounded. It’s about transparency – by creating a truly independent and flexible fiscal monitor – which improves credibility.

2. This is a really important point:

“Talking about fiscal conservatism also cuts this idea off from its natural origins – the people who ran budget surpluses and combined this with social justice are the likes of Bill Clinton and Clement Attlee, not Ronald Reagan or Maggie Thatcher.”

I wish we’d made it.

3. It is both vague and not. It sets very clear parameters and a framework but the detail is left deliberately open. This is not the end of the story and we hope others will help us with the heavy lifting. What we felt it was important to do was, following Ed Balls’s conference speech where he made the top-line point re fiscal responsibility, to create the space for this debate on the left.

4. Yes, we have no idea whether this appeals. We started with the, in context, economics. Recent polling suggests the politics may be right too but we really don’t know. This is why those who assume that this is a pitch to centreground thing have got the wrong end of the stick.

@6 – if the Labour right are going to embrace that kind of “fiscal conservatism” then I’d be all for it.

I’m going to guess that they’re not though.

David @11 – they might be. But they haven’t explained what they’d cut of keep, so its unclear whether that’ true or not.

However if they say they we should sign up to all the cuts Osborne has made, and the way he has made them, then its unclear how they would be different from the Tories.

Planeshift: Problem number 6 – “lets ignore the fact that in 97 we managed to have policies that appealed to animal rights people, anti-road builders, people wanting a windfall tax on utilities etc and still won a landlside.”

Agreed, and Sunder Katwala has made this point many times too. The idea that New Labour came into power on a platform that some people think now is too ‘soft leftie’.

13. Tax Obesity

OMG! Surely, you can do better than this?

Firstly, “well being” is not equivalent to “social justice” — and, please, define the latter precisely??

Secondly, sorry, Don, but more welfare = less competitiveness, broadly speaking. Siege economy instead? I don’t think so!

@5: revenue expenditure on the NHS and public services is NOT investment

@6: “restricting tax breaks for higher earners” — and how much tax will that raise, and how many high earners will it scare off (with their VAT spend, too)? Laffer curve, Don??

14. Luis Enrique

an Oxford economists has been pushing the idea of fiscal councils for a long time

http://www.economics.ox.ac.uk/members/simon.wren-lewis/fc/fiscal_councils.htm

Anthony, not sure the ‘flexibility’ point covers it.

For example, Angela Merkelnow says she wants closer fiscal integration to the point that countries face penalties if they exceed certain targets. The main argument against is the loss of democratic legitimacy. Same applies to you, surely?

Also, the OBR is a horrible example. As Cormac has pointed out at LFF – the OBR massively got it wrong on growth projections over the last 18 months. So why should anyone listen to them?

History tells me to be wary of those who wish to always run a budget surplus, as there will inevitably come a time when this is unwise.

President Hoover oversaw an administration that ran a budget surplus. It was a model of fiscal conservatism. Meanwhile, in the real world …

17. Chaise Guevara

@ 1 Luis

In addition to what Alisdair says @8. the inescapable assumption below that article was “Labour winning is more important than what Labour stands for”. To the point where it’s ok to literally become the Tories by another name if that gives you the best chance of getting into Downing Street. Kinda suggests that Lent cares only about victory, not about why people want that victory in the first place.

@Sunny

We haven’t argued for penalties as such – we’ve argued for targets, transparency (independent assessment), and accountability. If the Government falls short then it will be obvious – and then it’s up to markets, business, voters to decide whether that’s a good or bad thing. The democracy point is one that’s often made but you can’t vote to be economically wealthy unfortunately. We don’t specify what the level of tax and spend should be- just that it should be fiscally sustainable.

I think my point 1. answers your concern re OBR. I don’t see why people are questioning the OBR because they have had to revise their forecasts – everyone has. What Cormac doesn’t do is admit that Labour’s forecasts were also in probability wrong (as the IFS and HM Treasury both calculated in the last week.) There is a bit of dishonesty that has crept into Labour’s reliance on the March 2010 budget. Just compare Budget 2007 to 2010 to see how things can go off course! But to suddenly say that there is no role for forecasting in making tax and spending decisions is rather like throwing your map out of the window because you hit heavy traffic.

Sunny @12 – the problem of course is that its hard to sustain a narrative that says “there is no money left”, “we can’t keep throwing money at the welfare state”, etc, when you’re still throwing money at nuclear weapons, still throwing money at a military budget higher than that of many developed countries by % of GDP, and when you’re leaving large concentrations of wealth, on or offshore, more or less untouched by taxation.

The latter in particular is going to be a hard one for voters to swallow in times of austerity, especially the non-right-wing majority of those 5 million voters that Labour lost under Blair and Brown.

We can all agree about long-term fiscal sustainability. But traditionally, when the right have moralised about fiscal responsibility what that’s meant in practice has been balacing the budget on the backs of the poor. The “fiscal conservatism” has been very selective.

A different kind of fiscal conservatism, one aimed at advancing social justice, and into which equlity is “hardwired”, would certainly involve rebalancing our economy towards productive, high-value employment that pays decently. But it will also mean redistributing the resources that do exist towards those that need them most, to shield them from the pain of the lost decade. Now we know from two decades experience that the Labour right is dead set against scaling back British militarism, and dead set against stepping up wealth distribution through progressive taxation to deal decisively with inequality. And that only leaves “fiscal conservatism” with a big C, I’m afraid.

20. Luis Enrique

(that link #14 discusses democratic legitimacy and arguments for taking certain fiscal decisions out of direct political control)

(5) It follows the lamentably unimaginative “colour scheme” theme.

Balanced budget commitments lack credibility without a mechanism to ensure a government will keep them. Pretty much need to abrogate the democratic rights of the HoC for such a commitment to have credibility. It is a similar problem to Mr Osborne extending fiscal consolidation beyond this parliament. He can gain credibility by promising to do something during the period that he will be around. Promising another parliament will do something loses credibility and put the UK top credit rating at risk. That essentially is the credibility problem and why balanced budget commitments lack credibility. Hard budget constraints are mutually exclusive to democracy.

Running a deficit is not the problem per se. It depends what you spend the money on. Borrowing money to give all doctors a pay rise would be terrible management of public finances. If you want to give them an increase in pay do it through taxes. Building a new hospital should be done through borrowing and not current taxes. Taxpayers in the future will benefit from the hospital and they should contribute to paying for it. Placing all the burden on current taxpayers would be unfair and pretty much ensures that gross fixed capital formation declines. Therefore, what you are spending on will determine how sustainable the deficit is.

I don’t think anyone believes that the UK can permanently run an 8% fiscal deficit. With such a deficit there would be no chance of the debt to GDP ratio stopping rising. Part of the reason why the UK deficit is so high is because we have one of the most progressive tax systems in the world. In the good times taxes flow in and disappear quickly in the bad times. The collapse in tax revenues from 2008 onwards was as much a problem as increases in spending.

Labourites would be better spending their time looking to how they could overhaul the whole UK system to make it more robust, than balanced budget commitments that no one that you need to convince will believe.

23. Luis Enrique

(@20 , actually, no it doesn’t. my memory fails me. anyway, some of the survey papers linked to probably discuss it)

Who the hell are all these strange ‘blue/black/fake/careerist/Blairite/undead labour’ folk anyway and which hole did they crawl out of? And how do we get them back in there?

If one was conspiracy minded one might be tempted to do an investigative work on the infiltration of these traitors (I’d be very suprised if nefarious background forces weren’t at work at least somewhere amongst the despicable bunch, aided by a troupe of useful idiots and naked careerists).

Anthony (if you’re still reading), would your proposals mean the end of PFI?

So their grand plan of the Labour right is to copy whatever the conservatives are doing with a few minor tweaks!……How bold! How imaginative!

This is essentially the same strategy that Tony Blair and co adopted in the 90s. New Labour uncritically swallowed Tory dogma on deregulation of the city, the neccesity of inequality and “tricke down” economics, privatisation and PFI, and the inevitable decline of manufacturing etc etc…. And didn’t that work out well!

And the irony is. The Tories benefited from the collapse of their ideas, because a Labour government which had implemented them was in power when the house of cards collapsed!

“the 1945-51 Labour government (which ran budget surpluses while building the New Jerusalem)”

As a matter of historical record, what contribution was made to those “surpluses” by American loans aid? My recollection is that, in contrast to the French and Germans, we spent the aid money on housing and failed to rebuild our infrastructure, leading, in part, to the miserably stunted economy of the present day. We also saw a devaluation of the pound and repeated balance of payments problems.

@Clifford No our proposals wouldn’t mean that necessarily.

Personally, I’m very sceptical of pfi as a value for money proposition. But I wouldn’t eliminate pfi or similar from the policy mix completely but rather use it minimally/subject it to stricter vfm tests.

If we wait long enough will we end up seeing a “red labour”?

Anthony: What Cormac doesn’t do is admit that Labour’s forecasts were also in probability wrong (as the IFS and HM Treasury both calculated in the last week.)

I don’t think this accusation quite works. Labour would have done things differently to the Tories – who played up how much austerity and pain there was going to be and how much they were going to slash. That inevitably depressed the economy (you can look at how consumer confidence dived after the budget).

Labour’s calculations have to be changed now, but its not right to say that Labour would have faced the same situation if it had been in power. Labour WAS in power for a bit after the crash and the economy WAS picking up. It dived after the Tories announced massive cuts. I cannot emphasise this enough. So you can’t say Labour would have ended up in the same hole as the Tories did. Doesn’t work.

David Wearing:
A different kind of fiscal conservatism, one aimed at advancing social justice, and into which equlity is “hardwired”, would certainly involve rebalancing our economy towards productive, high-value employment that pays decently. But it will also mean redistributing the resources that do exist towards those that need them most, to shield them from the pain of the lost decade.

Agreed, but my thinking is that if you hard-wire the economy differently enough, it doesn’t need as much redistribution going forward, because the proceeds of growth are shared more equitably.
I think the left has to be innovative about that hardwiring rather than simply call for sticky-plaster redistribution.

“calls on Labour to pledge to run a surplus on the public finances”

If this means “run a surplus on public finances in boom years,” that seems perfectly sensible. Fix the roof while the sun is shining, etc. If it means “run a surplus on the public finances every year, even when the economy is in or close to recession”, then it’s way nuttier even than what Osborne is doing. (Even the most austerity-crazed Tory doesn’t think we should be spending so little this year as to be running a surplus.) Clarity is key here; Labour couldn’t ask to be judged against a target that meant they were deemed to be failing if they did the right (or inevitable) thing by running a deficit while in recession, or in an attempt to stave off recession, or in the aftermath of recession.

@G.O. I’d recommend the full ‘In the black Labour’ document for the clarity you are looking for.

I’d recommend Ed Balls’s oped in The Times today to all.

Balanced budgets are not a panacea.

They are a risible economic goal.

Leave aside that a government cannot manage whether it posts a surplus or not, the whole focus is utterly wrong.

What matters is the real economy, real people, real peolple’s jobs. A goal to balance the budget is as fatuous as meeting these needs as one targetting low inflation – and look where that got us.

Idiotic discussion paper. If all some Labour supporters are going to do is roll over for excruciatingly bad Tory economic policy and have their bellies tickled, what is the point?

34. Leon Wolfson

A quango which I call the “Office of Budgetary Fiddling” for good reason.

The entire concept seems to be calling for *accelerating* the reduction of all benefits, regardless of what they are and of the costs involved to PEOPLE.

@1 – I read it as “Tories good. Austerity good. They’re right, stop trying”.

@6 – Before we cancel trident, we need to get off the pot and fix the UNSC. It’s the UK who are among the last to refuse to move on the need.

@10 – I don’t remember Atlee arguing for killing the poor via starvation and cold. That Tories like you refuse to see what the OBR is doing in predictions-to-order is just odd at this point.

Sunny @30

my thinking is that if you hard-wire the economy differently enough, it doesn’t need as much redistribution going forward, because the proceeds of growth are shared more equitably.

I think that’s a very sensible way of looking at it. And its what genuinely left wing people have been saying for years. Less PLC, shareholder, quarterly-report capitalism, more democratic corporate governance. Less reliance on high finance, more on high-value-added manufacturing.

What you describe as “sticking plaster redistribution” was New Labour’s nominal attempts to keep its electoral base on side, while pushing through the further neoliberalisation of the economy. Everyone on the actual left was opposed to that. It wasn’t social democracy by any stretch of the imagination.

Btw, remember that changes to the economic culture will take years to work their way through and take effect. We will still need serious wealth redistribution in the meantime to protect the public from what’s happening now. Moreover, these concentrations of wealth are also concentrations of power, and will act as a block to reform unless they’re challenged. The Labour right has absolutely no record of challenging concentrations of economic power.

Doing capitalism differently is a worthy enough goal (I’ll say that, even as a socialist). But it can’t be an excuse for Labour to avoid the urgent need for wealth redistribution in the here and now. From where we are now – massive inequality – fiscal conservatism and social justice can only be achieved at the same time through wealth redistribution. Without that, its just fiscal Conservatism.

36. Leon Wolfson

@35 – Let’s be honest here – it’s reducing the role of capitalism, without necessarily reducing the role of the free market itself. Those, to me, are worthy goals.

@24. Joe

Who the hell are all these strange ‘blue/black/fake/careerist/Blairite/undead labour’ folk anyway and which hole did they crawl out of? And how do we get them back in there?

If one was conspiracy minded one might be tempted to do an investigative work on the infiltration of these traitors (I’d be very suprised if nefarious background forces weren’t at work at least somewhere amongst the despicable bunch, aided by a troupe of useful idiots and naked careerists).

Somebody’s already done that for you. Take a look at this:
http://www.leftfutures.org/2011/09/labours-party-within-a-party-latest-funding-figures/

It does rather look like Labour has been infiltrated by corporate backed stooges, in order to water down any genuinely radical policies and keep Labour within limits “safe” to the corporatocracy!


Reactions: Twitter, blogs
  1. sunny hundal

    "Four problems with 'In the Black Labour'" http://t.co/tGb2a4k8 << @donpaskini spot on as usual

  2. Don Paskini

    i think #intheblacklabour is interesting and thought provoking, but here are four problems with it http://t.co/gxZobyyk

  3. John Rentoul

    Four problems with ‘In the Black Labour’ by @donpaskini http://t.co/Jz3hh10M

  4. Hopi Sen

    good critique of ITBL from @donpaskini http://t.co/U8NWtADt thinks stealing Tories fiscaly conservative clothes while they bathing bad idea

  5. Anthony Painter

    RT @donpaskini: i think #intheblacklabour is interesting and thought provoking, but here are four problems with it http://t.co/NDUNtjU8

  6. Anthony Painter

    I've posted some quick-fire responses to the helpful @donpaskini blog on #intheblacklabour http://t.co/vttpgNa4 @hopisen @adamjlent

  7. Adam Lent

    I've posted some quick-fire responses to the helpful @donpaskini blog on #intheblacklabour http://t.co/vttpgNa4 @hopisen @adamjlent

  8. Don Paskini

    I've posted some quick-fire responses to the helpful @donpaskini blog on #intheblacklabour http://t.co/vttpgNa4 @hopisen @adamjlent

  9. Jamie

    Four problems with ‘In the Black Labour’ http://t.co/fitDUTx5

  10. Robert CP

    RT @donpaskini: i think #intheblacklabour is interesting and thought provoking, but here are four problems with it http://t.co/NDUNtjU8

  11. The response to “In The Black” | hopisen.com

    [...] Paskini ditto, but more positive at Liberal [...]

  12. Tom Follett

    @KerrieAGilbert it's 'in the black' labour. Cut-to-grow rubbish as far as I can tell http://t.co/3Yy5k1j2 http://t.co/syGDXncQ

  13. Observations Labour Must Shed Its Old Ideas | gordonlyew

    [...] There is a strong suggestion from Movement For Change that the party should be a more community base friendly in the community by being more open to the public which features heavily in Refounding Labour. Which leads me to look at another political ideology Black Labour and Blue Labour. The Liberal Conspiracy has the right idea in regards to Four Problems With “In The Black Labour” http://liberalconspiracy.org/2011/12/05/four-problems-with-in-the-black-labour/ [...]





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