Labour should listen to Tom Watson on the economy


4:20 pm - August 17th 2013

by Sunny Hundal    


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Tom Watson has given an interview to the Guardian, published today, and it is quite explosive.

The interview mostly focuses on the Falkirk selection controversy, which I won’t comment on other than to say this: when I speculated that the Labour leadership deliberately stoked up Falkirk, some right-wingers laughed at me. Tom Watson’s intervention today proved me right.

The Labour leadership had long wanted to renegotiate their link with the unions (though not break it) and the Falkirk row provided the perfect opportunity. The only problem now is the bad taste left in everyone’s mouth and that this could put the party in grave danger.

But put all aside for a moment.

The more important part is what Watson says about the economy:

“There was huge market failure in the finance and banking sector – everyone knows that – and we’ve not robustly said so. The truth is that in government we didn’t sufficiently map out the contours of the mixed economy and put stakes in the ground about where the market can’t go. We were frightened of dealing with some of those so-called great Thatcherite legacies, like liberalisation of the City, so we let the City grow out of control. And I don’t know why we don’t just say that. Why don’t we just say that?” Might it be to do with protecting Ed Balls’ reputation? “I don’t know,” he says, but doesn’t sound entirely convincing. “I didn’t do the economy, I was the coordinator.”

Watson fears Labour’s unwillingness to admit they let the financial markets get out of control has cost them their economic credibility. “If we don’t explain that properly, how can we argue that it’s the reason the crisis took place in 2008? Our problem is that, in the absence of that explanation, people blame the 2008 crash on our profligate spending.”

Once Labour has admitted the reason for the crash, it could then offer a “distinctive economic programme” of investment to create jobs. “It’s all about jobs. Not taking risks is not an option.” Does Labour’s current economic policy takes too few risks? “Yes, definitely. The country is in a crisis. If Labour’s not going to give the bold solution, then who is?”

I agree with this so much my head hurts from all the nodding.

The idiocy of the ‘In The Black Labour’ narrative is underlined by the fact that they also believe Labour spent too much until 2010. The Labour leadership has become partly captured by this thinking – which means they half-heartedly defend their record but are afraid of saying too much about the future (which will mean spending more than the Tories). And so people remain confused by their stance.

But Labour has to go much further in admitting and communicating it has learnt from the crash. This is the main reason why many people don’t trust Labour with the economy again.

Labour cannot communicate an apology and say it has learnt from the past simply through a few interviews to the press. It needs a big intervention to get this across.

Every sentence of what Tom Watson says above is spot on. I really hope the leadership is listening.

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Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


Admitting abject failure to run the economy – yet again – will be gold for the Tories. To blame Thatcherism after THIRTEEN years in office will be greeted by howls of derision from across the spectrum and merely re-inforce the notion that Blair and Brown simply frittered away what was a strong economic legacy left by the Major government. Where Watson is right – or seems to be – is that Balls and Miliband unfortunately are both up to their necks in that legacy – as is Watson of course – and the only real hope appears to be the re-appointment of Darling to the treasury.

2. Stewart G Park

All through the Thatcher years Labour leaders had plenty to say but in this climate today when millions are on the edge, their silence is deafening.

Do you really think the general public will understand anything near technical that excuses Labours economic woes, of course not, all they know is Labour were in charge & shit happened.

Labour have already put up there hands, in making a mistake on immigration, although many see that as not true, it wasn’t a mistake it was a deliberate attempt by Tony Blair to change the face of Britain, so putting hands up & saying another mistake was made on the other most important thing to the population, isn’t really the best idea, especially if, another reason that wasn’t exactly a mistake can be thrown into the mix.

If Labour start to admit mistakes on the economy surely they will also have to say they spent too much money on pet projects, didn’t save money when times were good, spent money on things that didn’t benefit the country at all, it won’t look good but then it doesn’t look good now.

Labours real hope is that the public will forgive the mistakes but you have to admit that before you can be forgiven……What to do, what to do?

4. Dark Heart of Toryland

@JonBG

The point is that for thirteen years in office, New Labour followed a basically Thatcherite neoliberal economic agenda. Far from ‘frittering away’ the legacy left by Major’s notoriously economically inept government, New Labour carried on in the same mindlessly dogmatic vein of ultra-light regulation and wholesale privatisation – with the inevitable dire consequences that we are now living with (or at least, those of us who are not in the upper echelons of management or the financial sector).

4. Dark Heart of Toryland

agreed, and without having a policy of sweeping away the neoliberal agenda, Milliband presents Labour as more of the same. On that basis, you might as well chose the nasty party, who are at least the real deal.

At last Balls has been put in the frame. That is where the problem lies. He needs to admit his failures now, or just blame Brown, or something, but mostly he needs to let Labour move on from the failures he was part of.

I doubt he’s man enough.

The global financial crisis would have occured regardless of who was in government in the UK and of course the economic consequences would have been the same.

In the 80s the UK had its manufacturing industry decimated and deregulation was introduced for the financial sector giving it a free reign to take huge risks.

These were the two big mistakes that made the UK so vulnerable in the global financial crisis.

The mistake made by Labour was not to correct these Conservative mistakes.

I think we need a more balanced economy now. Obviously we want to keep the financial sector alive and well, but we really need a much bigger and better manufacturing sector.

I think that Labour now should be pursuing the objective of a more balanced economy for the UK.

Cheerful dribble from Watson.

It was Labour that cut capital requirements and freed the Bank of England to lower interest rates, disastrously.

It was Labour that was running a £35 billion deficit during an economic bubble.

Blaming events in 1984 for Labour’s failures from 2003-2008 is just not going to cut it.

Labour was spending too much in 2010 and until Labour admit it they will never have economic credibility.

“Labour was spending too much in 2010 and until Labour admit it they will never have economic credibility.”

Simply Nonsense.

A £35bn deficit you say? Oooh! Is that scary big?! What was that as % of GDP (clue: less than 3%)

Without deficit spending in 2010 the economy would really have tanked.

Your bizarre observations about Labour’s supposed mismanagement expose your lack of economic understanding.

10. Richard DB

Labour under Blair and Brown quite happily took the tax revenues from the Banks and allowed debt in the form of loan and mortgages to escalate. There was no control and it is no surprise that the wheels fell off the wagon. Is it any coincidence that the RBOS and The Bank of Scotland were two of the biggest failures (the Scottish influence)
If all the parties grew up and worked for the benefit of the country and not just winning an election at whatever cost we would all be better off.
The two B,s are also responsible for allowing immigration to happen without any control. Blair should go down as the worst PM this country has had in the last 100 years.

11. Man On Clapham Omnibus

Totally agree with Sunny on this.

But the answer to Tom Watson’s statement

‘If Labour’s not going to give the bold solution, then who is?’

has to be, not Labour.

That’s quite apart from the naive suggestion that there is a bold political solution to be had.

@ 7 Patrick James

Ah you’ve fallen for the great myth that it was Thatcher’s government that decimated industry.

In fact, industrial production fell 3.6% from 1979 to 1997.

Under Labour, from 1997 to 2010 it fell 11.6%.

@ BenM

Labour ran a deficit in times of excellent growth. Not only did it run a 35bn deficit, it shifted a huge amount of spending off balance sheet – specifically pension liabilities and PFI.

Labour also dramatically increased spending on welfare (itself shocking considering economic growth) and the NHS, both largely inelastic to economic growth and indeed counter cyclical to it. This was paid for by revenues from the credit boom Brown failed to acknowledge – no more boom and bust.

When the bust inevitably happened, tax revenues collapsed and spending increased. Brown suceeded in creating a simply enormous structural deficit.

So to suggest that Laobur didn’t spend too much because at the peak of growth the fiscal deficit was small simply isn’t the whole story. Labour dramatically increased spending (faster than GDP and tax revenue growth), without much to show for it based on the premise that this growth would be maintained forever.

So did Labour spend too much? Definitely. Their legacy
to the UK is a huge deficit which will take decades to unwind.

13. George King

New Labour’s Third Way `mixed economy’ turned out to involve the commodification of everyone and everything and a bonanza for giant corporations and bankers as started by the Lunatic Thatch in the UK and Ronnie Raygun in the States. Brown’s Dodgy Growth theory was based on deepening the deregulation of finance and the export of manufacuring to China started by the `monetarists’. They allowed it to basically let rip creating trillions and trillions of counterfit claims on wealth in the form of interest paying Ponzi Bonds based on sub-prime mortgages all of which are now being liquidated in a race to see who will be holding the folding after everything has been sold up and closed down. Boom and bust was indeed abolished and replaced by super boom and mega bust. The steroids killed the patient via a massive coronary. After Thatcher’s Big Bang came Brown’s inevitable Big Crunch. Yes there are going to be some might wealthy individuals when the global economy has been finally destroyed.

12 Tyler

Labour moved pension “off balance sheet”? Are you sure about that assertion?

And the Tories created the PFI monster.

Thank heavens Labour spent money on the NHS! Thank you Tony. Thank you Gordon. Thank you Labour!

Oh you think that’s a bad thing? You’re in a very small minority.

Welfare spending as % of GDP ALWAYS RISES under Tory governments (and is very elastic v GDP when you look at the graphs).

Labour didn’t spend too much. They invested in the services that people want and use. 3% deficit v GDP is not a lot in international comparisons.

And why do Rightwing deficit hysterics believe a Labour deficit (10 years in 13) worse than a Tory one (16 years in 18)?

Until 2008-9 the Tories held the record for the largest deficit v GDP in peacetime. I bet you held your counsel then!

The thing is, Sunny, you are not typical of the middle ground voter. Most people don’t give a flying fuck about the credit crunch. It was years ago.

16. Charlieman

Pursuing @12. Tyler: “So to suggest that Laobur didn’t spend too much because at the peak of growth the fiscal deficit was small simply isn’t the whole story. Labour dramatically increased spending (faster than GDP and tax revenue growth), without much to show for it based on the premise that this growth would be maintained forever.”

I do not know whether Tyler is a follower of Keynes. But Tyler’s words should remind us that New Labour is/was incapable of pursuing Keynesian policies.

In a boom, wise people (whether or not they are Keynesians) keep some money aside for the inevitable rainy day. Keynesians use that money (from reserves or borrowing) to spend on projects to build the economy out of depression.

For those who (still) talk nonsense about Labour’s alledged overspending. Should try reading this report from the Institute for Fiscal Studies. http://www.ifs.org.uk/bns/bn93.pdf

To quote their key findings:

*Over the first eleven years of Labour government, from 1997 to the eve of the financial crisis in 2007, the UK public finances followed a remarkably similar pattern to the first eleven years of the previous Conservative government, from 1979 to 1989. The first four saw the public sector move from deficit to surplus, while the following seven saw a move back into the red.

*By 2007 Labour had reduced public sector borrowing slightly below the level it inherited from the Conservatives. And more of that borrowing was being used to finance investment rather than the day-to-day running costs of the public sector. Labour had also reduced public sector debt below the level it had inherited. As a result the ‘golden rule’ and ‘sustainable investment rule’ that Gordon Brown had committed himself to on becoming Chancellor in 1997 were both met over the economic cycle that he eventually decided had run from 1997–98 to 2006–07.

*The financial crisis and the associated recession subsequently saw public sector net borrowing balloon to levels not seen since the Second World War – and far higher than was seen in the latter years of the Conservative government, including during the aftermath of the 1990–92 recession (when the previous post Second World War high borrowing occurred).

By 2007 public borrowing and debt was lower than in 1997. So the notion of “high spending Labour government bankrupting the country” is clearly a Tory myth. The debt explosion was clearly caused by the implosion of the financial system in 2008 which was the fault of the bankers, and which we’re all paying for now. Secondly by resorting to deficit spending from 2008-2010 Labour almost certainly saved the UK economy from collapsing into a 1930s style depression. Something which has been conveniently forgotten and is now being undone.

Another thing that has been conveniently forgotten by the Tories, is that in 2007. David Cameron commited himself to matching Labour’s spending plans if elected. Which makes all of his subsequent blather about “Labour overspending” deeply hypocritical. He had no more insight than Gordon Brown.

18. Man on Clapham Omnibus

17. Graham

If this is the case why have Labour caved in to the Tory mantra.

19. George King

`The thing is, Sunny, you are not typical of the middle ground voter. Most people don’t give a flying fuck about the credit crunch. It was years ago.’

Yeah that’s why they are cuing outside Wonga for 2000% loans.

20. George King

#17 The thing is Graham that New Labour made public spending dependent on the tax take from the bankers’ unregulated ponzi scheme established initially by Thatcher(get rich and pay your taxes as Chairman Mandy told the City’s cash growing peasants or Endogenous Growth Theory as Brown called it). With that collapsed that money was no longer available to cover public spending and worst still the government pledged to bail out the speculators at an eventual cost of trillions (a sum so large in fact that it can only be met with a chuckle). We need to face the fact that the last UK `industry’ is irrevocably bankrupt and so is the state. The only people with any money now are the cash-hoarding global and national corporations for whose benefit credit was allowed to spiral out of control in the first place and who are now using their monopoly positions to suck all the remaining activity out of the economy as disposable income disappears and all assets are liquidated. Talk about sawing through the branch you are sitting on.

21. MarkAustin

Once again, we see Labour’s problem with economic policy: Ed balls. From all appearances he still believes the economic policy of the last Labour Government was right, and has an effective veto on any criticism from inside government in particular and most of the party in general.

As long as he has any influence on economic policy—it is arguable as long as he is in the Shadow cabinet—Labour will not be able to disassociate themselves from the failed policies of the past or formulate a response.

17. Graham

I’ve scanned that rteport. It is worth adding that it makes clear that, although Labour did reduce and reprofile the deficit, it did so by less than most other countries, leaving us more vulnerable to the crash. Canada, for example did much better than us because it (a) controlled its banks and (b) had a much lower deficit, thus allowing borrowing without frightening the markets.

The last government should have been running a surplus all the way through the boom, saving (or running down debt) to give them some leeway in the inevitable down-turn. However, Balls and Brown apparently believed to vodoo economicists who said that it would continue for ever.

Interestingly, it was not spending the Brown/Balls got wrong—their spending forecasts, year on year were accurate—but taxation, which consistently fell below target as more and more elaborate avoidance schemes surfaced. It is that that should have been addressed, but they were too terrified of the bankers to attempt it.

@ 21. Mark Austin
Canada is a resource economy. Therefore they had a boom over the last 10 years because they were supplying China etc. It’s not like for like.
As for the idea that the UK govt should always be in surplus, I’d love to know the personal finances of every commentator on this blog. With all your lecturing I suppose none of you have a credit card or a mortgage? Forever in the black are we?

23. MarkAustin

@22. McCurry

No, of course a country should not ever have a deficit, and that’s not what I said. What I said was that in a boom, the government should either be in surplus or at worst, running down the deficit, to give it some freedom for action in the inevitable following downturn. Basic Keynsianism. Governments need to act counter-cyclically to compensate for market failures in both directions.

The fact that the last Labour Government did not both weakened us in the downturn and allowed the Tories to blame it all on Labour and not the Finacial institutions that actually caused it. Having said that, it must be admitted that Labour supported the self-same institutions in their folly.

2’stewart,although true, rightly or wrongly, it maybe more to do with the fact that labour being critical of Tory policy, didnt wash with the public,as we kept losing,

Well said Stephen 8 and mark Austin

26. Shinsei1967

@Ben M

“A £35bn deficit you say? Oooh! Is that scary big?! What was that as % of GDP (clue: less than 3%)”

The bit you (deliberately) overlooked was running a 3% deficit at the height of a massive boom in housing, financial services & consumption (using borrowed money.

“Without deficit spending in 2010 the economy would really have tanked.”

Strawman alert. No one has objected to running a large deficit in the wake of the banking crash. The objection is to running a deficit in the boom times.

@20 George King

‘and worst still the government pledged to bail out the speculators at an eventual cost of trillions (a sum so large in fact that it can only be met with a chuckle).’

Have the Govt pledged to bail out the speculators? I would like to see the evidence. What is the breakdown of the eventual cost of trillions?

Apart from anything else the Government won’t bail out speculators for trillions becuase it can’t – unless it prints money.

It is true the Government is bankrupt and we cannot expect the same standard of Government benefits & services as we have now because the Governemtn can’t afford it in the long run.

@Shinsei1967

Strawman alert. No one has objected to running a large deficit in the wake of the banking crash. The objection is to running a deficit in the boom times.

Well no-one objected at the time! Certainly not the Conservatives.

This was George Osbourne in September 2007 [URL=”http://news.bbc.co.uk/1/hi/uk_politics/6975536.stm”]Tories ‘to match Labour spending'[/URL]

Mr Osborne said: “The result of adopting these spending totals is that under a Conservative government there will be real increases in spending on public services, year after year.

“The charge from our opponents that we will cut services becomes transparently false.”

He added: “At the same time the share of national income taken by the state will start to fall, as the economy grows faster than the government does.

The hypocrisy from the Conservatives to lecture Labour about how they should have been cutting spending is truly astounding!

“Our problem is that, in the absence of that explanation, people blame the 2008 crash on our profligate spending.”

You know, my head hurts sometimes, trying to get Labour people to see why people blame them. All too often there’s this bleat about it being a global crash, it was the bankers blah blah blah.

Yes, alright, have it your way, it was the banks that caused the crash. But when the crash came, who had spent the previous eleven years spunking record tax receipts up the wall on scroungers? Gordon Brown and his master economic policy. Why were we the last country in the G20 out of recession once the crash came? Because other countries followed the Keynesian principle of saving during the boom, whereas all our money had been pissed away.

Your fault.

@29.Parasite

The reason Labour people do not see that. Is because none of it is true. Please see my post (@17).

Public finances were in reasonable shape from 1997-2007. They only deteriorated dramatically after the financial crisis.

As for them spending money on “scroungers” as you can see from this:

http://www.ukpublicspending.co.uk/spending_brief.php

Public spending on welfare has grown only very slightly in the last 20 years. And most of the increase has been on pensions.

31. no more banksters

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