Labour austerity looks inevitable

Tweet

 

It’s impossible to disagree with Labour leader Sir Keir Starmer when he says that Margaret Thatcher was responsible for significant and long term changes in the way that the UK economy works, or that she entered government with some clear ideas about what she wanted to do. Whether the changes were a good thing or not is much more arguable, to say the least; and the idea that those changes released entrepreneurialism in the UK has been succinctly rebutted by Prof. Richard Murphy. Perhaps Starmer merely wished to praise the determination and attitude she showed rather than what she actually did, but it didn’t sound that way when he said it, and not for the first time he seems to be struggling to ‘correct’ his words retrospectively. And whether it was politically wise even to go that far is another question entirely – why on earth raise a comparison to Thatcher when you’re staring at an open goal left by Sunak?

There is a fundamental belief at the core of Conservative ideology that the private sector and the public sector are in competition, and that the private sector creates wealth whilst the public sector consumes it. It’s clear from their statements that better public services depend on private sector economic growth that Starmer and Reeves also believe it. They’re not alone: it’s one of those things that is so ‘obvious’ that many people across the political spectrum believe it. It’s also absolute tosh. It may be based on a confusion between two different meanings of the word ‘wealth’. There is the wealth which all the individuals in a country own, measured by bank balances and assets held, and there is the wealth of the country as a whole, measured by GDP. The ‘growth’ that Starmer is referring to is an increase in GDP, but an increase in spending by the public sector leads to the same amount of GDP growth as the same amount of increased spending in the private sector. Given the way that GDP is calculated, it cannot mathematically be otherwise. Certainly, some people became extremely wealthy under Thatcher, but much of that was a redistribution of wealth from the poor to the rich, and the ever-increasing gap between the richest and poorest in society is the most pernicious long-term effect of Thatcherism. The accumulation of private wealth in an ever-smaller number of hands is not the same as an increase in national wealth.

There are, of course, arguments to be had about whether it is ‘better’ for investment to come from the private sector or the public sector – and the public sector’s record in managing some projects and investments leaves a lot to be desired. Whether that is inevitable or a result of structural or procedural problems is a debate for another time, but the idea that only one of those approaches should count in measuring growth is just ideological bias. When the private sector invests, the money comes from a combination of borrowing and income raised from customers; when the public sector invests, it comes from a combination of borrowing and taxes raised from the population as a whole. In GDP terms, whether we pay for something out of tax or as part of the price of the goods and services we buy is irrelevant – we’re still paying either way. It’s just that tax deducted from salary is more obvious. And in either case, 'borrowing' is a simplistic way of describing a complicated process whereby the government - or the banks operating under government licence - create and destroy money at the press of a few keys, as well as borrowing directly from people who see their loans as investments.

The debate which we should be having – and which a Labour Party worthy of the name would be leading rather than suppressing – is about which things we want to purchase collectively through the state, which we want to leave to the profit-driven market place, and how we decide between the two. It’s a point which ideologically-driven fiscal conservatives like Starmer can’t even begin to understand. And that lack of understanding leads inevitably to Labour austerity.