Income €1,650. Expenditure €4,300. For How Long?

It is not normal for the Treasurer to vote against the budget, as happened at the Brussels Labour AGM in June. But then it is not normal for an organisation with an income of €1,650 to decide to spend €4,300. 

As the Treasurer in question, I tried to prepare a budget that didn’t dip too far into the reserves. Our income is falling and even with the medical emergency our expenses are rising.

What really blew the budget out of the water was a demand to include €2,000 for various donations. This is possible only because we have substantial reserves built up from many years of members’ contributions.

Distrust

Underlying the willingness to run down our reserves through donations is the difficult relationship between the branch and the CLP, Labour International. This distrust has grown over recent years leading to a them-and-us outlook which I find unhealthy.

It appears that some members had been seized by the idea that our reserves could be taken by our CLP, Labour International, and spent in support of left-wing causes. The alternative, it seems, was to grab the reserves ourselves and distribute them to other causes.

There was never any prospect of Labour International dictating our spending priorities. This has now been confirmed by Labour International and by Party headquarters. The branch is the custodian of its own resources and the only constraints are those of ethics, its constitution and good financial management.

The first conclusion we should draw from this episode is that the breach between Brussels Labour and Labour International is a danger to our ability to run an effective branch for Labour members in Brussels. We must seek to create a dialogue aimed at finding a modus vivendi and beginning to restore trust. LI is our channel to the wider Party which we need to keep open.

Rational

My second conclusion is that we need a more rational approach to financial management.

Our income is down but our costs are rising. In a normal year, meeting costs, web hosting, Zoom subscription and a John Fitzmorris lecture already amount to €1,450 which leaves little for social events, campaigning or annual conference, let alone donations.

We will need the reserves to keep the branch activity going while we improve the income side. To persuade members to donate we need to sustain a level of activity that members will value enough to make a financial contribution.

Brussels Labour should develop a protocol for good financial governance. A clear set of principles for using branch funds and funds raised for supporting other bodies is needed. The officers and the Executive of the branch are the stewards of other people’s money and must uphold high standards of financial management.

This post is edited from an article which appears in the latest issue of Germinal, the Brussels Labour journal.

National Policy Forum consultation 2020

The NPF has launched it consultation exercise for 2020. It is inviting submissions until the end of June. Submissions should be posted to policyforum.labour.org.uk.

There are eight priority topics all of which relate to the impact of Covid-19. I am providing a link here to each of the documents in PDF format.

Economy, business and trade

Early years, education and skills

Energy, environment and culture

International

Health and social care

Justice and home affairs

Housing, local government and transport

Work, pensions and equality

Economic Common Sense and the Pandemic

In writing his great work of economic theory, J M Keynes said that he had struggled to free himself from “habitual modes of thought and expression.” In our time these habits of thought are those which took root during the decades when the market was seen as the central fact of economic life. Since the crisis of 2007/8 we have lost our faith in the supremacy of the market but we have struggled unsuccessfully to free ourselves from its habits of thought and expression.

 It could be that the present pandemic is providing a hard lesson on the inadequacy of our customary manner of speaking about the economy. There is possibly a teachable moment when we can change the terms in which the political discourse and create a new common sense based on the economic lessons of the pandemic.

The economic impact of the health crisis is not a simple matter of a fall in supply, or of demand or of “confidence”. It is not a market failure or a financial shock. It is not about inflation or debt and even the terms GDP and growth are somewhat irrelevant to what is happening. Put simply, workers have been told to stay home, workplaces are closed and so the production of many goods and services have come to a halt.

Thinking about production is one of the habits we lost during the period when only exchange in markets mattered. Production is one of the concepts we should popularise. The classical economists thought in these terms. Wealth is created by people going to work to produce the goods and services we need and want including the capital goods and business services which contribute to production.

Secondly, the response of the NHS to the crisis has changed our perception of healthcare workers. The way in which we value not just NHS staff, but care home and elderly services workers, is being transformed in this emergency. We are suddenly aware of the many other low paid workers from council services to supermarkets who are keeping us going. It is becoming clear that the “labour market” does not reward labour its true value.

This gestalt shift can also challenge one particularly unhelpful habit of thought. We have been told that the private sector creates wealth which pays for public services. In this moment we can see that the NHS itself produces a service without which we would be much poorer. Healthcare workers create a service which is consumed by patients. The only difference economically from a service like a theatre performance is that it is paid through taxation not tickets sold at the door.

Public services are part of the wealth produced by people at work. Public services add value to our economy, they are not a drain on it.

Of the many habits of thought we need to unlearn there is one which stands out. The idea of the economy as some thing apart is one which obscures reality. The economy is not a machine which follows its own rules and operates on its own logic. An economy is always embedded in a society. Even markets only work because of the rules and norms of the community that use them. Some of the rules are codified in law or contract and so an economy is embedded in political structures as well.

The pandemic makes some of this evident. The economy changes when the rules are changed by a medical emergency. Social distancing, alone, will not just change workplaces as they reopen; it will also change the decisions about what is produced and how.

The left has long struggled against the dominance of the market idea. Even after the financial crash of 2007/8, economic discourse returned to its familiar habits of thought. The pandemic offers a possibility, if politicians and commentators choose to use it, or changing the lexicon and renewing the vocabulary of economic discussion to reveal the reality that we are not powerless before the market and that we can make choices.

Talking Economics after the Pandemic

Is there any statistic less meaningful during this pandemic than the quarterly GDP figure? In ordinary times the regular GDP number is a barometer for the overall outlook of the economy. But who needs a barometer in the middle of a tempest?

When workers are told to stay home, when factories, offices, and building sites are closed it is obvious that output will fall and not by a little but by a lot. Equally, future projections of GDP are so clouded by the unknowns that they are not worth the electricity consumed in their calculation.

This crisis should be a signal that the way we talk about economics and economic policy is inadequate to the moment. While there may be rich and diverse theories of economy, in the regular discourse we are limited to a few key variables and a few stylised facts. In our public discussion of economic policy, we are constrained by language which is too limited.

The pandemic will have deep impacts on our economic wellbeing, but the usual notions of growth, “confidence”, inflation and financial markets are not where the action is. This is firstly a crisis of production rather than markets. Social distancing and the lockdown mean that production of many goods and services have fallen or stopped altogether.

One of the weaknesses of mainstream economic theory is its focus on exchange with little to say on production. Neo-classical economics concerns itself with markets where commodities are bought and sold. It views the economy as a system of linked markets each moving towards an equilibrium between supply and demand. It is not surprising, then, that public discourse is couched in the same terms.

In this crisis supply has fallen, but so has demand. Car production has ceased but then no one is buying new cars anyway. Why does it matter when supply and demand are still in equilibrium? If we expand our vocabulary, we can say that it is production which provides “all the necessaries and conveniences of life”, whether that is personal transport or healthcare or social care or software.

Of course, it does matter that no cars are produced or sold and no pints are being pulled. Production requires labour and most people’s income are wages and salaries. The government was right to introduce schemes to support incomes by keeping employees in place. Not only does that preserve the capacity for production but recognises the role of labour in the firm.

Neo-classical economics has little to say on distribution. In political discourse it is seen as a question for government to correct by redistributive policies. The idea that such problems could be dealt with at source is unthinkable within the frame of our current economic vocabulary.

A market oriented language also obscures how economies change and develop. Yet change is an important driver of prosperity. New products and new means of creating them allow better production from the same resources. Firms innovate, not markets. But firms do not innovate on their own. Publicly funded research, support to start ups lie behind much of the technology on sale today.

With a wider vocabulary it becomes possible to ask different questions, like what is it that we as a society value and want to have produced? Is it right that the wage rates of those who care for our elders are determined by a “labour market”? Is it right that the availability of homes for young families depends on a “housing market”?

The government’s difficulties with in securing adequate personal protection equipment and testing kits can be seen in this light. Government has seen the task as one of procurement from a notional market, and lacks the ability to engage with producers. Manufacturing companies can be remarkably flexible. If face masks are wanted they can be produced but government needs to do more than issue a tender. Government should have been actively organising the production of crisis fighting equipment calling on the expertise of producers.

There are economists who spend their time dealing with these questions, who work with theories on industrial organisation and production, on wages and employment and on innovation. These aspects of economic thinking rarely touch on the national dialogue on the economy. In order to understand the current problem and address the post crisis economy we will need to enlarge the scope of how we discuss economic affairs drawing on a wider set of ideas.

Thinking Again on Why We Lost

Even as the Labour leadership contest gets going, we still need to reflect on the lessons from the 2019 election. Too many commentators have lazily taken the election outcome as evidence which confirms their pre-existing conclusions. I am more convinced by analysis that leads to a change of mind. Can you genuinely be said to have learned from new facts if your opinions are unaffected?

The reasons for Labour's poor showing in the election are multiple. The campaign was poor with inconsistencies undermining credibility. Mr Corbyn's opponents had finally found his weak spot, which is not so much that he is "too left wing" whatever that means, but his outlook on international affairs does not easily fit with voters preferences.

I want to focus on just a few of the key factors; mainly the strategy and Europe.

The main dynamic in the election was a contest to define the agenda. For the conservatives there was one issue Brexit and so long as voters believed that this was the Brexit election then the Tories had the advantage. Labour needed a strategy to turn the election away from Europe to offer an alternative focus.

In 2017 we successfully neutralised the European issue and brought attention on austerity. There was a clear narrative of change from the policies of the past seven years which had clearly failed. 2019 lacked a narrative. The conservatives had blunted austerity as a dividing issue with promises of new money for public services.

The poor campaign fed into this problem. Policies pulled out of a hat like free broadband and money for WASPI claims only served to muddy the message. The late focus on the NHS was a sign of desperation. "Labour backs the NHS" is not a message which will engage anyone's attention.

The failure to move the election on from Brexit is only one way in which Europe undermined the campaign. The offer of a second referendum was popular with Labour members and active supporters and we mistakenly believed that it would be popular with voters.

We were wrong. The polarisation which developed after the referendum left most Labour activists in a bubble listening only to remain voices and choosing to believe evidence (however shakey) which confirmed the rightness of their choice.

We should have been listening to leavers to understand what they wanted and why they had voted as they did. In my view, it was not just about being "left behind" economically but much more about being denied political space to address the issues which affected their lives.

When Tony Blair told us that "globalisation" was as inevitable as the turn of the seasons, he was defining the costs of economic change as outside the scope of political action. I see the desire to take back control as a plea for a polity that was capable of dealing with the problems that affect people's lives.

In the 2017 manifesto we declared that Labour accepted the result of the referendum. This was a clear principled position. I remember Emily Thornberry saying that as democratic socialists we had to implement the democratic choice of the electorate. I remember Keir Starmer arguing that Labour's mission should be to bring people together because we had voters on both sides of the divide.

In retrospect, we must acknowledge that we should have held to the principled policy. We lost support when we were seen to be pushing a second referendum purely to reverse the outcome of the first. The spectacle of  MPs rewriting the rule of parliament to frustrate the government may have entertained people like us but to others it showed a political class disconnected from the concerns of the voters.

I haven't yet addressed how Labour's policy-making machinery contributed to our defeat. That is an argument for another time.

First Thoughts on Friday the Thirteenth

I woke up this morning to the results of our worst General Election defeat in decades. We knew the polls were bad but still you always campaign in hope and we believed that even if we did not win we could deprive the Tories of a majority. Hope turns to disappointment but not despair.

While the media focus on the number of seats we hold, a level similar to the dark days of 1983, I draw some comfort from the vote share. In 1983 Labour took 27.6% of the vote; yesterday we had 32.2%. That is a higher share than Gordon Brown won in 2010 (29.0%) or Ed Milliband in 2015 (30.4%). Remember that Tony Blair won a majority in 2005 with 35.2%.

However, it is too soon for that kind of analysis. The numbers will be spreadsheeted to death in the coming weeks.

There is another kind of reflection and analysis which we will need. I believe we should not look at this election in isolation but examine the three national votes held in the last few years; the referendum, the 2017 election and this one.

Too much of what will pass for analysis will be commentators expounding views they held well before the results were known. They will pin the blame on Mr Corbyn or on the Brexit policy or on the radicalism of the manifesto or whatever aspect of the party they already didn't like. I believe we need a more honest, measured examination. We must be willing to change our minds, to listen to insights that may be uncomfortable, to recognise where reality differs from our views and to accept the facts we uncover.

Referendum
We have not yet fully come to terms with the meaning of the referendum results. We have not listened enough to those who voted Leave to understand why they made that choice. Instead Remainer commentators have offered their own explanation of the vote. Leavers were ill-informed, didn't understand the issues or were misled by dishonest propaganda. They were "little Englanders" bewitched by imperial nostalgia. their grievances were domestic problems nothing to do with Europe. Or they were "left behind" by globalisation, as if globalisation was a train we had all consented to board.

That leads to the first set of questions. I think we need to understand better the political alienation of the working class that made "take back control" such an appealing slogan. I feel that without taking time to connect with them in their own terms we will remain vulnerable in our heartlands.

2017
One of the surprises of the 2017 election was the popularity of Jeremy Corbyn. His sincerity and authenticity, which those who knew him already admired, was able to communicate itself to a wider constituency. The press threw the same slurs then  as this year but they did not stick. So we have questions about why that changed and what lessons can we draw for any future leader.

Labour's radical 2017 manifesto was popular. Policies which could be portrayed as hard left, like nationalisation of utilities, had public support. Those attacks seem to have hit home this time. Some will argue for abandoning more radical ideas. But if we pose the question of why radicalism was popular one year and less so two years later we may come up with more useful answers.

Polarisation
A final set of questions concerns how we campaign in a time of increased polarisation. In a polarised polity people are choosing which facts to believe selecting the evidence that suits their conclusions. We will need to examine how to go beyond the tribes. But first we must be able to escape from our own bubble and listen to other voices.

There will be plenty of other questions, like legislating to control social media campaigning and improving our campaign tools. But that is enough for now.

Austerity Remains

As someone who campaigned for the UK to remain in the EU and who believes that no exit deal will be as good as the deal we have as members of the EU, I subscribe to a number of Labour pro-remain groups.

From time to time one of these groups makes a false claim or cherry picks the evidence to support a particular course of action. I try to put these comrades right especially if they are likely to mislead people on important economic issues. I particularly object to claims that leaving would compel a Labour government to continue austerity.

The latest campaign to fall for this lazy argument is Remain Labour. On the basis of a curiously inept economic briefing this group has been lobbying the front bench. When I saw the letter it had sent to John McDonnell, I contacted the group to explain why a smaller tax take does not automatically translate into austerity.

The claim in the Briefing that lower government receipts could force the next Labour government to impose austerity is not only false but serves to legitimise the phony idea that austerity is somehow inevitable if government income is compromised.  

A moment's thought should be enough to see that the last Labour government did the reverse. Faced with an actual fall in tax receipts, not just a smaller increase than might otherwise have been expected, Gordon Brown's government cut taxes and brought forward spending particularly on investment. Why then would a Corbyn government default to austerity when slower than expected GDP growth limited growth in government revenue?

I have yet to receive a reply.

The group's claim is that leaving the EU on the terms Jeremy Corbyn had offered to the prime minister would cost the government finances £24bn. This is not a figure you will find in any reputable analysis. It is a number Remain Labour have arrived at apparently by splitting the difference between two estimates constructed using completely different methodologies. They base their case on a study carried out in a collaboration between the LSE and King's College which concludes that after ten years GDP would not have increased as much outside the EU as it would inside and consequently the fiscal position would be poorer.

This week the group's founder, Andrew Lewin, followed up with a letter to the secretary of state for education, Angela Rayner. This time he had persuaded a number of youth and student leaders to sign up to the argument that Labour could not deliver on its manifesto promises on education if Britain left the EU.

Labour needs £25bn to pay for its National Education Service and Early Years reforms set out in the 2017 manifesto. At the same time, the cost of Labour’s ‘alternative Brexit plan’ is £24 billion per year to the economy.

I wrote to Mr Lewin.

The interpretation of economic evidence can be difficult. In this case you have drawn an equivalence between additional expenditure funded from taxation with the estimated difference in long term fiscal outcomes under two scenarios. Clearly they are not comparable figures.

More seriously your claims misrepresent the conclusions of the study on which your analysis rests. The LSE/Kings study does not suggest a deficit nor a fall in government income. Its claim is that public finances would not increase by as much as they would compared to remaining in the EU.

To illustrate the significance of this error, assume that GDP would grow at 1.5% per annum in a remain scenario. Then a the end of the 10 year period to which the study refers the fiscal impact would be an increase of 6.4% of GDP, based on the same assumptions as in the study. It is from this figure that you would subtract the 0.4% - 1.8% fiscal impact of leaving the EU. That means the chancellor would still have an additional 4.6% - 6.0% GDP to allocate however he wishes. That is around 96bn to 126bn.

You also seem to have missed the significance of timing. The methodology of the LSE study does not allow it to say anything about the short term, but the shadow cabinet spending plans are precisely short term. A Labour government would implement its plans during its first years in government. The LSE study tells us nothing about the fiscal position at any point before its ten year horizon.

 If I get a reply I will give an update on this blog.