Saturday, 21 February 2015

Labour's Immigration Policy Is A Mess - Part 9

The Tories have responded to the challenge they face from UKIP, by swinging to the right. The problem faced by the Tories has been discussed before. All parties have to garner a coalition of interests to win sufficient votes to win elections. Those coalitions are always centred around the core vote for the particular party. For conservative parties the core resides around the interests of the small capitalists and backward sections of the middle and working-class. The trick is then to be able to retain the vote of this core, whilst securing enough votes from outside it to obtain an electoral majority. Swing too far to the right, to retain the core, and a larger number of votes are lost from the centre, and vice versa.

The success of UKIP, has shifted the Tories to the right, in order to retain those core votes. But, as that has happened, Labour has also found itself in a quandary. During most periods, the large reservoir of racist and bigoted views has little impact, because voters are influenced more by other factors. In general, voters are more concerned with general economic issues – do they feel better off than they were – than with questions about immigration, or questions about whether we are in or out of the EU. But, if voters feel that they are worse off, and likely to get even more worse off in the future, whichever party is elected, and the more they associate part of the problem for that as being due to immigration, or due to membership of the EU, that prevents controls over immigration, the more that becomes a significant factor. Hence the rise of UKIP, and before it the BNP – and a similar thing can be seen in France and elsewhere.

If there were a greater distance between Labour and the Tories, just as was the case before the last French Presidential election between Hollande and Sarkozy, or as is the case currently between Syriza and New Democracy in Greece, the issue of immigration or EU membership would sink back into a minor consideration. But, the FN has grown in France, because Hollande, having talked left before the elections, turned right almost immediately after his election, and in Britain, having destroyed the BNP, Labour then opened the door to UKIP, by adopting the same perspective in relation to austerity as the Tories.

Immigration from Europe in the first years of this century, was far greater than it is today, as a severe shortage of skilled workers such as plumbers and other craftsmen pushed up wages sharply, encouraging an influx of the eponymous Polish plumbers. Yet, it did not stop Blair winning large majorities in the elections of 2001 and 2005, the latter being even despite the loss of votes stemming from the disastrous Iraq War. The reason was that living standards were seen to be rising sharply – in 2007, a manifestation of that was the fact that Alistair Darling appeared on Sunday TV to warn against workers demanding too high wage rises, as oil tanker drivers won a 15% pay rise. And, whatever might be said about PFI, the fact is that, at the same time, huge investments in hospitals, schools and other pieces of infrastructure were made during the period.

The main failing, in this respect, of the Blair government was that it did not bring about a similar increase in house building. There is again a good reason for that. Blair's government, like the Tory government's before it, going back into the 1970's, had relied on monetary policy as its main tool for intervention in the economy. When the Tories claim that the Blair/Brown governments caused the crisis by their profligacy, that is a lie. In fact, the average deficit to GDP ratio under Blair/Brown between 1997-2007, was about half the average under the Thatcher/Major governments between 1979-1997. It is only with the onset of the credit crunch in 2007, and specifically the financial crisis of 2008, that Labour was forced to increase the deficit considerably. In fact, between 1999-2002, Labour ran budget surpluses. 

Labour was able to increase spending without increasing the deficit, precisely because the economy was growing rapidly as a consequence of the onset of the new long wave boom in 1999. But, for the reasons I have set out elsewhere, this coincided with the large rise in the rate of profit, in the previous period, so that the mass of profit globally rose sharply, causing interest rates to fall. In the UK, as in the US, conservative policies in the previous 20 years had resulted in the creation of a low wage/high debt economy, and the high private debt was only sustainable so long as interest rates remained low, and borrowers were able to provide collateral in the form of rapidly appreciating assets – usually in the form of property. It is in, fact, this strategy adopted by these conservative governments since the 1980's, and the scrapping in the late 1980's by those governments, of financial regulations, that led to the 2008, financial crisis.

In the early 2000's, Labour was happy to continue with that side of the strategy. On the one hand, it appeared that a growing economy was already raising wages for those with skills, whilst the introduction of the Minimum Wage, put a floor underneath the wages of the unskilled, and a variety of social-democratic, welfarist measures in relation to benefits was intended to cover the rest. On the other hand, any move to provide councils with the resources they required to embark on a council house building programme of the same kind of proportion as was seen in relation to new hospital and school provision, would be counter-productive for several reasons.

Just as PFI was the preferred means of financing hospital construction, so Councils were encouraged to finance the repairs to housing stock they required, by selling them off, at knock-down prices to Arms Length Management Organisations, and similarly, new building was encouraged from Housing Associations. But, there would always be a problem with generating sufficient new housing provision on this basis. But, governments cannot take the measures required to address that problem without destroying the foundation upon, which their economic policy has been based.

Had Labour compulsorily purchased large amounts of land and set about a large scale housing programme, so as to provide large amounts of cheap rented property, house prices would necessarily have fallen, as large numbers of people chose this cheap rental property, over increasingly unaffordable owner occupied housing, and the expensive private rental property it leads to. As house prices fell sharply, land prices would follow, so that the cost of new build housing would itself fall.   The alternative would have been to have scrapped large areas of the Green Belt, and brought into use under utilised agricultural land, for residential development.

Agricultural land sells at around £10,000 per acre, in the UK, whereas development land sells at around £930,000 per acre in England, and £2.6 m per acre in London, which reflects the much higher profits obtainable from using land for development rather than agriculture. In fact, agricultural land prices would undoubtedly fall much lower, if the restrictions such as the Green Belt, which introduces a further land owners monopoly, did not exist.

But, either way, that would have meant a major political battle with those powerful forces, upon which conservatism had rested for the previous 30 years, and which had powerful entrenched political positions themselves.

It would have meant, a political confrontation with the owners of landed property, who not only would have faced having their property compulsorily purchased, at prices way below the existing inflated market prices, but who would have faced a more general collapse of those high land prices, whose only foundation came from high property prices. But, it would also have meant a confrontation with financial capital, which would have seen a collapse in the similarly inflated prices of financial assets. The private borrowing that had occurred during the previous 30 years, had been based on the collateral of continually and rapidly rising house prices. A collapse in house prices would have decimated that collateral held by the banks, and thereby sent the banks themselves into bankruptcy.

When that, in fact, happened in the US, the consequence was the 2008 financial crisis, which then affected the British banks, also, and its notable that when that began to affect UK property prices, which fell 20%, more or less overnight, in 2008/9, one of the first acts of the government was to cut it short by slashing interest rates, and providing liquidity to the banks so that they could reduce mortgage rates, and allow borrowers to go into effective default, rather than foreclose on loans.

Labour was not going to take on those political interests, and nor was it going to create the conditions that would have led to a collapse of the banks and financial institutions, which it had itself relied upon as a basis for large amounts of growth in the economy.

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