Labour Manifesto – Economy and Energy

Labour says, 

“Labour led the UK Parliament in declaring a climate and environmental emergency. The next Labour government will lead the world in fighting it, with a plan to drive up living standards by transforming our economy into one low in carbon, rich in good jobs, radically fairer and more democratic.” 

All very good and admirable, but the UK economy accounts for only about 3% of global GDP, whereas the EU economy accounts for around 28%. The EU and US together account for around 50% of global GDP. The small UK economy, on its own, is in no position to effectively lead anything. Outside the EU, the UK will lose most of the leverage it was able to apply in determining these large global responses. It will be the big players such as the EU, the US, and China that will set the pace and determine the rules of the game. Moreover, precisely because any new advanced technologies required to really resolve the climate emergency will require vast amounts of investment in research and development, and will require large markets into which these new technologies can be sold, to make production on a large enough scale worthwhile, it will only be these large economies that will have the resources to take it forward. 

One of the first things that the EEC did, for example, after its inception, was to be able to develop the European Atomic Energy Industry, on a continent wide basis, so as to obtain the benefits of both state support for the industry, as well as the pooling of resources and know-how, along with a large European market. As, in the past, if Britain does succeed in developing new green technologies, having ploughed large proportions of its own tax revenues into such development, it will be European, US and Chinese companies that will simply adopt these technologies, and develop them at scale, reaping the profits and jobs that results from it. A Britain outside the EU, will certainly face problems in selling at scale, so that any new businesses that arise, in this sphere, will quickly relocate their operations to other EU countries, to avoid tariffs and non-tariff barriers, having first taken advantage of any government grants, tax concessions and so on that the UK government has given them during any development programme. 

In the US, despite Trump's pledge to bring back coal mining jobs, and despite his tariffs on imports of coal and pretty much everything else, coal mining jobs continue to drop. One reason is that, to compete, coal miners have had to introduce more and better machines, each one of which replaces miners jobs. The other main reason is that coal is being undercut by cheap gas production in the US, coming from the development of shale oil and gas production. Coal and oil could also be undercut in Britain by gas from fracking, but Labour has committed itself to opposing it, which is really a populist response to the opposition to it that various environmentalist groups have waged. Given that many coal mining communities, across the country, continue to suffer, not just from the legacy of poisoned land, but also from widespread subsidence, affecting housing, the minor, by comparison, effects of fracking seem to pose little cause for objection in being able to, in the short term, reduce carbon emissions. 

Moreover, if we look at Scotland, one effect of Brexit, particularly if Scotland were to become independent, is that its economy will be heavily dependent on continued North Sea Oil production. As I pointed out to Paul Mason, in relation to Postcapitalism, oil will be far more valuable in the future, because of its use for producing petrochemicals, fertilisers, plastics and so on, which will become more significant as materials technology develops, along with 3-D printing and so on. But, for now, North Sea oil and gas remains important as an energy source. Any attempt to withdraw from it will leave a large hole in the country's coffers, at a time when Brexit will already be undermining the economy, and the tax revenues obtained from it. 

Labour says, 

“We will ask the Office for Budget Responsibility to incorporate climate and environmental impacts into its forecasts so that the cost of not acting will be factored into every fiscal decision. 

The cost of not acting is far greater than the cost of acting. We will launch a National Transformation Fund of £400 billion and rewrite the Treasury’s investment rules to guarantee that every penny spent is compatible with our climate and environmental targets – and that the costs of not acting are fully accounted for too. Of this, £250 billion will directly fund the transition through a Green Transformation Fund dedicated to renewable and low-carbon energy and transport, biodiversity and environmental restoration.” 

But, in a post-Brexit environment, where British businesses are already thereby disadvantaged in competing with EU businesses, lumping these additional costs on to them will only make them even less competitive, less profitable, and thereby less able to invest, either to develop new technologies or to grow the economy. In turn that will hit tax revenues for the government, making Labour's plans for funding these investment schemes even less achievable. Yes, it may be true that the long-term costs of not acting on climate change will be greater than the cost of doing nothing, but that does not change the short term costs of such changes. Meanwhile, whatever changes Britain imposes on its business will not change the reality of global climate change, and if our nearest neighbours in Europe do not adopt the same measures, it will not prevent that from affecting Britain too. Outside the EU, Britain will have no say in those matters. At the same time, Britain outside the EU weakens the EU, itself, in trying to impose more stringent measures on the US and China. 

The proposal to create a National Investment Bank, and Regional Investment Banks with a £250 billion fund to invest over ten years is the kind of social-democratic measure that has long been in operation elsewhere in the EU. The problem for Labour is that it wants it both ways. On the one hand it wants to proclaim its measures as somehow being radical socialism. Corbyn commented that he welcomed the hatred of the rich for these measures being introduced. On the other, Labour wants to say “Nothing to see here, all normal measures, applied by moderate governments across Europe.” The reality is that there is nothing tremendously radical in Labour's proposals, but its left populist verbiage, of trying to make it all sound more radical and threatening than it actually is, combined with its vacuous verbal attacks on “the rich”, and “billionaires”, together with the duplicitous nature of the Corbyn leadership, over the last four years, means they get the worst of both worlds. They do not get the credit for introducing the kinds of measures that large-scale socialised capital has benefited from across the EU, and which are standard fare for any modern industrialised economy, and instead they potentially scare off investment by their populist rhetoric. 

The world's largest bond fund PIMCO, has already said that, given the scale of additional borrowing, proposed by Labour, they would steer clear of buying UK Gilts. Well, we'll see. As I set out recently, there is $15 Trillion of negatively yielding bonds across the globe, such is the demand for bonds as safe assets. No one thinks the UK government is going to default, and UK Pension Funds, alone, need to buy a significant proportion of UK issued debt. But, there is one reason that all of the money printing, as part of QE, has not caused general price inflation. It is that all of the additional money tokens that have been printed have been deliberately diverted into buying financial and property assets. There has been a hyper inflation of the prices of stocks, bonds and property. Had the money gone into actual productive investment, so that more factories were built, more machines were bought to go into the factories, more workers were employed in the factories, and more raw materials were bought to be processed by those machines and those workers, then not only would the economy have grown more rapidly, but the additional demand for all of these factors of production, would have sucked that additional money into general circulation, and inflation would have soared. 

This is the basic problem with Modern Monetary Theory. It has looked at QE and seen there has been no rise in inflation, but does not question why that is. The truth is that a Labour government, if it faced problems of borrowing on global capital markets, could simply print the additional money. The Bank of England could buy the additional debt, and the government could use the debt to finance real investment in infrastructure and so on. But, then the economy is stimulated – the one thing central banks and states have tried to avoid over the last ten years, so as to keep interest rates down, and keep asset prices inflated – wages would rise, raw material prices would rise, profits would be squeezed, but as wages rise, and more workers are employed, firms are led to produce more wage goods, as the demand for them rises, and they now have to finance this additional investment by using a larger portion of their profits to do so, rather than paying it out as dividends. Firms have less profit to put into the money markets, and have to borrow in those money markets on a greater scale. They have to issue new shares and corporate bonds, so that as their supply rises, their price drops, causing yields to rise. As the prices of shares and bonds drop, the guaranteed capital gains that speculators in these assets have come to expect, disappear. The speculators sell out of those assets, causing crashes, whilst the money starts to flow into real productive investment in search of profits. 

The consequence is that as asset price bubbles burst, and money flows into real productive investment, economies grow more rapidly, but the rapid influx of the vast oceans of liquidity currently tied up in financial and property assets causes general price inflation to spike higher, and as it does so, real interest rates spike higher too, as the demand for money-capital rises relative to its supply. The days of being able to borrow cheaply in the bond markets are coming to a close, and unless a Labour government has borrowed very big, very early, by issuing a lot of long dated bonds, it will find that its cost of borrowing rises to levels that make its spending plans unachievable without significant rises in taxation. 

Labour also says it will make smaller loans available to small businesses via a new Post Bank based in Post Offices. This does not seem to be a particularly well thought out proposal. Credit Unions that enable members of local communities to deposit savings, and to make small loans, work because those who lend and borrow have some connection. The amounts of lending tend to be small, and those who borrow can be helped to ensure that they pay back what they owe. But, lending to small businesses is different. A number of peer to peer lending companies have developed that lend to small businesses, to fill the gap left by the fact that banks no longer lend on any significant scale to small businesses. It has been far more lucrative for banks to lend to house-buyers, and to buy the bonds of large companies, where the underlying collateral has benefited from capital gains, than to lend to small businesses. Where money has been lent to small businesses, many of them have gone bust. There are around 150,000 zombie firms in Britain, that are only able to just repay the interest on their bank loans, but do not make enough money to repay the capital sum borrowed. 

It is very unlikely that local Post Offices are going to have the specialised staff required to be able to judge whether any application by a small business for a loan is likely to be repaid on the basis of the commercial prospects of the firm. Three-quarters of all small businesses go bust within the first five years, and a large proportion of those go bust within the first year. Making a large number of these loans to small businesses, by people who are not properly qualified to assess this business risk looks like a guaranteed way of throwing large amounts of money down the drain that could have been utilised more effectively elsewhere. Again, it looks like a populist measure designed to suggest that Labour is on the side of small businesses as against the multinationals and billionaires. 

Labour says, 

“Years of under-investment and neglect by Westminster have left too many communities feeling powerless and too many areas left behind with low- quality jobs, weak productivity and slow growth.” 

In fact, its not neglect that has led to that, but deliberate government policy! In the 1980's, Thatcher's government deliberately de-industrialised large parts of the country, in order to weaken the position of workers and their unions. She used North Sea oil revenues to pay for high levels of unemployment so as to weaken and defeat the unions. She built a low wage, low skill economy that was kept afloat by debt. The debt helped to inflate asset price bubbles whether in property, or in stock markets. And, each time that those bubbles burst, such as in 1987, 1990, 1994, 2000 and 2008, the central bank intervened to pump additional liquidity into the economy to reflate them. The low wages, low levels of growth, and low levels of productivity are not an accident, but the result of deliberate policy to inflate and reflate asset prices, the main form of wealth of the top 0.01%. Labour's approach is back to front in thinking that wages can be raised by raising productivity. Throughout history it has been high wages that force capital to invest in developing labour-saving technologies that raise productivity, and which thereby also raise living standards. Here Labour's proposals are way too timid. 

If Labour wants to raise productivity levels, it should propose a large, progressive rise in the Minimum Wage. But, Labour also needs to stop setting the Minimum Wage as an hourly rate. Even £20 an hour is not much good to you if you only get three or four hours work each week. Labour should set the minimum weekly wage at £400, rising each year in line with inflation, or average wages, whichever is the greater. It should set a Minimum Hourly Rate of £12, so that someone working a 40 hour week would get £480. Labour should combine this with its proposals for a 32 hour week. In that way, capital will be incentivised to introduce new labour saving technologies. 

But, again, such a progressive policy is only achievable on an EU wide basis. Any large firms that have the option of relocating to the EU, whilst still being able to export to the UK, will obviously choose to do so. Britain outside the EU, will instead face pressure from firms not to raise Minimum Wages, but to cut them. Certainly all of those small, inefficient, low profit firms that Labour is pinning its hopes on, can only survive by paying low wages, and providing poor conditions. Indeed, that is why all of those small firms back the right-wing of the Tory Party, and back Brexit. 

Labour says that it will create 1 million new jobs as part of its Green New Deal, but with unemployment back to levels seen in the 1970's, though not yet back down to the levels of the 1960's, when it was between 1-2%, its difficult to see where the workers for these jobs are to come from. The latest data shows that the workforce is shrinking as EU workers go home. If Brexit goes ahead then even more EU workers are likely to leave, and its not likely that workers from elsewhere will want to come to Britain given its attitude to foreigners either. There is already a shortage of around 50,000 lorry drivers, rising to 75,000; we have huge shortages of NHS staff, social workers and so on. Given the additional demands for building workers, if Labour goes ahead with its house building programmes, then finding the workers to fill all these vacancies, plus a million more for green energy jobs looks a stretch, especially as training in the skills for these jobs will take several years, and will itself involve additional investment in education and so on. It looks likely a recipe for labour shortages causing spikes in wages in particular industries, which in turn cause destabilising disproportions. 

To give one other example, a lot of brick production in Britain has been mothballed, because of the low levels of construction over the years. Most of the bricks are now imported from Europe. Whenever construction picks up, often there is a delay in being able to obtain the bricks, and shortages cause short-term spikes in prices. If construction of new houses and so on is ramped up quickly then that problem will be magnified. Brick production in Britain could be ramped up again, but would not be immediate, and given Labour's environmental objections to fracking, imagine the objections there would be to large scale opening up of new marl holes to provide the clay required for all these new bricks! 

Labour says, 

“We will not achieve the promise of a fair and sustainable economy if we repeat the mistakes of the carbon era, when the capture of a natural resource for private profit created a vastly unequal and polluting economy dominated by powerful vested interests. 

It’s not just carbon. From the depletion of fish stocks to the burning of the Amazon, profit has proved a poor regulator for use of our natural resources.” 

True, but its not just private profit that had that effect. The nationalised coal industry in Britain was no better, and the Plan For Coal, was continually subordinated to the economic, short-term interests of the government. Indeed, some of the worst pollution on the planet was caused, not by private capitalists, but by the Stalinists of Eastern Europe, where the state run industries treated both the environment and workers as totally disposable in their attempts to maintain their own kleptocratic plundering of those societies. 

Labour says, 

“We will put people and planet before profit by bringing our energy and water systems into democratic public ownership. In public hands, energy and water will be treated as rights rather than commodities, with any surplus reinvested or used to reduce bills. Communities themselves will decide, because utilities won’t be run from Whitehall but by service-users and workers. 

Public ownership will secure democratic control over nationally strategic infrastructure and provide collective stewardship for key natural resources.” 

Which is all well and good, but does not spell out how this will be achieved. Ultimately, if the state owns these companies then it will exercise ultimate control. There is no reason that the capitalist state is going to give real control to workers over this capital, any more than it did with the NCB, British Steel, British Leyland and so on. He who pays the piper calls the tune, and in any nationalised industry, the funding will come from the capitalist state. Moreover, the interests of workers in these industries are not identical to those of consumers. You can bet that the state will have its own representatives on Boards, and as divergent interests between the stakeholders manifest themselves, the state's representatives will manipulate them in its own interests. A look at the way, something like a consumer cooperative works illustrates the problem. There workers are actually barred from being on the Board, but consumers themselves also find that they become passive, meetings are ill-attended, and so the Board actually becomes dominated by the full-time bureaucrats employed by the co-op. A look at what happened with the Co-op bank demonstrates this problem. 

Its only in a worker owned cooperative, where the workers themselves must exercise day to day democratic management over the labour process, and where they have skin in the game as owners of the capital, that any real industrial democracy exists on a sustainable basis. Rather than its expensive and unnecessary plans to nationalise large companies that already represent socialised capital, Labour should simply change the laws on corporate governance, removing the right of shareholders to vote in any company meetings, thereby placing them in the same position as bondholders and all other creditors. It should introduce new corporate governance laws to ensure that the boards of companies are 100% elected by and from the workers and managers in the company. In that way we can bring about real industrial democracy, and, on the basis of it, begin to ensure that production indeed does begin to be organised on the basis of providing for need rather than for profit. 

Labour's plans for steel production are pie in the sky, because steel production is one of those areas where large economies of scale are vital, other than for some specialist steels. China already dominates global steel production, and a small British steel industry simply is not going to compete with it. That is especially true if Britain is outside the EU. Throwing money into a small British steel industry is unfortunately simply throwing money down the drain. It would be better to divert that money into the development of other metals production, and the production of the new age of materials, such as carbon fibre, graphene and so on, but even in some of these, and even where they were developed originally in Britain, it is China, which can simply invest on a scale not possible for the small British economy, and can sell into its own vast market, that has become the world leader. This again demonstrates the problem even of trying to build social democracy in one small country, let alone Socialism.