'Neoliberalism' and nonsense

Here's a fun fact: the founder of neoliberalism was a Corbynista.

Well, not exactly a Corbynista. The German sociologist Alexander Rüstow died in 1963, long before Jeremy Corbyn entered Parliament, let alone became Labour leader. But some of the economic policies Rüstow advocated bear a striking resemblance to those pushed by Corbyn today.

Rüstow, according to the valuable research of Oliver Marc Hartwich, was in favour of the nationalisation of rail companies and utilities. He supported an active industrial policy to ease the social impact of economic upheaval. He wanted to reduce inequality through high inheritance taxes. He proposed higher taxes on large companies. "The economy is there for people," Rüstow insisted. Any of that might have come out of Labour's 2017 election manifesto.

From this historical perspective, the cry from Corbyn's intellectual outrider Paul Mason last week that "Labour needs to wage war on EU neoliberalism" sounds pretty strange. Yet, of course, the definition of neoliberalism that Mason is using is different from that put forward by Rüstow in the 1930s.

For Rüstow, neoliberalism was a third way between socialism and British-style laissez-faire economics. It was conceived as a specific cure for late 19th-century German-style corporatism, with its proliferation of cartels. Mason's conception, on the other hand, stems from the theorising of Michel Foucault in the late 1970s, who saw neoliberalism as an ideological project to transform all of society into a giant marketplace.

This freemarket fundamentalist conception of neoliberalism owes more to the thought of Friedrich Hayek and Milton Friedman than Rüstow.

Words can change their meaning, of course. And there's no reason Mason, or anyone else, shouldn't use the modern definition of neoliberalism as a kind of unhealthy fetishisation of markets. After all, this is what most people today understand by the term. Yet it's important to ask whether Mason, and others on the radical left, are justified in describing the EU as part of a neoliberal project - especially when they use this framing to argue that Labour should be wary of joining the EU's single market after Brexit.

With its high levels of social protection, state-owned rail companies, nationalised utilities and banks, various price controls and industrial interventions, the European continent does not, on the face of it, look like the neoliberal hellhole of the leftist imagination. Europe actually seems to be a collection of social democracies and what Peter Hall and David Soskice described as "co-ordinated market economies". Yet, according to Mason, the European "social market economy" is merely "the specific European form of neoliberalism" because "it prefers private over public, vaunts market mechanism over state direction or subsidy, relies on effective competition to make capitalism fairer, rather than strong regulation."

This is rather like arguing a hot bath is merely a warmer form of a freezing cold bath. It's a definition that ignores the experience. Most normal people, when they run a bath for themselves, are concerned with how comfortable it feels when they get in it, rather than which tap most of the water came out of.

The insights of Hayek and Friedman about the utility of markets - in particular the access to the socially dispersed knowledge embedded in them - are valuable. Yet it's also true that a mentality that presents the extension of markets as the answer to every social question is a destructive pathology. The merit of the post-war social democratic settlements of countries like Germany, France, Sweden and the Netherlands is that they have located a reasonable balance between those two extremes. Any theoretical framework that crams Germany's Social Democrats into the same category as the US Republicans or the hardline Thatcherite wing of the Conservative Party has either gone badly awry or is conceptually useless.

Perhaps we can learn a lesson from the genesis of the term neoliberalism. Rüstow's 1930s conception of neoliberalism had a specific social and historical context - the crony capitalism of Wilhelmine (and then Weimar) Germany and the global crisis of free markets and democracy in the wake of the Great Depression. To understand the programme, one has to appreciate the context.

The economically liberalising ethos of the EU's 2007 Lisbon Treaty, which the left revile as one of the supreme works of the neoliberal devil, has a context too: a series of member states with a greater role for the state and social protection than the UK and the US but also structurally higher levels of unemployment. It's not freemarket fundamentalism, for instance, to suggest that French employment laws ought to be reformed for the sake of those younger people who find themselves outsiders in a system designed to protect insiders at all costs. Nor is it wild-eyed neoliberalism, in a single market of 28 member states, each with their own domestic corporate lobbies, to police the granting of state aid.

The problem with the modern Foucauldian definition of neoliberalism is that it ignores context and invites paranoia. The result is that those who advocate a modest extension of markets in some areas cannot be understood as simply attempting to adjust the temperature of society's bath but must be seen as part of a sinister ideological project to atomise humanity.

European leaders have certainly handled the eurozone crisis abysmally, inflicting unnecessary suffering on the likes of Greece and Portugal through excessive public spending cuts and badly designed structural reforms. Domestic fiscal policy in Germany has been, and remains, a disaster zone. There are many reasons for this, but it's simply not credible to argue that these gross failures stem from the same species of ideological extremism that animates libertarian right-wingers in the Anglosphere. The context and the history are separate; the attitudes to markets, the state, inequality and social solidarity are fundamentally different.

It would be tragic if Labour rejected the option of single market membership for the UK after Brexit. And if the party did so on the basis of fallacies about European Union "neoliberalism", it would be farcical.

Right or wrong, Labour is offering a solution to the legitimacy crisis of our privatised railways

As I wearily forked out for my monthly rail travelcard this morning I felt the pain of hundreds of thousands of other commuters around the country over the latest round of price increases.

Does it have to be this way? Labour has been touting its promise of train company nationalisations as the solution to this miserable January ritual.

Alas, nationalisation would not, in itself, be a free lunch for passengers and commuters. The UK railway – its maintenance, refurbishment and expansion – needs to be paid for. The central question is whether we pay for it through rail fares or through general taxation.

The coalition government decided back in 2010 that passengers should bear much more of the burden. Some will agree with that decision, given regular train passengers, on average, tend to be wealthier than those who don’t use the service.

Others will argue, legitimately, that we should have a European-style funding system, where the taxpayer pays more through subsidies and that train travel ought to be vigorously promoted as a more environmentally-friendly alternative to the car. You pay your money and take your choice in that debate.

Yet that’s hardly the end of the discussion over rail fares. And the ownership question is not, in fact, irrelevant. Ask people about rising rail fares and it is clear the problem is not simply the above-inflation increases, but the quality of the service provided by the private operating companies too. 

Paying more for an improved service is one thing. Paying more for an experience that is getting no better, or even getting worse, is quite another. And in some parts of the country the rail experience really is deteriorating.

Southern Rail, the blight of Surrey and Sussex, deserves to be a case study in bad management. The disaster is, in large part, a consequence of under-staffing. The franchise relies on almost all its drivers working overtime.  There’s no slack in the system so when drivers don’t volunteer, for whatever reason, it breaks down.

Yet Southern is also a case study in the pitfalls of a disingenuous privatisation. The franchise is being run on a special “management contract” with the Government. This allows relatively little financial autonomy for its parent company, Govia Thameslink. Meanwhile, the terms of the management contract require Southern to introduce controversial driver-only operations, forcing a predictable showdown with the train guard and driver unions.

Privatisation here is actually a fig leaf. The Transport Secretary, Chris Grayling, exercises a considerable degree of hidden control. And the terms of the contract create incentives for excessive management cost cutting. The Government then blames the private company for the consequences. This is essentially power without responsibility for ministers. And they appear to like it that way.

In November, the Government announced plans to effectively bail out with public money the Stagecoach/Virgin East Coast rail franchise, which had overbid for the right to operate the line. As Lord Adonis pointed out in his resignation letter as chair of the National Infrastructure Commission last week, Grayling apparently refused the option of taking the franchise into temporary national ownership, something that the last Labour government did in 2009 when National Express similarly failed on the same line, with notable success. This is part of a pattern. Grayling also refused an offer from Transport for London to take control of Southern in 2016.

This is a government that seems to regard the principle of private ownership as more important than the practical interests of passengers. Sizeable fare hikes are fuel on the top of that already smouldering fire of distrust.

The public anger over rail fare hikes reflects something deeper than traditional seasonal grumbling at the rising cost of living. It reflects a fundamental legitimacy problem for the privatised train operating companies. There is majority support in polls for rail re-nationalisation not because Britons are all foaming Trotskyists but because of these underlying trust issues.

Privatisation’s defenders are, of course, correct to say that there are no guarantees nationalisation of train operating companies would produce the more efficient and passenger-focused UK railway that we all desire. That would depend on the competence of the new management and their degree of insulation from political pressures. There are decent grounds for suspecting that things would actually get worse.

Yet what Labour is offering is a solution to the legitimacy crisis of the privatised railway. Those who believe privatisation is an experiment worth persisting with should dispense with the facile lectures about the evils of central planning and get their thinking caps on about how to make the railway work far better for passengers than it is at the moment.

This article was published in The Independent on 02/01/18

Labour’s costings, like the fiscal costings found in all party manifestos, are flaky. But there’s a solution

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery."

General elections tends to turn journalists and broadcasters into Dickens's Mr Micawber, albeit without the charm. Do the promises of the parties add up? Is there a gap? Is there to be happiness or misery? The questions ring in our ears.

In many ways it's a silly and unedifying spectacle. As the economist Chris Dillow has pointed out, it's a sham to imply that such "costings" exercises can tell us anything about the how the public finances will evolve under any particular government.

That depends far more on the state of the economy. And to the extent that the costings obsession of journalists at election time distract attention from bigger questions of macroeconomic management, it's harmful.

If growth is crushed because the government imposes excessive austerity while interest rates are still at rock bottom - something close to what we saw in 2010 under the Coalition - even the most honest of manifestos and most accurate of costings are not going to help the deficit.

In 2010 the Conservative manifesto pledged to eliminate "the bulk"of the current structural budget deficit by 2015. In fact it was still £45bn in that year, mainly because the economy performed so badly.

Yet at the same time, political parties should not be allowed to promise higher public spending or redistribution without acknowledging the costs and trade-offs. If that sounds like an anti-progressive conspiracy, consider how right-wingers are prone to making assertions about how cutting taxes will magically pay for themselves by turbo-charging growth. The fiscal credibility question cuts both ways. Or at least it ought to.

Labour's tax costings today are a mixed bag. The income tax (£6.4bn) and corporation tax (£19.4bn) raising figures by 2021-22 look broadly reasonable because they are based on a HMRC "ready reckoner" document, which allows anyone to estimate what changing headline tax rates would mean for revenues.

But the assertion that Labour would bring in £6.4bn by clamping down on tax avoidance is simply a madeup number, in the sense that it's an aspiration, rather than being based on any kind of programme that can be evaluated. We saw precisely the same made-up numbers in the 2015 manifestos from both Labour and the Conservatives.

Falling between those two extremes are Labour's estimates that an "excessive pay levy" would raise £1.3bn or that introducing a new financial transactions tax would bring in £5.6bn, to take just two examples. This is speculative because we cannot say with any confidence how the public's behaviour would change in response to the introduction of such new taxes because we have no history to go on.

Would firms simply soak up the new pay levy in the form of lower profits and carry on rewarding top staff in the same way? Or would they curb salaries, meaning the levy raised negligible amounts for the taxpayer? The same applies to the proposed transaction tax. Perhaps asset managers and financiers would trade less in response to the levy, meaning it doesn't produce much money. Incidentally, given Labour regards both excessive pay and excessive financially trading as undesirable, it logically ought to welcome a strong behavioural response - although that would create a problem for its costings.

It's true, of course, that new taxes are introduced by governments all the time. And governments, when they do this, always make an estimate of how much money it will end up raising, taking into account behavioural change. Yet there's a check on over-optimism now in the shape of the Office for Budget Responsibility. The OBR tells the Treasury and HMRC to think again if it isn't convinced by their estimates. And it highlights the uncertainty of particular costings.

The obvious and sensible solution to the issue of election manifesto costings is to allow the OBR to perform the exercise - applying the same uncertainty scale on individual tax proposals as it does at Budgets.

This isn't a particularly radical suggestion. The OBR's equivalent in the Netherlands already costs the manifestos of parties that submit their proposals to it in good time. And the head of the OBR, Robert Chote, has said his organisation is willing to do the job, provided its resources are significantly expanded.

The former Chancellor George Osborne deserves credit for establishing the OBR in 2010. The watchdog has helped restore credibility and transparency to Budgets. But Osborne turned down a proposal from Labour in 2014 to allow the OBR to cost all the party manifestos.

Whoever forms the next government would be wise to revisit this. The results for the voting public might not be Micawberite ecstasy, but we would certainly be better informed about the choices available to us than we are now.'

Higher state investment is one thing Labour’s manifesto gets absolutely right

There are some rules of thumb in politics. If you want to keep something secret, say it on the floor of the House of Commons. If you want to publicise something, mark it "secret" and leave it lying around near a photocopier. And if you want people to be misled about what you are proposing, let the right-wing press explain it.

The shadow Chancellor, John McDonnell, first announced plans to spend an additional £250bn over a decade on state investment if Labour wins power in a speech almost a year ago. The surprise would have been if this long-standing pledge had been dropped from the party's manifesto, not that it made the cut.

But what makes the hyperventilating of the pro-Tory press pack in response to this particular line in the leaked manifesto even more risible is that they appear to have little grasp of how moderate this supposedly ruinous investment promise is.

Public sector net investment in 2017-18 is already set to be £40bn. Labour's planned increase of around £25bn a year would take that to around £65bn. As a share of GDP that would represent an increase from 2 per cent of GDP to 3 per cent, taking us roughly back to where public investment as a share of national income was when George Osborne took an axe to it in his 2010 austerity drive.

We're also told, in horrified tones by papers such as the Daily Mail and The Sun, that this investment spending would be financed not by extra taxes but by borrowing. The Times points out that Michael Foot's 1983 manifesto also promised to pay for industrial investment spending by borrowing.

Yet what they fail to note is that George Osborne, in his original fiscal mandate, did exactly this too. The former Chancellor's 2010 deficit target, which was naturally hailed by the right-wing press for its fiscal rectitude, was to achieve balance on the "current budget" over five years. And the current budget, of course, excludes public sector net investment.

In fact, it's been the norm for governments to permit borrowing for investment for the very sound economic reason that investment in infrastructure - whether road repairs, rail electrification projects or new broadband networks - increases the future productive capacity of the economy. This should increase GDP growth rates and hence future tax receipts. In the medium term well-targeted infrastructure spending should pay for itself.

Labour's state investment pledge also needs to be understood in the wider economic context. Private business investment as a share of national income has been falling since 2000 and in 2016 stood at just 9 per cent of GDP. This decline, in combination with the cuts to public investment since 2010, has dragged total economy-wide investment down to about 17 per cent of GDP. This is below the share of national income spent on investment in other peer countries such as the US (20 per cent), France (22 per cent) and Germany (19 per cent). All of this may well explain, in part, our major national productivity shortfall relative to those countries.

Labour's proposal to bump up direct state investment, along with its plan to establish a National Investment Bank to lend an additional £250bn over a decade, is a serious response to what the OECD has called the UK's "historic underspending" on infrastructure. The fact that private investment spending is also under pressure due to Brexit-related uncertainty about the UK's future trade arrangements is another strong argument for the Government picking up some of the slack.

From abolishing tuition fees, to jacking up corporation tax to 28 per cent, to abolishing zero hours contracts outright there are plenty of economic policies in Labour's manifesto that can reasonably be criticised. But higher state investment spending is not one of them. Its critics largely discredit themselves.'