By Benjamin Craig
George Osborne's economic experiment was the driving factor behind two major political events: Britain voting to leave the EU and the election of Jeremy Corbyn as Labour Leader. Now, as a result of the Brexit vote, Osborne’s long-term economic plan has gone and so has Labour’s incoherent response. The myth of Tory economic competence now hangs by a knife-edge and social democracy is beginning to make sense again.
Corbyn is Pablo Iglesias in Spain, Bernie Sanders in America, Alexis Tsipras in Greece. He's the UK's manifestation of an emboldened radical leftist politics which was woken from a near thirty-year sleep by the financial crisis and the subsequent struggle against austerity economics. Like other traditional European parties of the centre-left, Ed Miliband's Labour party was squeezed into a policy position which made little sense - opposing austerity, but also endorsing it. Corbyn's election was a rejection of that contorted logic by the labour and trade union movement.
The vote to leave the EU has inadvertently done what the anti-austerity movement could not. It has broken economic orthodoxy and overturned the political consensus. Brexit is an unmitigated disaster for working people in this country, but it has shattered the world view of the political and metropolitan classes and sent a clear message: England is angry. Things must change.
Smart Conservative party leadership candidates, like Stephen Crabb, immediately grasped that the political and economic settlement was about to shift. He pledged to invest £100 billion in schools and housing. On becoming prime minister, Theresa May said she also would significantly boost investment in infrastructure and tackle inequality. It is reported that the government is preparing a multi-billion pound housing stimulus. This shift in discourse is due to both political necessity - many of this country’s communities can take no more economic pain - but also to the limits of monetary policy.
With manufacturing, construction and service-sector activity shrinking sharply in July, the UK will likely enter a recession. Unsurprisingly, the Bank of England has cut interest rates, but monetary policy’s effectiveness has reached its limits. Even Mark Carney, the bank’s governor, admits this. To prevent a recession, or even an extended period of stagnation, the government will have to start spending. Suddenly closing the deficit is no longer an economic priority.
There is a chink of light shining through for the Labour party. The social-democratic project - which relies upon tax and spend for intellectual coherence - is about to make sense again. The Labour party has struggled as an electoral force in the wake of the financial crisis, trapped between needing to appear economically prudent and opposing the shrinking of the state. Times have changed.
In last year's contest for the Labour leadership the moderate Labour candidates - Andy Burnham and Yvette Cooper - lacked any real strategy or policy platform. On economic policy they triangulated their way into insignificance. Now Owen Smith is standing on a platform which promises that: "A Labour government will smash austerity, will end austerity. We will make an unbreakable promise to the British people to guarantee a better future."
With the collapse of the austerity consensus, it's finally possible to see a revival in social democracy's political fortunes. Government is no longer the problem, but part of the solution. The wider structural trends mean that social democracy could reach beyond its traditional base to build a new coalition of support. The young are saddled with huge university debts, impossibly high housing costs and poorly paid work. Many survive on zero-hour contracts. The new phenomenon of the 'gig' economy - where you're dependent on insecure work through a faceless app - is here to stay. The centre-right doesn't have answers to any of these problems. The only ideas that can offer a solution to these problems are those which offer a critique of capitalism. With a viable leader, Labour could win power and enact genuinely radical policies.
Corbyn and John McDonnell were right to oppose austerity. They have played a significant part in shifting the narrative within the Labour party. But being leader of the opposition means talking to the country, not just your own activists. Since being elected, Corbyn has made a number of substantial and inexcusable errors, coupled with a complete absence of a political machine. There is no policy making or media strategy. There is no platform for government. The polls are horrific. By all measures Labour is courting electoral disaster. One in three Labour voters think May would make a better prime minister than Corbyn.
With a viable leader, Labour has a world to win. That person is not Corbyn. He has fought admirably against austerity and cuts to the welfare state, but he’s failed to convince his party and the country. Simply opposing austerity is not a platform for government.
The battle for the Labour party is no longer a battle of opposing ideas - on economic policy, at least, Smith and Corbyn are indistinguishable. But it must come together and elect Smith "to secure a cold-eyed and practical revolution."
Benjamin Craig is Labour party activist and a former parliamentary staffer. He now writes about political economy and party politics. He can be found tweeting @BenjaminFCraig
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