Monday, 25 January 2016

You can't trust Labour on the economy (updated since originally posted 15 months ago) Part 1

As the general election campaign for 2017 has now started in earnest, I have been locked away trying to understand the outcome from the Margaret Beckett report on why Labour lost the last election ( ). Now, whether you believe the report or not is entirely up to you. However, even without the additional analysis being included, one thing can be said with certainty – voters did not trust Labour with the economy. This has been borne out by my own un-scientific research – i.e. speaking to people on internet forums and social media. It is one of the most repeated phrases I hear and read from a whole spectrum of people. It is one of those "truths" that has become so because it has been so oft-repeated.

There will always be a subset of people who, no matter what can be proven, will decide that they will blindly vote Conservative. We have the same people in the Labour party and that is absolutely fine. People vote for their own reasons. If you are one of those people who hate the Labour party and will never look at evidence with a view to changing that position don’t read this. Use the time to do something useful – read something else, make a cup of tea, look after your children, speak to your life partner. That is fine. But I did want to consider that individual central tenet – that people did not trust Labour on the economy, and therefore wouldn’t vote Labour. I am going to try to extrapolate that too – should they trust Labour on the economy now or in the future.

In order to split this down we probably need to think about two things – firstly what is a “good” economy and what does that look like? Secondly, why should we trust a party? If we can answer those two, we should be able to put together a fairly strong case one way or the other. Just writing those two questions down outlines a whole host of problems, but let’s try and answer them.

What is a “good” economy?

So, the real difficulty with this is that there is not, and can not be a single definite answer to this. There are some broad areas of understanding, but nothing that we can concretely say “that right there is your answer”. Each individual will necessarily have their own view on this – and it will be coloured by their upbringing, their view on how the world works and what is important to them. We are after all a country of approx. 60 million single issue voters – that single issue being “what is important to me”.

From my perspective then (as a socialist) there are a number of measures of what makes a good economy. The key one is that the national economy should be measured on how that is used to provide a wellbeing for those people involved in and covered by the economy. A good economy would be one where: 
  1. any growth in the economy benefits those who work for it;
  2. it provides opportunities for everyone to participate and add to the economy whilst;
  3. providing a reasonable level of protection from external shocks to the national economy and individual shocks through changes in circumstance

I don’t pretend this is the only answer. There are other things that we could look at - a key one being how the economy is used to look after members of society in need. There are I am sure many issues that this doesn’t address. As we will discuss, some of these items might even rub against each other in different directions. Lots of people would argue that some of those goals are impossible whilst we live in a capitalist system. It is the system we have at the moment and nobody has yet convinced the British public to rally together to change this system for an alternative one. Additionally there are some huge topics that I have left out – the Private Finance Initiative (PFI and PF2 which are the same thing) are a massive burden on this country. However, political parties of all hues are currently wedded to continue delivering them, so they don’t provide a difference between how they are treated. This is a massive topic and the subject of so much unknown and unknowable that it has its own Nobel Prize. To expect me to do justice to it in a blog is probably asking too much. Even with the simplified items above I am going to split this down into a couple of (hopefully easily digestible, probably completely incomprehensible) blogs to not completely frazzle people.

Should we trust a party to deliver?

The next question should then be: How do the last Labour administration and the current (including the coalition years) Conservative government stand on each of those measures? And how do we believe a Corbyn government would stand against those measures? Whilst this may be a little unfair (every government in waiting is brilliant until it gets in), we need to recognise that a Corbyn government would be very different to a Blair / Brown government. 

Well the first measure mentioned above on economic growth and fairness really requires two parts to it – one is a growing economy, and two that the benefits of that growth are shared amongst the actors within it. Whilst there are a range of indicators for a growing economy a useful one is GDP per capita. This shows the value of the outputs of an economy shared equally by the population of that economy. For the UK, this shows the following output (taken from ).

What you can see from this is that under the last Labour government the GDP per person was higher than it currently is at its high point. It also had a steeper growth – i.e. people were (on average) getting wealthier, faster. This changed in 2008 because of the sudden correction in the markets – caused by the banking crash. The key term there I feel is “correction”. Put simply the market growth was to some extent a myth, caused by a bubble of over-inflated house prices across the globe and reckless behaviour of banks and consumers around the world.

Can we blame Labour for this? I think there must be an element of realisation that for Tony Blair and Gordon Brown the key indicator for economic success was GDP growth. Therefore the worst excesses of the banks were missed at best or ignored and encouraged at worst. This lends to the suggestion that Labour can’t be trusted. In order for us to stick with that as a reason, we should also look at the behaviour of the Conservative party in office. If the property bubble and banker behaviour were key components of the sudden correction, then to trust the tories they would have to clearly demonstrate a different approach.  

I would say that quite clearly isn’t the case. In fact the light regulation that allowed this to happen is slowly returning. Despite the rhetoric about this at the time, the Conservative Party (funded by hedge fund managers and property tycoons ) is indeed pushing back on the regulation of the banks. Ring-fencing of banks (to protect consumers and the economy) has been watered down. There have been a plethora of new scandals SINCE the financial crash ( ) they have slowly stopped investigations and reviews into the current banking market. 

So, if you don’t trust Labour on the economy for this reason, you quite clearly can’t trust the Conservatives either. As an argument, it is nonsense. Oh, and if you think that they have at least made sure another housing bubble wont appear and burst, then forget about it ( and ) – those risks are still there. Worryingly from the above graph we can see that rather than the Tories increasing GDP per capita it has fluctuated and is falling again - and this is before the impact of Brexit takes its toll. 

The next thing to consider from any growth in the economy benefits those who work for it is that it benefits those who work for it. To me, this means that the benefits are shared in line with hard work, effort and risk. That is impossible to measure on an individual basis. It is also massively unfair when we have different starting points. Instead a good measure of how the people in an economy are benefiting, and whether it is fairly or not, is something called a "gini-coefficient". If you wish to understand the maths behind it, then it can be readily understood from wikipedia. It basically measures how fairly income is shared amongst a population. This ties in with GDP above – as it measures the income in a period, in much the same way, and then looks at how income is spread between people. There are 2 extremes – but the lower the gini-coefficient the more equally money is shared between the people in the economy. Gini is calculated as between 0 (everyone gets the same) and 1 (1 person gets all of the income). As a co-efficient it is not useful on it's own - but is useful for comparing 2 things - such as different points in time, different countries or different governments.

In order to get a fair reading on this, then we must look at not only what the gini-coefficient was but how it has changed over time under each of these governments. So under the previous Blairite Labour administration, the gini co-efficient ( ) after tax showed a gini-coefficient of 0.38 between 1997 and 2008 – this didn’t really move. Since the coalition government came to power there has actually been an improvement in income equality - the figure got lower to 0.36 up to the end of 2013/2014. This will be in large part due to the changes in taxation that was pushed through by the Liberal Democrats. 

What remains to be seen is how the changes enacted since then will impact through 2014/2015 and 2015/2016. Although if you believe that trying to cut working families tax credits and battering disabled people’s payments will make income more equal then you have really missed the point. I would expect that the gini-coefficient starts to move back out sharply. After all, the current government have tried to remove income from their definition of poverty ( ). That can never be a good sign. Whilst we don't yet have the official figures for 2015-2016 (the first year of a solely Tory government), for 2014-2015 the gini coefficient has started to move out again - that is we are becoming less equal once again.

What we can't know is how this will change under a Corbyn led Labour government. However, we can look to the policies that have been unveiled already - investment in public works to kick-start the economey, higher taxes on large corporations and wealthy individuals, higher national minimum wage, a clampdown on tax avoidance and evasion and an end to using the benefits regime to punish the disabled and these would all point to an improvement in this measure (and all measures) of inequality. In fact, his first major speech of this election campaign has been entirely rooted in sharing wealth more equally. So, if we believe that he will be true to his word, this would suggest that on my first measure there would be an improvement in both GDP per capita and how that is shared. But, what we can already say based on the available, independent evidence shown above is this - the Conservative party are NO MORE trustworthy than the last Labour Government. That isn't opinion, that is clear fact when you consider the above. So don't let anyone suggest otherwise - without proving them wrong. 

Of course, this is only one measure, and I will look at the others in my next blog. An absolute key one is what state the economy and public finances are left in. This is another area where many believe what they are told in the media - that every Labour government bankrupts the national coffers if it is allowed to do so. But is this really true? Well, hopefully I can answer that point in my next blog. 

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