What’s the point of Labour when there is no money to spend?

What’s the point of Labour when there is no money to spend?

By John Denham MP


In recent weeks, people as varied as Andrew Rawnsley in the Observer, Michael Fallon, the Tory Vice-Chairman, and even some in the Labour Party have asked ‘what’s the point of Labour when we can’t promise to spend huge amounts of public money.’

Most of our forebears in the Labour movement would have thought this was a very odd question.  While all saw the importance of public spending, most thought Labour had a much bigger goal in mind.  It was to challenge the fundamental problems in the capitalist system which they saw as the root cause of the inequality, poverty, unfairness and lack of opportunity they saw all around them.

Some saw the answer as a wholesale transformation of the economy: a socialist system where different forms of state action and cooperation replaced markets.  Historically, most simply wanted to mitigate and reform the worst problems of the system and to produce an economy with, as Labour’s manifesto of 1974 promised, ‘a fundamental and irreversible transfer of power and wealth to working people and their families’.  Today’s Labour has an appeal much wider than the traditional working class but, nonetheless, that manifesto spoke of a deeper ambition than just wanting to spend more on the NHS.

At times over the last 60 years the idea has grown that the basic problems of the market economy had been solved.  Antony Crosland was an early advocate of the view that the problem was not the way the economy worked but the way society excluded many from its benefits and opportunities.  In the last Government, Labour veered too much to the view that the state could create the conditions in which free markets operated successfully and the challenge was again to spend the proceeds on improving public services, tackling inequality and, again, to improve opportunities.

The global banking crisis, and the reliance on financial services it exposed, has brought an overdue a shift in Labour’s direction towards the view that we need to deal fundamentally with those aspects of the ways in which free markets operate which create insecurity, instability and inequality.  This is not – it needs to be said strongly – a rejection of markets or of successful private businesses.  The old socialist vision of a non-market economy is not coming back.  But it is a recognition that left to themselves markets tend towards destructive, short-term activities which can produce big gains for some but much less long term wealth.

Indeed, too much of today’s British capitalism is failing even by its own measure of producing companies that are able to compete successfully in the global economy. The impact of poor business practice – with poor government policies – is producing an economy that is unable to pay its way in the world.

This is at the heart of the debate Ed Miliband started at the Labour Party conference, and which Cameron and Clegg, having first derided him, are now saying ‘me too’.  (Of course, they are shying away from any measures that would make them credible. The Tories and the Liberal Democrats are trying to push the argument into proposals like a ‘John Lewis’ economy which, however conceptually attractive would leave the great bulk of bad business practice unchallenged and unchanged).

Some of the priorities are becoming clear:

–          We won’t have fairness unless top pay reflects real performance

–          We won’t get long-term investment unless companies can have reasonable protection from short-term speculation and asset stripping

–          We can’t raise families incomes by forever raising tax credits, but by producing an economy which has fewer low paid and unproductive jobs

–          Good regulation – the ‘rules of the game’ need to reward companies that invest long term, engage their employees, and value their customer long term

–          We won’t be able to pay our way in the world unless business gets the right support from government to ensure we have companies which can compete in a competitive world. This doesn’t necessarily mean more money, but using public spending better

–          We won’t get the housing we need unless we understand and tackle the way in which the major house builders are financed and operate

–          We can make changes to the way public money is used – for example on railways, buses, housing and pensions – to get better deals from private companies and reform the incentives which shape the way they work

Though public money might well be welcome, none of these policy challenges depend fundamentally on new public money.

It’s a big agenda that Ed Miliband has set out.  It’s one increasingly reflected in Labour’s policy community by people from all wings of the Party who have reflected honestly on our experience in Government.  It makes Labour a lot more than what we spend.