|SocialismToday Socialist Party magazine|
Prudence with Balls?
Gordon Brown is considered by many as the heir to Tony Blair as New Labour leader. Some, including a number of left-wing trade union leaders, believe that this would result in a progressive, ‘Old Labour’ turn, and a chance to reclaim the Labour Party. Reviewing a recent book* on Brown’s ‘prudent’ economic policies, PETER TAAFFE explains why this is a forlorn hope.
* The Prudence of Mr Gordon Brown, by William Keegan. Published by John Wiley & Sons, 2003, £18-99. Available from Socialist Books, PO Box 24697, London E11 1YD. Tel: 020 8988 8789 or e-mail email@example.com Website: www.socialistbooks.co.uk
WILLIAM KEEGAN IS the noted Keynesian economist who writes an informative weekly column on economics for The Observer newspaper. He has recently published The Prudence of Mr Gordon Brown, an important book given the possibility that its subject could ultimately replace Tony Blair as prime minister. Keegan provides an invaluable analysis of the evolution of the Chancellor of the Exchequer’s political and economic ideas, and his performance as "Labour’s longest serving Chancellor". Keegan attempts to show, in vain, that Brown has not ‘sold out’ but that his economic ‘prudence’ is part of a ‘long game’. Ultimately, Keegan hopes, Brown’s radical reforming zeal, in the best traditions of ‘Old Labour’ if not socialism, will be revealed.
In reality, however, Keegan’s book paints a picture of Brown and his circle of advisers, such as his youthful ‘guru’ Ed Balls, as deeply conservative, having accepted the agenda of Labour’s traditional enemies, the capitalists and the Tories. Brown has turned out to be not one whit different in outlook and policy from Blair. Indeed, this book should be obligatory reading for all those entertaining the hope that if Brown replaces Blair as prime minister ‘New Labour’ would be replaced by ‘Old Labour’, and the prospect of ‘reclaiming the Labour Party’ for the left could be posed.
Keegan hints at his own sympathy for a past, traditional, right-wing social-democratic Labour approach. He excoriates the ‘extreme left’, the supporters of Tony Benn in the 1980s. He attacks the predecessors of the Socialist Party, "the so-called Militant Tendency extreme left group, whose antics were especially prominent in Liverpool". He falsely claims that "in the long run, Labour gained from the tough stand taken against the anti-democratic and potentially revolutionary Militant Tendency". Like most bourgeois writers, the phrase ‘anti-democratic’ is never substantiated. The biggest electoral victories for Labour in the history of Liverpool occurred during the time the city council was under the leadership of this ‘anti-democratic’ trend.
Moreover, what was the political effect of the expulsion of the Militant editorial board in 1983? Labour’s devastating defeat in that year’s general election. The expulsion between 1985 and 1987 of the leaders of the struggle in Liverpool led to a further general election defeat in 1987. In the 1980s, Keegan accidentally met some of the Militant leaders (including myself) at the BBC, where we were both appearing on the Radio 4 Today programme. He subsequently wrote in his Observer column that the Labour leaders should not be concerned about Militant because their leaders were ‘old’. Most of us were considerably younger than Keegan!
Notwithstanding this, however, his book is very useful in showing the ‘nuts and bolts’ of the rightward evolution of Brown and his cohorts. It also illustrates the shameful record of Brown in office, which earns him some criticism from Keegan, restrained but quite devastating for all that.
The Thatcherite settlement
THE SON OF a Church of Scotland minister, Brown absorbed from his father a "strong sense of social justice and civic duty". Joining the Labour Party, he delivered leaflets for Robin Cook in the 1970 general election, subsequently developing into ‘Red Gordon’ and demanding at one stage "workers’ control and participation". From his base in Scotland he produced the Red Paper in 1975 with Cook. The clash which developed between them at that stage, on secondary and personal issues, has endured to this day. In 1995 for instance, Cook, having moved himself towards the right from his earlier ‘soft left’ position, objected to Brown’s acceptance of US-style ‘workfare’ schemes, and his proposal to withdraw child benefits from 16 to 18 year-olds.
This was part of the rightward shift of the labour movement in the 1980s and 1990s, following the defeats of the miners and Liverpool city council in the mid-1980s. The collapse of the Berlin Wall in 1989 and the capitalist ideological offensive flowing from this, together with the development of capitalist globalisation, reinforced this process. Brown, with Neil Kinnock, Blair and Cook, accepted what was described as the ‘Thatcherite settlement’ following the defeats of the 1980s. Although they tried to disguise this with occasional references to socialism, this represented not only a rejection of socialism but also of the ‘mixed economy’ ideas of ‘Old Labour’ and even of traditional Keynesianism – using public spending to boost and ‘direct’ the economy – represented by Keegan himself.
Also jettisoned were the left reformist policies of the Alternative Economic Strategy, which involved the nationalisation of some industries, taxing the rich, etc. Henry Neuburger, a former Treasury economist who worked for Michael Foot and Kinnock, confessed in 1989: "Few of its original adherents would now advance [such measures] without embarrassment". The right-wing trade union leaders considerably assisted the shift towards the right. Keegan reports: "Gordon Brown and his colleagues were lucky that there was then also a ‘moderniser’ at the TUC in the shape of John Monks, at the time Assistant General Secretary". Monks told Blair, then shadow secretary for employment, "that the TUC would not insist on the return of the closed shop, against which Mrs Thatcher had legislated".
Even before the ascendancy of Blair and Brown, the policy of the Labour leadership in response to the measures of the Tories was essentially ‘me too’. This was despite the fact that, in parliament and elsewhere, Brown took apart the policies of the Tories. On one occasion, he pointed to the collapse of manufacturing industry in Britain under Thatcher by asking rhetorically in the House of Commons: "If the Germans had discovered oil, would they have closed down the Ruhr and invested all the money abroad?" Yet, after the ‘Thatcher settlement’, so cowardly were the Labour leadership in bending the knee to capitalism that Michael Heseltine famously jeered after the Tories’ 1992 general election victory: "Never have so many thousand crustaceans [consumed on the ‘prawn cocktail circuit’ of dinners for businessmen attended by the Labour leaders] died in vain".
Brown, at this stage, was a keen advocate of Britain’s entry into the Exchange Rate Mechanism (ERM) of the European Monetary System. This proved to be a disastrous failure, resulting in Black Wednesday in September 1992, when the pound was forced to come out of the ERM. Brown himself suffered a loss of authority within the ranks of the Parliamentary Labour Party (PLP), which may have given Blair an edge in the election for a new leader following the death of John Smith in 1994.
Keegan makes a case, as others have before him, that the approach of Smith following the economic debacle of 1992 would have been different to that adopted by Blair and Brown. Smith, it seems, correctly understood that the damage inflicted on the Tories from this and the previous 13 years of Thatcherism would seal their electoral fate at the next general election. Therefore, Keegan argues, Smith would not have shifted Labour as decisively towards the ‘modernising’ right as Blair and Brown did with the New Labour ‘project’.
Following the collapse of the Berlin Wall, the capitalists’ ideological barrage against socialism and in favour of the market would have acted on a ‘John Smith Labour Party’ as much as it did on the Blair-Brown duumvirate. However, it is true that under Blair and Brown New Labour went much further and much more quickly in dismantling the traditional basis of the Labour Party – the elimination of Clause 4 Part IV of its constitution which committed the party to socialism, the neutering of the trade union link, the destruction of internal democracy, etc – than their European counterparts. Blairism represented the prototype for the process of bourgeoisification of European social democracy, and in the rest of the world later.
Paradoxically, the substantial devaluation of the pound in the wake of Black Wednesday gave an added fillip to the British economy, which was already being buoyed up by the beginning of the US-fuelled 1990s’ boom. Kenneth Clarke, who replaced the discredited Norman Lamont as the Tories’ chancellor, initially presided over the growth in the British economy, putting in place many of the economic and fiscal instruments claimed by Brown as his own after Labour came to power in 1997. Indeed, just after the election victory, the "new chancellor, who had castigated Clarke’s policies from the opposition benches" told one of his economic advisers, "I ought to be writing [Clarke] a thank-you letter".
Indeed, Brown’s economic policies were, if anything, to the right of the so-called ‘wet’ wing of the Tory party represented by Clarke and Ian Gilmour. Keegan comments that "Conservatives such as Lord Gilmour believed that pensions and child benefits should be paid universally, ‘as of right’, but this was a view never held by Tony Blair!"
IN A VERY telling chapter, From Granita to Government, the author traces out the ‘extraordinary’ evolution to a more and more conservative economic standpoint by Brown, bolstered by a partnership forged in October 1992 with Ed Balls, then the youngest leader writer on the Financial Times. Balls was opposed to the ERM and, by implication, British entry into the euro, which he correctly compared to a modern form of the gold standard implemented by Winston Churchill in 1925. This was, like the euro today, deflationary in its effects, ruling out the possibility of devaluing the currency when economic competitiveness did not justify the rate of exchange of the pound with other currencies.
Balls was a neo-Keynesian, rejecting the traditional Keynesian belief in using changes in tax rates and boosting public spending to control demand for goods and services. The Achilles heel of Keynesian economics, which does not go beyond the framework of capitalism, is that a boost in public expenditure for any length of time ultimately has to be paid for in taxes on the capitalists, by resorting to printing money not backed up by extra production of goods and services, or by borrowing. Taxing capitalists can provoke a ‘strike of capital’, closing down factories, thus cancelling out any advantage from increased public spending. On the other hand, resorting to the printing press can generate inflation. Substantial borrowing is only a short-term measure, usually carried out in emergency situations such as in a slump or during a war, which has to be paid for later.
Balls proposed something different: not so much neo-Keynesianism as anti-Keynesianism. He uttered the breathtaking revelation: "In order to do what a Labour government should do, you’ve got to earn credibility first". Not with the working class and Labour supporters, however, but with the ‘market’. In this way, the destructive ‘boom-bust cycle’ could be broken by gaining "public and international confidence in British policymaking". Simply stated, this meant a complete capitulation to the market and a preparedness to do its bidding.
This ‘theoretical’ capitulation to capitalism is clearly underlined by Keegan’s analysis and by the practice of Blair, Brown and Balls after New Labour came to power. Brown and Balls eagerly embraced the neo-liberal ideas fashionable in Clintonian circles in the US in the 1990s. Balls himself had studied under the "guidance of Lawrence (Larry) Summers, who left Harvard to become a deputy secretary to the US Treasury in the Clinton administration". One British Treasury official joked later: "Gordon Brown and Ed Balls are eclectic. They imported ideas to try out here which North American economists could not get through Congress". They were interested in Clinton’s ‘workfare’ approach to unemployment and the way that Clinton had allegedly captured ‘Middle America’ from the Bush Republicans in the 1992 presidential election.
What followed was the traditional mantra heard from Brown since: ‘partnership’ between private and public sectors, disavowal of Labour’s ‘tax and spend’ policies, a refusal to upset the ‘Thatcherite settlement’. Even before Brown became chancellor he rejected the demand of Labour reformists such as Barbara Castle, a former cabinet minister, and Jack Jones, previously general secretary of the Transport and General Workers Union, but at that stage a pensioners’ leader, to restore the link between pensions and earnings. This led directly to the infamous 75p increase in pensions stipulated by Brown in April 2000.
Some of those from the Tribunite left in the PLP still harbouring illusions in Brown should read the passages in Keegan’s book where he spells out Brown’s increasing shift to the right and his brutal rejection of even a minimal reformist position: "Members of the Tribune Group are sore to this day about the way a Tribune meeting was packed with Brown’s acolytes in Tammany Hall fashion". This "consummate machine politician stamped on plans for a Tribune pamphlet that would have attacked his newly-vigorous approach to ‘tax and spend’." In 1994, he told the Today programme: "There is no commitment to spend money on anything. We will only spend what we can afford to spend".
Lamb in sheep’s clothing
LIKE PREVIOUS LABOUR leaders, Blair and Brown could spin this as similar to the traditional approach of Labour: play down and moderate your language and proposals before you come to power and then go much further when in government – ‘the wolf in sheep’s clothing’ tactic. However, as we remarked at the time, a Blair-Brown government was likely to turn out to be more of a lamb in sheep’s clothing. Even Keegan remarks that as New Labour headed for the 1997 general election, it proposed "cautious, indeed pusillanimous policies towards taxation, public spending".
Moreover, close confidantes of Blair and Brown, such as the millionaire economist Gavyn Davies, now the ex-chairman of the BBC, were saying that the new Brown-Balls search for ‘credibility’ involved not only "street cred" but also "Wall Street cred". In other words, proposing what the most venal section of international capitalism was prepared to accept. It was at this stage that Brown’s so-called ‘golden rule’, which was to inform his budgetary policies, was enunciated. This maintained that over the period of an economic cycle the government could only borrow to finance public investment and not to fund public consumption. Moreover, he promised to keep the ratio of government debt to gross domestic product (GDP) stable on average over the economic cycle and at a "prudent and sensible level".
Just what this was to mean in terms of a miserly approach to public spending only became clear to most people after the 1997 general election. Much to the chagrin of Keegan himself, who in his Observer columns has consistently challenged the view that manufacturing does not count, the Labour hierarchy of Brown and Blair bowed to this idea. The financial sector of British capitalism, the City of London, ruled. Brown, in an address before a City audience, stated: "It is a sign of the times that manufacturing accounts for 20% of our GDP and now financial services account for 18% of UK GDP". Keegan acidly remarks: "What such comparisons omitted was the importance of manufacturing; that one-fifth of the economy contributed two-thirds of the export earnings that paid for Britain’s imports – and even then there was a trade deficit".
New Labour had so capitulated to the market and big business that when Balls, probably in an unguarded moment, dared to suggest that a Labour government could still responsibly raise the top rate of tax to 50%, Blair replied, "Wash your mouth out". As bad as this was, the pre-election stance of New Labour was, if anything, mild compared to its actual practice when it came to power. The so-called ‘landslide’ of New Labour in 1997 was achieved with a share of the vote slightly smaller than Harold Wilson received when Labour won a four-seat majority in 1964! Nevertheless, such was the revulsion and rejection of Thatcherism in Britain at that stage (which still exists), New Labour’s massive parliamentary majority would have allowed it, if it so wished, to carry through radical measures.
As Keegan correctly points out in relation to the public sector, "Britain was and is a brutal example of what JK Galbraith described as ‘private affluence and public squalor’." While small sections of the working and middle classes had been seduced by the monetary and financial bribes of Thatcherism in the 1980s, in the 1990s, "the electorate wanted a dramatic enhancement in their quality of life". As Keegan points out, this implied a significant increase in public spending and other radical measures. Brown did exactly the opposite by freezing public spending within the limits set down by Clarke.
Incredibly, within days of the election victory, the Bank of England was effectively denationalised. Hailed by capitalist commentators as a ‘stroke of genius’ and a ‘breathtaking radical measure’, this action was supported by Lamont and Clarke who had indicated before 1997 that they favoured the ‘independence’ of the Bank of England. Keegan, along with many others, was dumbfounded when this was announced at a press conference. A well-known economist, James Meade, said: "We nationalised the Bank of England in 1946 to prevent another 1931". A ‘private’ Bank of England in 1925 returned Britain to the gold standard and an overvalued exchange rate. This resulted in deflation, which was a factor, together with the 1929-31 world slump, in economically undermining the Labour government of those years and its replacement by the ‘national government’. Keegan remarks caustically: "Some of my best friends were central bankers, but central bankers had a deflationist streak that went with the job".
The author, in a number of chapters, deals with the detailed working of an ‘independent central bank’ and micro-economic policy, which even non-economists will find interesting as to how capitalist bankers discuss and arrive at decisions. Despite the appearance of erudition and expert knowledge on the economy, these ‘captains’ of the economic ship of state, the author reveals, are in effect flying blind. One member of the Monetary Policy Committee (MPC), which meets monthly to determine interest rates, observed in the early days of this body that, "we find ourselves in a swamp of uncertainty; we don’t know where we’re going, where we are or where we’ve been". Even previous Tory chancellor and prime minister, Harold Macmillan, famously described the steering of the economy, when he was chancellor in the mid-1950s, as similar to operating with an outdated railway timetable. It seems that the members of the Bank of England’s MPC had no ‘timetable’ at all!
Capitalism, an anarchic and unplanned system, involves the blind play of the productive forces, which do not effectively allow any government to ‘steer’ or ‘manage’ the economy while it remains within the confines of the system. Rather than the state dictating to the market, in reality, it is the other way round. One member of the MPC, in a meeting with the Treasury Committee of the House of Commons, recalled: "I became so bored I began counting items on the flock wallpaper. When asked [to contribute to the discussion], I had no idea what they were talking about and was reduced to saying, ‘I agree with the governor’. "
Rich/poor gap widens
AS INTERESTING AS the chapters dealing with the Bank and the Treasury are, the key sections deal with Brown’s stewardship of the economy after he came to power, particularly in the field of public spending. It is here that Keegan, almost despite himself, is forensic in explaining just how conservative, indeed shameful and cowardly, Brown has been since 1997. This is done within the framework of a mild social-democratic approach obviously favoured by the author. Almost in despair he writes: "One would have thought, from the widespread complaints of the electorate and the findings of the opinion polls, that public dissatisfaction with the state of public services and the general infrastructure was obvious from the start. Did it really take a two-year freeze in overall department spending, and the fundamental review, in order to establish what should be done about the schools, the hospitals, the roads and the railways? And, was not the very idea of a freeze on departmental spending guaranteed to make things worse and ferment public dissatisfaction – dissatisfaction which, at the least, contributed to the election result which brought Labour in?"
Impervious to such appeals, the priority of Brown and Blair was to establish ‘stability’ and ‘credibility’, not with voters or the working class but with the capitalist market. Keegan comments: "There was precious little sign of any narrowing of the gap between rich and poor – a gap that had always been the traditional focus of Labour governments. On the contrary, this continued to widen". He further writes: "When Brown’s ally, Harriet Harman, introduced cuts in the benefits of lone parents, a former Conservative cabinet minister observed to me at the time: ‘On security, welfare-to-work, they are daring what we dared not do’." The same was true of the so-called Private Finance Initiative (PFI) and the Public-Private Partnerships (PPP) championed by Balls and Geoffrey Robinson, which Brown accepted.
Keegan reveals that while Brown was energetically adhering to the Tories’ public spending limits, Clarke said that "he would not have stuck to them and Treasury officials certainly wouldn’t have expected him to". During the Tory government, Clarke had put his foot down when prime minister, John Major, contemplated committing his government to reducing the ratio of public spending to GDP to below 40%. Yet, as Keegan details, we witnessed the "extraordinary phenomena in which New Labour presided over a slower rate of growth in public spending during their first term [1997-2001] than occurred during John Major’s premiership. At 1.7% a year, the rate of growth was below the normal rate of growth of the economy as a whole of 2.5%". It was well below what might have been expected to be needed for the UK to "catch up on continental Europe".
Therefore, the ‘public squalor’ inherited from the Thatcherite butchering of the public sector worsened under Brown’s stewardship. Public sector capital investment, which Brown had demanded consistently while in opposition, was lower "during the years 1997-2001 than in any comparable four-year period since the 1970s". This was against the background of massive public discontent and with an electorate "disillusioned with the government’s performance on health and education". Keegan is incredulous when writing that this standstill "lasted four whole years – the equivalent of 1939-43 if one thinks of the second world war, or 1945-49 if one thinks of the post-war Labour government". In other words, "the second world war was more than two-thirds over in the same time it took New Labour to establish its credibility with the Public Finance Initiative".
All of this was done to break with the impression of ‘old-style’ redistribution of income from the rich to the poor or a return to the alleged ‘tax and spend’ policies of previous Labour governments. Brown actually lowered the basic rate of tax but left the higher rate untouched, which led to massive disappointment in Labour ranks. At the same time, capital gains tax was reduced under this ‘progressive’ New Labour government. Nigel Lawson, a previous Tory chancellor, teased New Labour for "continuing the good work of Thatcherism".
The Ark of the Covenant of a reforming Labour government in the past was to seek to narrow the gap between rich and poor. This was not narrowed under New Labour, Brown preferring to concentrate on ‘helping the poor’ in the manner of a bourgeois liberal rather than a socialist who wishes to change the balance of class forces in favour of ordinary working people and against the rich. Through tax credits and other financial devices, it is true that some sections of the poor were later given some financial benefits. But overall, as Keegan makes clear, the gap between rich and poor actually widened.
THE AUTHOR ALSO deals in some detail with the calamitous consequences of Blair and Brown’s preoccupation with continuing the Tories’ privatisation policies. Keegan quotes extensively from civil servants on the financial outcome of privatisation up to now, and in so doing paints a devastating picture of the financial and economic catastrophe of PFI and PPP.
Keegan, like many other dispassionate observers, points towards the effects of privatisation, not least on the railways. In the teeth of the obvious failure of the Tories’ privatisation, he points up Blair’s stubborn, ideological resistance to even contemplating renationalisation. He quotes Blair, when faced with meltdown on the railways: "You can do anything you like as long as you don’t call it renationalisation". In a recent Observer column, Keegan laments: "What reinforces one’s pessimism about this government is that it has often behaved as if it were on a knife-edge majority – of the kind suffered by the second Attlee government 1950-51 – whereas it has a resounding majority from 1997 which could have enabled it to be much bolder in addressing such problems as the railways". Yet the author, schooled in long-abandoned Labour ideas of incremental improvements and increases in general living standards, fails to understand just how much New Labour has broken with the ideals of the labour movement of the past.
He provides some interesting detail about Brown’s "accidental Keynesianism": public spending has been given a boost but this did not represent a ‘splurge’, a fundamental abandonment of the cautious approach of Blair and Brown in the past. Capital spending in the state sector fell sharply between 1998-99, and 1999-2000. Farcically, even when Brown sanctioned increases in public spending, so used were Treasury officials to austerity that they did not know how to spend the new largesse! Keegan points out that even civil servants held their heads at the madness of privatisation: "Real accountability is not ‘transferred’ in the case of trains, the tube, hospitals, doctors, teachers and so on" when privatisation is carried through. The same official states: "All that happened is that we have newer and more costly relationships with the private sector contractors". He was in favour of "private sector contractors being contracted to do specific work" but opposed privatisation because it was much more costly in the long run.
Keegan’s Euro Wars chapter – the discussion over joining the single currency in the ranks of the government – conclusively demonstrates that, despite the reams of documents setting out ‘conditions’, there is no possibility of New Labour entering the euro in this parliament, and very little likelihood of it taking place, even if it wins the next election – assuming that the euro still exists. He makes the interesting comment: "In the summer of 2000, someone who was for a time very close to Brown’s thinking, said: ‘It is sad, but the euro decision raises too many difficulties. It may be 2015 before we can join’."
Yet despite the long catalogue of retreats, abandonment of previous positions, ingrained conservatism towards even minimal reforms, Keegan still holds out the prospect that the "cautious approach" to fiscal and monetary policy by Brown and Balls may be short-term "prudence" but all designed for a long-term "purpose". Yet, the author clearly understands the parlous industrial and economic situation facing British capitalism, contributed to in no small measure by the New Labour government. New Labour has now been in power for seven years! Truly the mountain has laboured and produced a very small mouse. Keegan points out: "Industrial production was 2.5% lower in 2002 than in 1997 in the UK, whereas it was 9.25% higher in the European Union, largely reflecting the deleterious impact of the overvalued pound on British industry’s exports, and on its ability to compete with imports. Between 1995 and 2002, imports rose by 66.2% but exports only by 39%, an indication that all was not well below the generally rather complacent claims that the UK had fared better than other leading industrial economies". Keegan also comments that despite the attempt to "redistribute by stealth" in the face of market forces, Brown’s measures were "tending to make the rich richer and the poor [relatively] poorer".
He can’t help concluding: "A Labour government elected with an enormous majority was pusillanimous in its approach". Despite this, he hopes, perhaps, that Brown will display his ‘real’, radical, if not socialist, soul in a third Labour government. His hopes are in vain. So long as this government, bourgeois to its marrow, remains within the framework of capitalism and does the bidding of big business, it will continue to disappoint, alienate and infuriate the working class and provoke a revolt.
Keegan’s book is the best answer to those who look towards Brown as an alternative to the dark days of New Labour. If he replaces Blair, he will be a continuation of this shameful chapter in the history of the labour movement. The Labour Party is finished as an instrument for working people to implement their aims and begin to transform society. A new road must be opened up, along which lies the creation of a new mass workers’ party with the adoption of clear socialist policies. This involves a complete break with the traditions of New Labour and the heritage not only of Blairism but of Brownism as well. William Keegan’s valuable book provides political ammunition to further this process.