The progressive priority: a social democratic Britain

The belief that the health of the British economy depends on trade policies with Europe or anywhere else comes directly from neoliberal ideology, that “openness”, globalization of trade and capital flows, bring prosperity.

John Weeks
14 September 2017

Theresa May and David Cameron. Source Flickr/Tiocfaidh ár lá 1916. Some rights reserved.Conservative government policies are the major danger to the welfare of the British population, not Brexit or its likely consequences. No outcome of negotiations between the present or future governments in Westminster and the European Commission would damage the British economy or disrupt British society as much as the last seven years of Tory policies.

Until recently some EU supporters restrained their support for the Labour Party because the party leadership had not “clarified” its policy on relations with the European Union. With the recent statement of Labour Party Policy, and its endorsement by party leader Jeremy Corbyn, that concern changes from anxiety to excuse. 

Criticism of Corbyn’s EU policy provided cover for the neoliberal wing of the Labour Party. I stress the word “excuse”, because to a great extent past criticism of Corbyn’s EU policy provided cover for the neoliberal wing of the Labour Party. The simple truth is that whatever position a progressive might have on the European Union, that position would be better pursued by the Labour Party under current leadership. 

At no risk of oversimplification, the current progressive task is clear, electing a Labour government committed to creating 21st century social democratic Britain. In pursuit of that goal, arguing over so-called Brexit is a diversion. 

Assertions of the negative economic impact of Brexit is one of most egregious examples of diversion of political focus. These deleterious effects are alleged to arise from a near-endless list of immediate and impending disasters – relocation of corporations to the continent, mass exit of skilled employees of other EU nationalities, a breakdown in the national food chain, disaster for British pensioners living on the continent, falling house prices, not to mention possible end of free movement of cats and dogs

If one can clear one’s mind of the Brexit disaster speculations both serious and absurd, a single over-arching fact emerges – the dismal performance of the British economy, stagnant incomes for the vast majority and degeneration of employment conditions result from seven years of Conservative misrule. 

The chart below shows quarter-on-quarter growth rates of GDP (blue line). Smoothing out the fluctuations by calculating the four-quarter moving average (dashed red line) reveals an economy in near stagnation. Except during 2014 the British economy seriously under-performed, consistently expanding at a quarterly rate of less than 0.5% (less than 2% on an annual basis).  

The 2014 exception resulted from then-chancellor George Osborne briefly suspending austerity cuts after near-recession in 2012 (see blue line). Growth during the four quarters since the referendum has remained consistent with an austerity-constrained economy. The seven-year pattern shows a sluggish economy constrained by ideologically driven fiscal austerity.

Quarterly growth rates of real GDP under Conservative governments, 2010-2017 (percentages):

graph 1.png

The four quarter moving average is the average of the current quarter and the three previous ones. Source: Office of National Statistics. If one has any doubts about what causes the British economy to under-perform, the second diagram, showing changes in public expenditure, should dispel them. The chart calculates annual total expenditure by quarter and measures the quarter-on-quarter percentage change in annual expenditure over the last 21 years, under Labour (1997-2010) and Conservatives (2010-2017). Total expenditure includes both central and local governments, with the local overwhelmingly dependent on the central government grant.

During the years of Labour governments, annual expenditure (adjusted for inflation) felt in only one quarter out of 55 (last quarter of 2009). Under Conservative governments expenditure fell in well over half, 17 of 25 quarters. During the Labour years, the quarterly average change in real spending was +1.1, a bit over four percent a year. In contrast, the average for Conservative government was negative. Therefore, it should come as no surprise that when we exclude the severe crisis years (2008-2010), the economy grew at an annual rate of 2.5-3% during the Labour years and half that rate under the Conservatives.

Quarterly change in annualized total real public expenditure, central & local governments, 1997-2017 (percentages):

graph 2.png

Annualized quarterly expenditure is the sum for each quarter and the previous three. Negative changes shown in red. Inflation adjustment is done using the GDP price deflator. Source: Office of National Statistics. As or more pernicious than the growth depressing effect of Tory austerity has been the destruction it has caused to the public sector. Seven years of fiscal misrule leave us with a health service in continuous crisis, underpaid public employees including nurses and teachers, and severe reductions in support to disabled citizens. 

Much of this destruction results from the severe reductions in local government funding, which reflects a cynical strategy to shift public blame from Westminster to local councils for the resulting suffering. The macroeconomic consequences of Conservative government have been dysfunctional; at the household level, the effect has been to whittle away all those social protections of civilised society. 

Whatever had been the outcome of the June 2016 referendum on EU membership, the British economy would be dismal, because of Tory policies.Whatever had been the outcome of the June 2016 referendum on EU membership, the British economy would be dismal, because of Tory policies. There is no need to involve speculative Brexit effects to account for the performance of the British economy. Indeed, indulging in such speculation goes far to absolve the culprit – Tory policies – ideologically driven and dysfunctional as it is. 

Shortly after the Labour leadership confirmed its policy towards the European Union, a Labour MEP urged a “bolder” Brexit policy, because “our economy depends on it”. It is true that bold action is required by a Labour government and our economy does indeed depend on it. 

However, the belief that the health of the British economy depends on trade policies with Europe or anywhere else comes directly from neoliberal ideology, that “openness”, globalization of trade and capital flows, bring prosperity. The recovery of the British economy, now seven years delayed, will not occur as a result of a favourable outcome of EU negotiations, as important as that may be for other policy goals. 

Economic recovery will come when a British government boldly implements an active, expansionary fiscal policy within a social democratic framework that reduces the role of markets. When planning that bold policy an excellent place to start is the economic section of the Labour Manifesto, titled “Creating an Economy that Works for All”.

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