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Principles of a new economy

Yesterday the Bank of England laid bare what an economic omnishambles Britain is in.

When blame is apportioned we have to take our fair share. We didn’t do enough to regulate a financial sector that was obviously out of control, we chucked bad money after good into wasteful schemes like Private Finance Initiative. We didn’t do enough redistribute wealth and raise wages and our cardinal sin was to trust the market both to regulate itself and redistribute wealth sufficiently, we allowed the state to subsidise poverty pay through the welfare system.

So, we cannot avoid taking responsibility for those mistakes. True, the system was careering out of control and so blame lies not just in the corridors of Whitehall but also in the bank boardrooms, but it happened on our watch and we had 13 long years, and for some of those an overwhelming democratic mandate, to bring about radical change. The electorate will not forgive a Labour Party that is anything other than contrite on those issues.

However, having taken the necessary blame we must now make amends. It is not enough to micro-manage this crisis because it is a fundamental one, one that speaks to the many inequities and flaws of the capitalist system itself. If we chuck a few billion at anything, be that jobs or houses, it will make things a little better for those suffering the worst and ultimately be economically beneficial.

However, it will not address those fundamental issues and we will merely being doing the mirror-image of what the current Chancellor is doing. He is cutting manically (but not really because the effect of those cuts is to make more borrowing necessary) and crossing his fingers and toes and praying for the best. Meanwhile, the Bank of England, is tossing billions upon billions at its best buddies, the banks, in the vain hope they will act against their own nature and put that money back into the real economy by lending again.

This isnt a viable or sensible strategy. We have become a nation addicted to endless growth through consumption and to easy credit. Since our manufacturing was decimated by the demented Margaret Thatcher Britain has become a country that makes the sum total of pretty much nothing. In lieu of international labour rights that are fully enforceable (something that is desperately needed in this globalised world) jobs that would have been created here are created elsewhere and whole communities have been left to rot by successive governments (a major cause of long-term welfare dependency). Rather than make a major investment in training and education, in re-tooling these places to be economically productive, governments have been happy to fork out for welfare which ends up costing less in the short-term.

Getting Britain producing again is a major step back to economic health and that process starts in these areas, with a major investment in social resources. This cant come from a private sector whose sole motive is to acquire more profit, it has to come from the state whose motivation, in theory at least, is more altruistic. People being in work is good for them, its good for society in terms of both economic and cultural benefit. We need to be quite clear about this and unashamed, unemployment is not a price worth paying, Labour needs to restate its commitment to full employment.

When people are in work it needs to pay. Consumption made through credit is ultimately unsustainable but consumption supported by production, fueling a massive increase in living standards and a more equal distribution of societies wealth is broadly sustainable. The reason so many of us have become credit-dependent is that so few of us jealousy hoard societies common wealth. Economic growth has been for the few of us even during the boom times. Wealth does not ‘trickle-down’ in a market system and even if it does its less a ‘trickle’ and more a drip once every blue moon. We cannot rely on the market to redistribute wealth.

The only way to do this is change our whole way of thinking about ownership and active state intervention to support co-operative and mutual forms of ownership which naturally provide more scope for wealth sharing. The state can help by making sure it collects all the tax it should and making sure that those who take home more than of our wealth than the rest of us should pay the fair share but we should not be afraid of taking direct action on wages and prices either.

We have seen what happens when the state leaves things to the market – Labour cannot and should not be afraid of formulating policies on prices, incomes and takes as part of a co-ordinated economic strategy. We might as well have been to war because that is how dire a state our economy is in.  Again, this is not just abstract ethics but sound economics, more socially equal societies prosper while the unequal are failing and fading.

This is one area where we cannot afford to be timid and we cannot shirk the unpopular arguments. Sustainable economic growth is harder to achieve and less spectacular in the short-term.  How we measure that growth, incidentally, needs to change and take account of all factors, if we had measured that growth in terms of more than just GDP beforehand then the underlying problems would have been plain for all to see.

People will have to accept a trade-off between less rapid but more sustainable growth in the long-run and they wont like it; nor will they like measures aimed at curtailing capitalism’s dangerous addiction to credit. This isn’t a program for full-blown socialism but is one that will stay the current crisis and start to move the country in that direction.

Ultimately, that is the solution, however knowing where we want to go but neglecting the road we have to travel is to guarantee we will never arrive in the first place. Now is not the time for Labour to be timid, now is the time for its trademark boldness and its radical zeal to come to the fore, anything less would be to let down the electorate, and to let ourselves down.

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