Adam Peggs explores the Shadow Chancellor’s keynote speech
This week Anneliese Dodds made a key speech, delivering the Mais lecture – the first woman to do so – and fleshing out her economic vision as Shadow Chancellor. She joins a range of well-known politicians and economists in delivering the lecture, including Friedrich von Hayek, George Osborne, Gordon Brown and Tony Blair.
The speech was preceded by a preview trailed in the Financial Times touting the end of the “Corbyn era”, a strategy that draws on “the latest thinking from international organisations like the IMF” and a departure from the spending outlined in Labour’s last manifesto. The speech did not match up to this but does offer some signs of the continuities with Corbynism as well as the significant differences emerging. While the speech was not policy-heavy, there were a few announcements of significance. These commitments would likely have a substantial impact on the shape and nature of a Labour budget if the party were to win in 2024.
Near the beginning of her speech, Dodds speaks of a need for “an even more fundamental reassessment” than that called for in the first Mais lecture in 1978. In that speech, the then Governor of the Bank of England had effectively called for the end of the post-war settlement of state-managed capitalism.
Dodds spoke about a “responsible fiscal framework’ and ‘responsible government”, echoing the kind of language exemplified by the leadership. In the speech, Dodds refers to “Labour’s cast-iron commitment to delivering value for money for the British people”, with “the value for money” phrase causing some justified disquiet among the left-wing of the party.
A LabourList piece from Sienna Rodgers states that the invocation of “value for money” is around a focus on outcomes, rather than an echo of the Conservatives’ economic arguments. The same piece reports that the intended message is “prudent but flexible.” I read this as an endorsement of a Keynesian-style stimulus to reflate the economy (see the Party’s Green Economic Recovery plan) and simultaneously a refusal – at least for now – to commit to longer-term spending increases.
On economic resilience, the core theme of the speech, Dodds elaborates, saying:
“A quarter of UK households lacked financial resilience entering this crisis, with less than £100 in the bank. 3.6m people were in insecure work when the pandemic hit – a situation that has hampered the effectiveness of self-isolation, a crucial tool to get the virus under control.
“Peoples’ pre-existing health status, itself influenced by socio-economic inequality, has been repeatedly linked to poor health outcomes, such as the disproportionate impact of coronavirus on Black and minority ethnic communities.
“Low corporate resilience has meant many businesses taking on debt to get through the pandemic. And a proclivity to short-termism in economic decision-making has created numerous cliff edges and policy U-turns, fuelling instability for businesses and workers.”
The themes of inequality, insecure work and financial insecurity are a critical focus and familiar territory for much of the Party. They could have made a better focus than the attempt to ‘park tanks’ on the Conservatives lawn with a focus on fiscal responsibility and a move away from the left’s language.
Likewise, highlighting the shocking levels of corporate debt in the run-up to the crisis, a symptom of the financialised capitalism we live under, is key to understanding the underlying instability of the economy before the pandemic.
The speech also underlined the “link between health and the economy”. Dodds argues, quite rightly, that under the current government, “the public’s health has been opposed to economic outcomes”’. This is an important rejection of the Conservatives framing, a way of thinking that has drifted into much of the public’s consciousness over the last year. Taking this logic a step further, I would add that the presentation of public health and the economy as diametrically opposed interests tells us a great deal about our social system – and its human costs.
Despite the Party appearing to use the speech to signal a break from the politics of Corbynism, Dodds’ explanation of Labour’s framework paints a different picture. She describes the “core elements” as a “framework for resilience” comprising “monetary, fiscal and economic policies that are needed not just for the 2020s, but for the 2030s”. Dodds argues we need to be resilient “not just to future public health threats, but also to the climate crisis and disruptions to international trade”. Continuing, she adds that we need an economic strategy that is “resilient to threats to our economic competitiveness, via muscular industrial and competition policies, and by improving the relative returns to innovation.”
This should not be seen as Corbynomics dressed up in the language of political orthodoxy – but nor is it a return to the Third Way. The language on competitiveness, “muscular” industrial policy and using state intervention to get better, fairer outcomes from innovation echoes parts of the strategy outlined by the party in 2017 – prior to the development of the more radical programme in the 2019 election. There is also an echo of the ‘economic patriotism’ guided by an active industrial policy that Elizabeth Warren has advocated and which was discussed at length by Panitch, Gindin and Maher in 2019.
Despite the similarity with 2017 here, the anti-elitist social democratic language from back then is less visible in the speech, barring some positive language on tackling tax avoidance. The continuity here is more with a vision of a competitive, innovative industrial strategy that departs from the established economic practices of the last few decades.
In the speech, Dodds reiterates support for the central bank’s independence initiated by Gordon Brown and supported by preceding Shadow Chancellors including John McDonnell. This may represent a barrier to any government seeking to exercise more direct public control over state institutions. This would not roll back the trend under neoliberalism toward insulating key economic institutions from public accountability.
Yet as Labour showed in 2019, there is still scope for socially useful reforms to the Bank of England’s mandate without revoking central bank independence. This could include the house price inflation target and the green mandate advocated by John McDonnell, among other things.
Dodds rightly criticises the economic strategy of the 2010s in which monetary policy was used in an attempt to stimulate the economy and public spending instead faced deep cuts. She highlights how this approach exacerbated already high levels of inequality and concentrated wealth in the hands of the already asset-rich. Bar the lack of an explicit class analysis, there is little in this part of the analysis that could separate Dodds from those on the left. However, the language elsewhere leaves good cause for consternation.
Later in the speech, Dodds outlines the “fiscal framework” promised beforehand. She backs borrowing to invest when interest rates are low but for “flexibility during times of economic shock”. This aspect resembles McDonnell’s “fiscal credibility rule” announced in 2016 which promised to balance day-to-day expenditure (and thus eliminate the deficit on day-to-day spending). Unlike its predecessor, there is currently no target for public debt as part of the rule, though this could certainly change.
Dodds endorses the Institute for Fiscal Studies’ fiscal anchor which calls for an ‘anchor’ to limit the amount of longer-term tax cuts or spending increases which could be announced to stimulate the economy –purely temporary stimulus measures would be exempted. While this may make some sense economically, the political implications are less reassuring.
To give an example, such an anchor could be used to justify cuts to day to day spending measures like the £20 a week increase in Universal Credit (although Labour does currently back this increase, this rule points in a different direction). This increase was introduced as a temporary measure in March 2019 anticipating the rising levels of unemployment caused by the pandemic. An anchor like that outlined by the IFS would likely ensure that such spending decisions serve as temporary measures to stimulate the economy, rather than longer-term increases in spending.
Though an incoming Labour government would have different spending priorities to that of Boris Johnson’s administration, an anchor like this could easily be a drag on progressive spending measures and risks baking fiscal restraint into public policy.
Elsewhere, Dodds advocates an expanded role for the National Audit Office in determining ‘value for money’ in public spending, by putting in place an annual report to Parliament evaluating the efficacy of public spending. The use of ‘value for money’ evokes Stuart Hall’s line in The Hard Road to Renewal, that ‘Thatcherism knows no measure of the good life other than ‘value for money’.” Despite its intentions, influenced by the problem of cronyistic spending during the pandemic, it is likely that the insistence on ‘value for money’ could end up pointing toward a narrow economism rather than the creation of social value.
Finally on the environment, though there was less detail than I would have liked, there was a welcome commitment for every line of a Labour budget to be tested against the need to achieve Net Zero emissions. This is a start when it comes to the old promise to put the Green New Deal at the heart of everything the Party does.
The speech’s discussion of industrial policy is welcome – and a sign that Labour is not content to leave industrial strategy to business interests but there is little discussion of the objectives and values a Labour government would employ in this area. This risks leaving an industrial strategy that is defined by the most orthodox of aims – increasing GDP, business growth and securing British leadership in the world economy.
Rounding up, Dodds also argues that employees need to have a “greater sense of control”. This is a welcome statement, even if it is not currently accompanied by any formal policy commitment. It is a theme that would have benefited from inclusion in the speech’s discussion of industrial policy.
On BBC News, the main takeaway was the perceived call for a “responsible’ taxation policy”, adding to the sense that the Party is using the speech to contrast the new Shadow Chancellor with the policy agenda of the Corbyn era. The New Statesman’s Stephen Bush has argued that the speech involved an expansion of her predecessor’s fiscal approach, with a beefed-up version of John McDonnell’s fiscal rule. Bush highlights that Dodds’ speech suggests she does not see the threat to the UK as a rise in interest rates, but instead low income and wage growth, the climate emergency and the need to rebuild the economy after the pandemic. This is indeed correct and should be seen as obvious in the current crisis.
Labour List’s Sienna Rodgers quoted one party source as stating that the speech “will upset the consensus around how the economy has worked especially in the last ten years”. If there is substantive policy detail in the areas outlined in the speech then this is probably the case. On industrial policy, labour markets and to an extent fiscal policy, we can see a clear distinction between what Dodds is putting forward and both the economics of the Third Way and the Conservative governments since 2010. At the same time, we are not seeing the substance and promise of ‘the New Economics’ developed in the Corbyn years.
There was no mention of privatisation, marketisation or ownership, nor an explicit reference to the Green New Deal, while trade unions were only mentioned in passing – though Dodds referred to a need for “rebalancing of power in the workplace”. If this is social democracy for the 2020s, the scale of ambitions does not seem to match up to that of the social democracy of the 1940s. This is more like beefed-up Milibandism.
It appears that by presenting economic policy in a more technical fashion and by doubling down on fiscal rules the Party can overcome long-running reservations about its economic policy. Labour has used the method of drawing up fiscal rules for this purpose for decades. In fact, the party was promising fully costed manifestos even back in the much-derided 1970s. Since the late 1980s in particular, during the latter part of the Kinnock years, the practice has served as a key plank of the party’s strategy to win support for its economic policies.
John McDonnell’s fiscal rule as it appeared in 2019, represents perhaps the best attempt at this in recent years, allowing for borrowing for investment and for debt to rise as a share of GDP if the public sector’s overall balance sheet is improving – while promising to balance day-to-day spending at the end of five years. As this is the case when the government creates or purchases assets, such as building council housing or renationalising utilities companies, it allowed for a programme which took the issues of our time seriously.
Perceptions of weak economic ‘credibility’ have been a long-running issue for the Party. There is recognition of this issue across much of the Party. How this is tackled is crucial. Resolving this on terms favourable to transformative change is no easy task – but for socialists it is a necessary one.
Adam Peggs is a writer and activist based in Hackney, London.
Image: Official portrait of Anneliese Dodds MP, Source: https://members-api.parliament.uk/api/Members/4657/Portrait?cropType=FullSize, licensed under the Creative Commons Attribution 3.0 Unported license.
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