Labour’s Panicky Establishment is Referencing the Wrong Period in History : Ann Pettifor

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By Ann Pettifor @annpettifor  referencing-the-wrong-period-in-history

Previously published on Prime Economics Blog

Governor of the bank of England Montagu Norman with Labour Prime Minister Ramsay Macdonald

Governor of the bank of England Montagu Norman with Labour Prime Minister Ramsay Macdonald

“This young country will be proud of its identity and its place in the world, not living in its history, but grasping the opportunities of its future.”

Tony Blair: Leader’s speech, Brighton, 1995.

Tony Blair and those associated with Blairism embraced globalisation and studiously ignored Labour Party history – except to denounce and disown “Old Labour”.  Labour’s economic history was of very little interest to the Blairite generation. And it appears that the history of the 1930s is of little relevance to today’s leadership election debate.

Instead commentary repeatedly harks back to Bennism and the 1980s – when the relevant era is surely the 1930s.  As most economists acknowledge, the 1930s and the great depression are widely and rightly understood as the only modern precedent to the great financial crisis that began in 2007, and that still dogs the global economy.

The great depression was a crisis of globalization. Globalisation – the de-regulation of global capital flows – had been imposed across the world from the 1880s through to the 1920s- only to be reversed by the stock market crash of 1929.  In 1930-31, when the crisis reached its nadir, Labour’s Ramsey MacDonald (PM) and Phillip Snowden (Chancellor) were responsible for economic policy.

Their government was to fall apart in the wake of demands from the financial and economic establishment for severe government spending cuts. Snowden and Macdonald never shied away from these demands that came primarily from merchant bankers, and were made as the quid pro quo for their support for sterling.

To meet these demands, MacDonald and Snowden went straight to the finance sector –  represented by the head of the Prudential Assurance Company (Sir George May) – and called for plans for spending cuts to be drawn up  by what became the May Committee on National Expenditure.

       Labour Party poster (1931)

However, while MSacrificeacDonald and Snowden were gung-ho about spending cuts, the rest of the Cabinet were implacably opposed to the extreme cuts proposed by the May Report . The divisions and infighting led to the collapse of the Labour government in June 1931.                                                         A ‘national government’ then took office which included the Conservative party but which was led by Ramsey MacDonald, with Snowden continuing (only briefly) as chancellor, and including only a handful of other Labour figures. This coalition of peculiar bed-fellows – ‘the National Government’ – went to the country in September 1931 and massacred Labour Party candidates.

 The Conservatives won 470 seats, Labour lost 225 seats and was left with only a rump of 52 MPs. The 2015 general election campaign and its results echoed both the debates and the outcome of that 1931 election. In both, the Labour Party was castigated by the political and media establishment and blamed for denying the harsh reality that Britain needed  “austerity” and to “live within its means”  – in order to recover from a crisis made in the City of London and on Wall Street.

In the next election (1935) the National Government was replaced by the real thing: a Tory government under Stanley Baldwin and then Neville Chamberlain.  But by then spending cuts had pretty much ended. Despite the clamour for austerity in 1931, by as early as 1933 the Tory government had effectively reversed the policy of cutting spending, just as Osborne eased up on spending cuts in 2012. From 1934 government spending was expanded vigorously. As a result of this reversal, the economy looked relatively chirpy for the ’35 election.

In the meantime the Labour party in conjunction with leading figures from the trade union movement had begun developing a bold and coherent policy agenda. MacDonald and Snowden’s deference to financial authority and fiscal ‘discipline’ was decisively rejected.

Election Hoarding Posters 1935

Election Hoarding Posters 1935

Clement Attlee, by then leader, contested the 1935 election on the basis of this emerging policy agenda, and gained nearly a hundred seats from the Tories.

This remarkable recovery was interrupted by the Second World War.  But Attlee was to build on the party’s policy agenda and its 1935 success, as he prepared the ground for the 1945 election with a programme that included the following statement:

“Blame for unemployment lies much more with finance than with industry. Mass unemployment is never the fault of the workers; often it is not the fault of the employers. All widespread trade depressions in modern times have financial causes; successive inflation and deflation, obstinate adherence to the gold standard, reckless speculation, and overinvestment in particular industries. …” (NEC, 1944)

The economic and social achievements of the first majority Labour government in history were truly stunning, a fact still recognised today, even while the real nature of the 1945 Labour government’s programme and its political back-story is forgotten.  Attlee’s government paved the way to a period widely understood by the economics profession as “the golden age” in economics – for at least a quarter of a century after the war.

Jim Callaghan’s speech to the 1976 Labour conference in which he effectively ended Labour’s commitment to full employment (I was there and heard it all) marked the beginning of the end of the “golden age”.  With the election of Margaret Thatcher as Prime Minister, Clement Attlee’s programme was decisively abandoned and a new form of globalization fully embraced. Michael Foot became leader immediately afterwards, as the party unsurprisingly foundered at the start of this new, very different and very harsh epoch.

Labour’s leadership election takes place at a time when the forward march of globalisation has stalled, following a painful, volatile and divisive period.  The economic flaws as revealed by the 2007-9 crisis are no less severe today than they were in 1929-33, even if the strongest countries have so far protected themselves from a crisis of comparable scale. The reaction of established authority, as represented by the City of London, the media and almost the entire political class has been to make the same demands of “austerity” and “living within our means” as were made in 1931. This is achieved today as it was done then: by transferring the burden of losses away from the architects of the crisis and on to the victims – those dependent on the state for employment and welfare.

Just as in 1931, the Labour Party is again in disarray in the wake of the second great crisis of financial globalization. While the post-1970s expansion of globalisation was imposed in the first instance by financial interests and their backers on the political right, Labour’s political leaders – and in particular its “modernisers” – became enthusiastic cheerleaders for the liberalised financial arrangements that underpin globalisation.  Furthermore some on the right of the Labour Party are beneficiaries of globalisation, and therefore not subject to the pain felt by millions of young unemployed and their families, by the low-paid and those in insecure jobs; the sick and the vulnerable. They should however, not underestimate the severity and duration of this crisis; they may not be protected indefinitely. Present events in financial markets should serve as a reminder that this crisis is not over.

To conclude: it is wrong to argue whether any one candidate in today’s leadership election resembles the Michael Foot of the 1980s. Instead the debate should be whether any of the candidates have the wit or guts or intellectual and political acuity of the leaders (including Clement Attlee) that rebuilt the party after the debacle of 1931.

Above all, in choosing its new leader, Labour should learn the very important lessons of its own, and very relevant history: the period in the 1930s when Labour politicians challenged the architects of financial globalisation with an alternative policy agenda. An agenda which was wildly popular with the British people, and led to Labour’s resounding success as a government between 1945 and 1951 – and to 25 years of the golden age of economics.

We need a Reformation in Economics – The salutary story of Semmelweiss

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First posted on Think Left as ‘Like heterodox economists, Semmelweis was ignored…’ 29th April 2013

 

In 1844, Ignaz Philipp Semmelweis graduated as a doctor, and was appointed assistant at the obstetric clinic in Vienna.  At the time, the great scourge of new mothers was ‘childbed’ or puerperal fever.  It was thought that the deaths were unpreventable… the result variously of overcrowding, poor ventilation, the onset of lactation or a dreaded ‘miasma’.

However, Semmelweis oversaw two maternity wards and couldn’t help but notice that the puerperal death rate was two or three times in one, to what it was in the other. In fact, the pregnant women were only too aware because they would go to all sorts of lengths, pleading to be booked in on the lower mortality ward.

The two divisions were apparently identical except that the first, with the higher mortality, was used for teaching student doctors, whilst the second was staffed with just midwives.  Semmelweis noted that the student doctors were coming to the maternity ward directly from the dissecting room, having just completed autopsies on women who had died from puerperal fever…. he suspected that somehow (at that time no-one knew about bacteria or viruses) that the students might be carrying the infection to healthy mothers on the ward.

As an experiment, he ordered the staff to wash their hands in chlorinated lime water before each examination, and within the week, the mortality rate dropped from 18% to 1%.  Furthermore, no women died on his wards between March and August 1848.

So with such an immediate, dramatic drop in the death rate, why was there no corresponding immediate and widespread acceptance of the practice of hand-washing?

Why did the editor of the Wiener Medizinische Wochenschrift write that it was time to stop the nonsense about the chlorine hand wash?  Why did pregnant women have to wait over 25y for the importance of hygiene to be accepted; with Joseph Lister being credited as ‘the father of modern antisepsis’ instead of Semmelweis?

The reasons are still relevant not only in medicine but also in politics and economics …

Despite various publications of results where hand-washing reduced mortality to below 1%, Semmelweis’s observations conflicted with the established scientific and medical opinions of the time and his ideas were rejected by the medical community… Semmelweis’s practice earned widespread acceptance only years after his death, when Louis Pasteur confirmed the germ theory and Joseph Lister, acting on the French microbiologist‘s research, practiced and operated, using hygienic methods, with great success.

http://en.wikipedia.org/wiki/Semmelweiss

In other words, Semmelweis’s findings required a ‘paradigm shift’ but the old-guard ‘power elite’ were ‘invested’ in maintaining the status quo in spite of all the statistical evidence of the efficacy of hand-washing.  The weight of authority stood against Semmelweis’s prophylactic practice.

Exactly the same is true of the ‘austerity’ which is being inflicted on the UK and across the Eurozone. The tenets of neo-classical economics are daily shown to be completely wrong, contradictory and ill-conceived.  Furthermore, the policies (just like puerperal fever) are inflicting enormous damage on the most vulnerable in our populations.  Nevertheless, our politicians and our media go on spouting the same mythologies and neglecting to see the obvious.

… the Tory/LD coalition government is borrowing £245bn more than expected in 2010 and the economy has grown by just 1.1 per cent, 4.9 per cent less than expected …

Sticking with TINA (monetarism) is clearly a madness akin to the rejecting of hand-washing on the labour wards of the 1850s.

There is an alternative!

However, just as the medical professors had not wanted to relinquish their status or their paradigm of miasmas, the 0.1% have too much to gain from pursuing the current paradigm.  In this, they have been ably aided and abetted by the embedded assumptions of the so-called ‘free press’ and MSM which are owned and dominated by the ‘oligarchs’.

Mainstream economist Paul Krugman writes in the NY times:

… the average American is somewhat worried about budget deficits, which is no surprise given the constant barrage of deficit scare stories in the news media, but the wealthy, by a large majority, regard deficits as the most important problem we face. And how should the budget deficit be brought down? The wealthy favor cutting federal spending on health care and Social Security — that is, “entitlements” — while the public at large actually wants to see spending on those programs rise.

You get the idea: The austerity agenda looks a lot like a simple expression of upper-class preferences, wrapped in a facade of academic rigor. What the top 1 percent wants becomes what economic science says we must do.

 

 The ‘Deficit’ is the new ‘miasma’ analogous to the flawed theories of puerperal fever causation.

But the deficit is just a reflection of the state of the economy.  In a sovereign country like the UK with its own currency, it is not a cause of anything.  If there is no problem of excess demand, there is no ‘deficit problem’ regardless of the magnitudes, short term or long term The methodology of its calculation is wide open to dispute and in any event, one agent’s deficit is another’s surplus.   As Professor Bill Mitchell writes

Structural deficits – the great con job!

 

Similarly, with the so-called ‘debt’ problem …

but my intention is not to discuss economics but to show that disastrously ‘wrong thinking’ and manipulation can persist to our detriment and against all the evidence for extended periods of time… particularly when there is wealth and power to be gained.

As Paul Krugman concludes:

.. the years since we turned to austerity have been dismal for workers but not at all bad for the wealthy, who have benefited from surging profits and stock prices even as long-term unemployment festers. The 1 percent may not actually want a weak economy, but they’re doing well enough to indulge their prejudices.

And this makes one wonder how much difference the intellectual collapse of the austerian position will actually make. To the extent that we have policy of the 1 percent, by the 1 percent, for the 1 percent, won’t we just see new justifications for the same old policies?

Payam Sharifi quotes Mark Thoma, an economist who runs a popular economics blog :

“too many minds in the profession cannot be changed even when the empirical evidence is relatively clear…the politicization of the profession…plays a large role”.  Could it be that this reflects a crisis in economics, which is a crisis in its method of analysis and even the subject matter itself? 

That seems like good thinking .. there needs to be an Economic Reformation:

Economics in crisis – it needs a ‘Reformation’

 

As Antonio Gramsci wrote from his Italian prison cell, sometime in the 1930s:

‘The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.

I think it is more than time for our politicians to ‘wash their hands’ of the ‘miasma of deficit reduction’ and act as ‘midwife’ for an economics which serves the 99.9% and the natural world.

For more information about heterodox economists and MMT (Modern monetary theory – macroeconomic reality):

Bill Mitchell – billy blog

New Economic Perspectives

Steve Keen’s Debtwatch 

and many other sites

Related posts:

Cameron and Osborne dwell on Bullshit Mountain, UK

Telegraph tosh on economics

Neoliberal TINA economics is flat earth thinking 

Workers Rights Attacked. “Unity is our Watchword!” : Jeremy Corbyn

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Protecting the Workers

Trade Unions. They are part of the Labour movement, and we have so much to thank them for. They gave us the weekend, the eight-hour day, and the paid holiday. Now they need our help. Yet again, a Tory Government with an overall majority is trying to crush the unions. They want to be able to use people, as a cheap resource to deliver their wealth. They have no concern for safety, health, dignity or human rights.

Think Left’s article ( 114 year workers’ rights scrapped by coalition government) reveals how long-standing workers’ rights are being eroded by the Coalition government. With legal aid cut, high unemployment and rising costs of living, everyone can see people struggling. How many are aware of how poor workers’ rights and protection in the UK really are?

protection for permanant workers

It is no doubt politics which preys on disaster politics and fear. Fear and lies. The graph shows that protection of permanent working staff in the UK is appalling. The effect of Thatcher’s attack on trade the unions leading to decreased union membership can be seen in perspective. The power of money over the individual struggling alone is immense. One can see how struggling to feed one’s family puts worker against worker, and provides an opportunity for right-wing parties such as UKIP to move in on the scene.

The erroneous lines, “we’re all in it together”, and Cameron’s patronising Keep Calm Dear , while criticised and ridiculed are tolerated by those who believe austerity is necessary, and in  the myth of the need to cut structural deficit though several economists argue otherwise.

Unemployment

Recent figures show unemployment is on the rise again. Not only is this costly, it is a waste of human resources, has  an impact on mental health, and divides working people.

Recently, immigration has become an issue, because families are living in poverty, and are unable to get work.  Meanwhile, there are cuts to the social security protection because of government austerity measures which gives people no hope.  A divided working class is a malleable one. The Tories know that. Tony Benn knew. He said, “People who are poor, demoralised and frightened are easy to control.”  This whips up division and hatred like in the thirties. As Jeremy Corbyn said, “They are trying to reconfigure our society in the image of the 30s. I’m not sure if it’s the 1930s or the 1830s but certainly some kind of 30s.” And we know what that led to.

“The psychology of competition and love of Peace are uneasy bedfellows” Aneurin Bevan

Michael Meacher comments on the recent statistics

“UK unemployment, which is still as high as 1,850,000, is now starting to rise again.   Combined with the jobs standstill, the lack of momentum in pay makes this the most worrying set of labour market figures for a long time.   What is equally disturbing is that almost all the increase in employment since the 2008-9 crash has been accounted for by workers from the EU.   Employment among EU citizens born outside the UK has now risen above 2 million for the first time.   The latest figures point to falling demand for jobs, fewer hours being worked, and little or no evidence of a rise in pay.”

“In that first quarter employment among UK nationals fell by 146,000 while over the same period employment among workers from overseas rose by 91,000.   It also emerged that since 1997 the proportion of employment accounted for by non-UK nationals increased from 3.7% to 10.3%.” Michael Meacher MP

The government has just launched its latest salvo attacking our rights at work.

NUAW strikeThe government’s plans to cut rights for working people, are described in detail, in this document for the TUC (pdf link Trade Union Bill – TUC briefing )

The government expects the Second Reading on the Bill will take place in the House-of-Commons either in September of October 2015.

The main themes are listed here

  1. The proposals will lead to a serious imbalance of power within the  workplace, undermining effective negotiation between employers and unions.
  2. The Conservative proposals will undermine constructive employment relations, extending disputes and making it more difficult to achieve amicable settlements.
  3. The government is not interested in encouraging workplace democracy. Instead , they want to prevent midwives, fire-fighters, teachers and cleaners working within the Underground from protesting against cuts in jobs, pay and conditions.
  4. The right to strike and to protest are  fundamental rights which should be protected in a free and democratic society. The government proposals will impose greater restrictions on trade unions than any other voluntary secret membership organisations.
  5. The Conservatives claim to be the party of working people. However their proposals will remove  employees’ ability to achieve better working conditions and living standards.
  6. Employees will be able to bring in agency workers with a view to breaking strikes, regardless of the consequences for health and safety.
  7. Trade union protests and pickets will be subject to levels of public and police scrutiny and controls that go far beyond what is fair and acceptable in a modern democracy. These changes will also be a waste of police time.

These must be opposed, by protest groups, by trade unions, and also by the Labour Party. Jeremy Corbyn will stand alongside workers and supports Trade Unions. Unity is our watchword, within the Labour Party, and within the Movement. We need a strong opposition in parliament. It is not acceptable that MPs representing the heart of the Labour Movement are not wholly behind the defence of these fundamental rights. Following this leadership campaign, it is imperative that the Labour Party and the whole Labour movement are united in opposition. We need to be ready to oppose, because you can be absolutely certain that the Tories will be and they do not need any further advantage than they already have. Unity is our watchword. There are more of us, but we will only be heard by a cohesive opposition led by a strong leader, such as Jeremy Corbyn.

The government is trying to make it even harder for unions to collect fees from its members by banning public authorities from deducting fees-direct payslips. It’s designed to cut off yet more money from trade unions and hobble their ability to defend ordinary workers from bully boy employers.

It’s vitally important to show we will defend our trade unions from these government attacks. They’ve given us everything from the weekend to paid maternity leave. If they are hobbled by ideologically driven laws then bad employers across the country will be able to chip away at our hard-won rights.

“Sum of Us Campaign” is already nearly 80,000 people strong. Their campaign contact is listed below.

Our trade unions are worth defending. They protect ordinary workers — care workers, teachers, nurses, shop workers, cleaners — from poor conditions, low pay and unfair dismissal. But now they need our help. Share information, protest, and ensure that this time the government are countered by a strong, united opposition.

More information:

Telegraph Tosh on Economics

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Steven Hail’s point by point response to the Daily Telegraph Article by Jeremy Warner  which suggested the Jeremy Corbyn’s economic plans will turn us into Zimbabwe.