Calamity Brown

Martin Bright on the malaise at the heart of government - part of our unrivalled coverage in the

I remember the night the Northern Rock crisis broke very well, because it coincided with the New Statesman's late summer party at the Banqueting House: Thursday 13 September 2007. The event was a great success, with the Prime Minister and several cabinet colleagues making an appearance despite the extraordinary events of the evening.

This was at the height of Gordon Brown's honeymoon, a time when somehow the new PM seemed to turn every challenge to his advantage. His calm statesmanship after the failed terrorist attacks of June gave way to a solid, "can-do" approach to the floods of late July and the foot-and-mouth outbreak of August. With each month came a new crisis, but the Tories couldn't lay a finger on the government. Even a high street bank turning to the Treasury for help merely reinforced Brown's authority as a man you could trust.

But I will never forget how, as the party broke up on that September night, an old friend - a financial journalist who knows more about these things than most - took me aside and told me that this was not a night for Brownite celebration. Something fundamental had changed, he said. "From tonight, any idea that this government can rely on the stability of the economy to win them the next election is finished. This will return to haunt them."

I didn't really think about my friend's comments until I was sitting watching Prime Minister's Questions two months later. The Liberal Democrats' interim leader, Vincent Cable, asked if it was true that £24bn of public money had been used to bail out Northern Rock. He emphasised the size of the figure by saying that this was double the amount spent on primary schools each year and four times the UK's aid budget.

The scale of the crisis this government faces can be measured by the way the public perception of the Northern Rock crisis has shifted since the story first broke. Just as the market has lost faith in the bank's shares, so the stock of the government has plummeted. The rule is the same for all major public institutions: high street banks and governments alike are built on trust and confidence.

The depression on the Labour benches is profound. "The nail-biting is everywhere," says one former minister, referring to Brown's nervous habit. "It has become contagious." Where once backbenchers drew worried parallels with James Callaghan's ill-fated administration of the late 1970s, now some believe Brown is at risk of creating a political nightmare without precedent. Brown's monthly crises no longer provide an opportunity for him to wield authority. Instead, they provide evidence of an administration coming apart at the seams. Jacqui Smith, the Home Secretary, must be relieved that her refusal to come clean over her knowledge that illegal immigrants were working in the security industry has been overshadowed by events at HM Revenue and Customs.

The loss in the post of two disks containing the personal details of 25 million people is the largest-scale act of incompetence perpetrated under this government (possibly any government, as such an error would simply not have been conceivable before the computer age).

The Conservatives and the Liberal Democrats have already argued that it undermines the government's case for an ID database. It is difficult for it to claim that it can be trusted with our confidential information. This may yet be a blessing in disguise for the PM, who could drop the plans for identity cards before they become his poll tax.

The trouble for Brown is that when the poison starts to eat at the government's reputation it has a retrospective effect, seeping back to corrode even past triumphs. People are beginning to reassess the honeymoon period and wonder if it was quite so glorious after all. The Prime Minister rightly won praise for cancelling his summer holiday to deal with the foot-and-mouth crisis, but it was a government research laboratory that caused the scare in the first place. Brown may have dealt well with the floods, but cuts while he was at the Treasury have been blamed for a reduction in flood defences. (One can only speculate as to whether Tony Blair would have been lambasted had he made such a cursory initial helicopter trip to the affected areas.)

Brown's reputation as chancellor has also been buffeted by Northern Rock, and the crisis at HMRC may well have its origins in cuts imposed by Brown when he was at the Treasury. But people around Brown remain convinced that the broader economic record over the past decade, of sustained economic growth and tackling child poverty, will override the negatives in the public's mind. They insist that there was nothing they could have done about the benefits debacle and that David Cameron will reap only temporary capital from it. Their analysis shows an alarming complacency.

There is a more fundamental issue at stake here, however. It is an insult to Britain's "hard-working families", so beloved of new Labour, that the HMRC information was not treated with more respect. As internet security experts have already pointed out, if the information contained on the disks had been given the same "top-secret" classification as national security documents, it would not have been possible for a junior official to download the details to disk, let alone send them out by a commercial courier company.

This magazine is at present involved in a court case in which a Foreign Office official, Derek Pasquill, has been charged with leaking information concerning two of the most important issues of our age: rendition and the government's relations with radical Islamists. The alleged disclosures later contributed to changes in government policy, and yet Pasquill faces a possible prison sentence.

This is another example of abject Whitehall hypocrisy. State information is sacrosanct; individuals' information is up for grabs. Our personal data can simply be sent through the post without even the courtesy of encryption to protect it from prying eyes. In a further irony, any member of staff who wished to blow the whistle on the problems at HMRC would be prevented from doing so - their work is covered by the Official Secrets Act.

Jeremy Corbyn. Photo: Getty
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Lexit: the EU is a neoliberal project, so let's do something different when we leave it

Brexit affords the British left a historic opportunity for a decisive break with EU market liberalism.

The Brexit vote to leave the European Union has many parents, but "Lexit" – the argument for exiting the EU from the left – remains an orphan. A third of Labour voters backed Leave, but they did so without any significant leadership from the Labour Party. Left-of-centre votes proved decisive in determining the outcome of a referendum that was otherwise framed, shaped, and presented almost exclusively by the right. A proper left discussion of the issues has been, if not entirely absent, then decidedly marginal – part of a more general malaise when it comes to developing left alternatives that has begun to be corrected only recently, under Jeremy Corbyn and John McDonnell.

Ceding Brexit to the right was very nearly the most serious strategic mistake by the British left since the ‘70s. Under successive leaders Labour became so incorporated into the ideology of Europeanism as to preclude any clear-eyed critical analysis of the actually existing EU as a regulatory and trade regime pursuing deep economic integration. The same political journey that carried Labour into its technocratic embrace of the EU also resulted in the abandonment of any form of distinctive economics separate from the orthodoxies of market liberalism.

It’s been astounding to witness so many left-wingers, in meltdown over Brexit, resort to parroting liberal economics. Thus we hear that factor mobility isn’t about labour arbitrage, that public services aren’t under pressure, that we must prioritise foreign direct investment and trade. It’s little wonder Labour became so detached from its base. Such claims do not match the lived experience of ordinary people in regions of the country devastated by deindustrialisation and disinvestment.

Nor should concerns about wage stagnation and bargaining power be met with finger-wagging accusations of racism, as if the manner in which capitalism pits workers against each other hasn’t long been understood. Instead, we should be offering real solutions – including a willingness to rethink capital mobility and trade. This places us in direct conflict with the constitutionalised neoliberalism of the EU.

Only the political savvy of the leadership has enabled Labour to recover from its disastrous positioning post-referendum. Incredibly, what seemed an unbeatable electoral bloc around Theresa May has been deftly prized apart in the course of an extraordinary General Election campaign. To consolidate the political project they have initiated, Corbyn and McDonnell must now follow through with a truly radical economic programme. The place to look for inspiration is precisely the range of instruments and policy options discouraged or outright forbidden by the EU.

A neoliberal project

The fact that right-wing arguments for Leave predominated during the referendum says far more about today’s left than it does about the European Union. There has been a great deal of myth-making concerning the latter –much of it funded, directly or indirectly, by the EU itself.

From its inception, the EU has been a top-down project driven by political and administrative elites, "a protected sphere", in the judgment of the late Peter Mair, "in which policy-making can evade the constraints imposed by representative democracy". To complain about the EU’s "democratic deficit" is to have misunderstood its purpose. The main thrust of European economic policy has been to extend and deepen the market through liberalisation, privatisation, and flexiblisation, subordinating employment and social protection to goals of low inflation, debt reduction, and increased competitiveness.

Prospects for Keynesian reflationary policies, or even for pan-European economic planning – never great – soon gave way to more Hayekian conceptions. Hayek’s original insight, in The Economic Conditions of Interstate Federalism, was that free movement of capital, goods, and labour – a "single market" – among a federation of nations would severely and necessarily restrict the economic policy space available to individual members. Pro-European socialists, whose aim had been to acquire new supranational options for the regulation of capital, found themselves surrendering the tools they already possessed at home. The national road to socialism, or even to social democracy, was closed.

The direction of travel has been singular and unrelenting. To take one example, workers’ rights – a supposed EU strength – are steadily being eroded, as can be seen in landmark judgments by the European Court of Justice (ECJ) in the Viking and Laval cases, among others. In both instances, workers attempting to strike in protest at plans to replace workers from one EU country with lower-wage workers from another, were told their right to strike could not infringe upon the "four freedoms" – free movement of capital, labour, goods, and services – established by the treaties.

More broadly, on trade, financial regulation, state aid, government purchasing, public service delivery, and more, any attempt to create a different kind of economy from inside the EU has largely been forestalled by competition policy or single market regulation.

A new political economy

Given that the UK will soon be escaping the EU, what opportunities might this afford? Three policy directions immediately stand out: public ownership, industrial strategy, and procurement. In each case, EU regulation previously stood in the way of promising left strategies. In each case, the political and economic returns from bold departures from neoliberal orthodoxy after Brexit could be substantial.

While not banned outright by EU law, public ownership is severely discouraged and disadvantaged by it. ECJ interpretation of Article 106 of the Treaty on the Functioning of the European Union (TFEU) has steadily eroded public ownership options. "The ECJ", argues law professor Danny Nicol, "appears to have constructed a one-way street in favour of private-sector provision: nationalised services are prima facie suspect and must be analysed for their necessity". Sure enough, the EU has been a significant driver of privatisation, functioning like a ratchet. It’s much easier for a member state to pursue the liberalisation of sectors than to secure their (re)nationalisation. Article 59 (TFEU) specifically allows the European Council and Parliament to liberalise services. Since the ‘80s, there have been single market programmes in energy, transport, postal services, telecommunications, education, and health.

Britain has long been an extreme outlier on privatisation, responsible for 40 per cent of the total assets privatised across the OECD between 1980 and 1996. Today, however, increasing inequality, poverty, environmental degradation and the general sense of an impoverished public sphere are leading to growing calls for renewed public ownership (albeit in new, more democratic forms). Soon to be free of EU constraints, it’s time to explore an expanded and fundamentally reimagined UK public sector.

Next, Britain’s industrial production has been virtually flat since the late 1990s, with a yawning trade deficit in industrial goods. Any serious industrial strategy to address the structural weaknesses of UK manufacturing will rely on "state aid" – the nurturing of a next generation of companies through grants, interest and tax relief, guarantees, government holdings, and the provision of goods and services on a preferential basis.

Article 107 TFEU allows for state aid only if it is compatible with the internal market and does not distort competition, laying out the specific circumstances in which it could be lawful. Whether or not state aid meets these criteria is at the sole discretion of the Commission – and courts in member states are obligated to enforce the commission’s decisions. The Commission has adopted an approach that considers, among other things, the existence of market failure, the effectiveness of other options, and the impact on the market and competition, thereby allowing state aid only in exceptional circumstances.

For many parts of the UK, the challenges of industrial decline remain starkly present – entire communities are thrown on the scrap heap, with all the associated capital and carbon costs and wasted lives. It’s high time the left returned to the possibilities inherent in a proactive industrial strategy. A true community-sustaining industrial strategy would consist of the deliberate direction of capital to sectors, localities, and regions, so as to balance out market trends and prevent communities from falling into decay, while also ensuring the investment in research and development necessary to maintain a highly productive economy. Policy, in this vision, would function to re-deploy infrastructure, production facilities, and workers left unemployed because of a shutdown or increased automation.

In some cases, this might mean assistance to workers or localities to buy up facilities and keep them running under worker or community ownership. In other cases it might involve re-training workers for new skills and re-fitting facilities. A regional approach might help launch new enterprises that would eventually be spun off as worker or local community-owned firms, supporting the development of strong and vibrant network economies, perhaps on the basis of a Green New Deal. All of this will be possible post-Brexit, under a Corbyn government.

Lastly, there is procurement. Under EU law, explicitly linking public procurement to local entities or social needs is difficult. The ECJ has ruled that, even if there is no specific legislation, procurement activity must "comply with the fundamental rules of the Treaty, in particular the principle of non-discrimination on grounds of nationality". This means that all procurement contracts must be open to all bidders across the EU, and public authorities must advertise contracts widely in other EU countries. In 2004, the European Parliament and Council issued two directives establishing the criteria governing such contracts: "lowest price only" and "most economically advantageous tender".

Unleashed from EU constraints, there are major opportunities for targeting large-scale public procurement to rebuild and transform communities, cities, and regions. The vision behind the celebrated Preston Model of community wealth building – inspired by the work of our own organisation, The Democracy Collaborative, in Cleveland, Ohio – leverages public procurement and the stabilising power of place-based anchor institutions (governments, hospitals, universities) to support rooted, participatory, democratic local economies built around multipliers. In this way, public funds can be made to do "double duty"; anchoring jobs and building community wealth, reversing long-term economic decline. This suggests the viability of a very different economic approach and potential for a winning political coalition, building support for a new socialist economics from the ground up.

With the prospect of a Corbyn government now tantalisingly close, it’s imperative that Labour reconciles its policy objectives in the Brexit negotiations with its plans for a radical economic transformation and redistribution of power and wealth. Only by pursuing strategies capable of re-establishing broad control over the national economy can Labour hope to manage the coming period of pain and dislocation following Brexit. Based on new institutions and approaches and the centrality of ownership and control, democracy, and participation, we should be busy assembling the tools and strategies that will allow departure from the EU to open up new political-economic horizons in Britain and bring about the profound transformation the country so desperately wants and needs.

Joe Guinan is executive director of the Next System Project at The Democracy Collaborative. Thomas M. Hanna is research director at The Democracy Collaborative.

This is an extract from a longer essay which appears in the inaugural edition of the IPPR Progressive Review.