Whisper it, but Osborne has embraced Keynesianism

The Chancellor has accepted the need for the state to underwrite investment.

The announcement by George Osborne that the government will underwrite £50bn of infrastructure investment is a belated admission that, in times of recession, the state must intervene to stimulate growth. The delusion that the coalition's spending cuts would increase consumer confidence and produce a self-sustaining private-sector-led recovery has been abandoned after Osborne's "expansionary fiscal contraction" turned out to be, well, contractionary. Whisper it, but Keynesianism is back. 

Since the decision to guarantee loans will not, in theory at least, require the government to spend a penny more, Osborne will insist that this is not "plan B" or anything like it. As his sidekick, Danny Alexander, puts it, "This is not a direct call on the taxpayer. That would only happen if something went wrong with a project." And after the private sector's sterling performance over the last month, why should we doubt him?

But even if we assume that the taxpayer won't be forced to pick up the tab for any of the projects (the FT cites "the Thames tunnel, the Mersey Gateway toll bridge and the A14 road widening in Cambridge" as examples of those that might benefit), this remains a significant U-turn by Osborne. As the excellent Jonathan Portes points out on his blog, from an economic perspective, the difference between the government "borrowing from the private sector to finance investment spending, and the government guaranteeing the borrrowing of another entity" is is largely irrelevant. The Chancellor has accepted the need for counter-cyclical spending to boost aggregate demand - the essence of Keynesianism.

Now Osborne has performed a small U-turn he will find it harder to avoid a bigger one. The belief that, in times of recession, the state can and should stimulate growth through temporary tax cuts and infrastructure spending is based on decades of economic research. Once you accept this, it is hard to be a little heretical.

Since Osborne is so fond of boasting of the UK's "safe haven" status, the least he could do is take advantage of it. He should use the country's historically low bond yields to borrow to stimulate growth through higher infrastructure spending (the most effective stimulus, according to the Office for Budget Responsibility) and tax cuts.  As the Nobel Prize-winning economist Christopher Pissarides argued in our "Plan B" special issue last October, "a small rise in gilt interest rates is a small price to pay for more jobs".

The Chancellor has finally accepted that there is an alternative to permanent stagnation (or worse). Now he needs the policies to match.

Chancellor George Osborne plans to guarantee up to £40bn of "nearly ready" infrastructure projects. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Why isn't Labour putting forward Corbynite candidates?

Despite his successes as a candidate, the organisational victories have gone the way of Corbyn's opponents. 

The contest changes, but the result remains the same: Jeremy Corbyn’s preferred candidate defeated in a parliamentary selection. Afzhal Khan is Labour’s candidate in the Manchester Gorton by-election and the overwhelming favourite to be the seat’s next MP.

Although Khan, an MEP, was one of  the minority of Labour’s European MPs to dissent from a letter from the European parliamentary Labour party calling for Jeremy Corbyn to go in the summer of 2016, he backed Andy Burnham and Tom Watson in 2015, and it is widely believed, fairly or unfairly, that Khan had, as one local activist put it, “the brains to know which way the wind was blowing” rather than being a pukka Corbynite.

For the leader’s office, it was a double defeat;  their preferred candidate, Sam Wheeler, was kept off the longlist, when the party’s Corbynsceptics allied with the party’s BAME leadership to draw up an all ethnic minority shortlist, and Yasmine Dar, their back-up option, was narrowly defeated by Khan among members in Manchester Gorton.

But even when the leadership has got its preferred candidate to the contest, they have been defeated. That even happened in Copeland, where the shortlist was drawn up by Corbynites and designed to advantage Rachel Holliday, the leader’s office preferred candidate.

Why does the Labour left keep losing? Supporters combination of bad luck and bad decisions for the defeat.

In Oldham West, where Michael Meacher, a committed supporter of Jeremy Corbyn’s, was succeeded by Jim McMahon, who voted for Liz Kendall, McMahon was seen to be so far ahead that they had no credible chance of stopping him. Rosena Allin-Khan was a near-perfect candidate to hold the seat of Tooting: a doctor at the local hospital, the seat’s largest employer, with links to both the Polish and Pakistani communities that make up the seat’s biggest minority blocs.  Gillian Troughton, who won the Copeland selection, is a respected local councillor.

But the leadership has also made bad decisions, some claim.  The failure to get a candidate in Manchester Gorton was particularly egregious, as one trade unionist puts it: “We all knew that Gerald was not going to make it [until 2020], they had a local boy with good connections to the trade unions, that contest should have been theirs for the taking”. Instead, they lost control of the selection panel because Jeremy Corbyn missed an NEC meeting – the NEC is hung at present as the Corbynsceptics sacrificed their majority of one to retain the chair – and with it their best chance of taking the seat.

Others close to the leadership point out that for the first year of Corbyn’s leadership, the leader’s office was more preoccupied with the struggle for survival than it was with getting more of its people in. Decisions in by-elections were taken on the hop and often in a way that led to problems later down the line. It made sense to keep Mo Azam, from the party’s left, off the shortlist in Oldham West when Labour MPs were worried for their own seats and about the Ukip effect if Labour selected a minority candidate. But that enraged the party’s minority politicians and led directly to the all-ethnic-minority shortlist in Manchester Gorton.

They also point out that the party's councillor base, from where many candidates are drawn, is still largely Corbynsceptic, though they hope that this will change in the next round of local government selections. (Councillors must go through a reselection process at every election.)

But the biggest shift has very little to do with the Labour leadership. The big victories for the Labour left in internal battles under Ed Miliband were the result of Unite and the GMB working together. Now they are, for various reasons, at odds and the GMB has proven significantly better at working shortlists and campaigning for its members to become MPs.  That helps Corbynsceptics. “The reason why so many of the unions supported Jeremy the first time,” one senior Corbynite argues, “Is they wanted to move the Labour party a little bit to the left. They didn’t want a socialist transformation of the Labour party. And actually if you look at the people getting selected they are not Corbynites, but they are not Blairites either, and that’s what the unions wanted.”

Regardless of why, it means that, two years into Corbyn’s leadership, the Labour left finds itself smaller in parliament than it was at the beginning.  

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.