Blue Labour is over but the debate has just begun

To give voice to the mood of the country, Labour must be both conservative and radical.

On Tuesday Peter Mandelson and Socialist Worker both attacked Blue Labour. Both used name calling to score political points. Both missed the most obvious point. Blue Labour no longer exists. Call it a movement, call it a project, call it what you like, last week the small group of people associated with the Blue Labour idea disbanded itself. The article by Maurice in this week's New Statesman does not alter this fact.

The brand was destroying the politics. Where there should have been dialogue there was growing polarisation. Instead of care around sensitive issues there has been the political equivalent of ram-raiding. The idea that debate involves 'throwing grenades' wins some headlines but only encourages a counter reaction; back came the grenades. Stoking controversy is good for the media but after a time it becomes lousy for the politics.

The debate which started only last year in May 2010 now needs to broaden itself out and involve more people. The e-book The Labour Tradition and the Politics of Paradox was never the 'Blue Labour bible'. It was about beginning a vigorous and open debate about Labour's future. We need to develop it both across the Labour Party and outside it.

Labour's future does not lie with Blue Labour, nor does it lie with New Labour, but with a synthesis of ideas and politics. It means understanding the conjuncture we are in in order to create a winning electoral politics that will transform the country for the better.

I would argue that this conjuncture requires Labour's politics in England to be both conservative and radical. If Labour can inhabit this paradox and capture its insights it will give voice to the mood of the country. The future is conservative. I do not mean it will be Conservative with a political upper case 'C' - the right has no understanding of this moment. Nor do I mean it will be conservative with a lower case social 'c'. Rather it will be characterised by a social and cultural mood that Raymond Williams calls a 'structure of feeling'. This mood exists on the edge of our collective vocabulary and it has yet to find articulation in politics. If Labour can give it a voice, it has the opportunity to construct a new hegemony.

This mood is about a desire to conserve, protect and improve the fundamental elements of social life which are people's relationships and family, their sense of belonging and identity, the continuity of home and place, and the human need for social security. When individuals have these goods they can aspire and strive for something more in their lives. When too many people lack these goods, society is divided, anxious, insecure, and distrustful. This is currently the condition of England following three decades of deindustrialisation, globalisation and market-driven reforms.

The morbid symptoms of this condition erupt into the body politic in rage against immigration and, amongst a disturbing number, a suspicion and hatred of Islam. There is a deeply felt grievance at the unfairness of a system which does not seem to care about the hard working who live by the rules. It's a belief that those who need help don't get it, while those who don't deserve it get all they want. The upshot is that people with long term illnesses and disabilities are scape-goated and accused of being benefit cheats. Ask people about England and many answer that the English look like a beaten people living in a country without a future for its children. There is a loss of hope and its absence creates a corrosive cynicism: politicians line their pockets, the banks steal, and the media lie and cheat. A feral elite is a law unto itself as it steals from the common wealth and pursues its own selfish interests. Here we are, living in a disorientated culture unable to answer the question it keeps throwing up at us - who are we?

Yes, its a crude and simplistic description. It doesn't take account of the good things that we have, but I'd argue that this is the mood that will shape our politics over the next few years.

The economic historian Carlota Perez has made a strong case for why such times as our own can give rise to collective desires for reform and reparation. She argues that successive technological revolutions over the last two centuries have created distinct surges of economic development that progressively extend capitalism into people's lives and facilitate its expansion across the planet. In these surges, the productive structure and the institutions of governance and society are transformed by the driving force of finance led capital accumulation. The revolutionising of the instruments and forces of production extends commodification and market relations into society. Old ways of life disappear, or they lose their former preeminence and coexist with the new.

In the last three decades Britain has been experiencing this kind of finance-driven capital accumulation that has powered the transition from the Fordist era of mass production to the age of new information and communication technologies. Perez argues that these kinds of transformation always end in an economic crisis, followed by a period in which there exists political opportunities to rebuild productive capital and create institutions for a more equitable society.

Marx would disagree with this evolutionary economics and the primacy it gives to technology as an determining force, but it nevertheless echoes his description of capitalist modernity as a world in which, 'all that is solid melts into air'. Socialism has been about conserving human values and society against this destructiveness. Today as the neo-liberal hegemony begins to fragment there exists an opportunity in the decade ahead to rebuild the counter-movement and construct a new left of centre hegemony. The future is conservative, and it will be radical. Blue Labour might be over but the political debate has only just begun.

Jonathan Rutherford is editor of Soundings journal and professor of cultural studies at Middlesex University

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?