The case for a new kind of quantitative easing

Policy-makers are clinging to a rigid determination to do everything at arms-length. Even when it do

Vince Cable famously described his critics as the "ideological descendents of the people who sent children up chimneys". But the real problem is not the influence of those who voted against the Ten Hours Bill. It is that economic policy remains in the hands of those with a snobbish horror of trade.

Perhaps it is a horror of government intervention. Perhaps it is a horror of broken finger nails. But, whatever it is, policy-makers cling to a rigid determination to do everything at arms-length. Even when it doesn't work.

Instead of effective local economic regeneration, based on using local money flows more efficiently, we have plans to raise the motorway speed limit to 80 mph. Instead of reforming local government systems to bring to bear people's face-to-face skills and pride in the job, we get shared back office services and call centres.

But worst of all, instead of ambitious projects to direct new money where it is needed, we have quantitative easing -- a hands-off, labyrinthine scheme for buying government bonds from banks, which they then use for bonuses. All the evidence from Japan over the past generation is that this form of quantitative easing doesn't work. It seems unable to kickstart the zombie banks into life.

But perhaps that is hardly surprising, because it is so indirect. Why have we lost our faith in our own ability to roll up our sleeves and make things happen?

The news that the government will launch "credit easing", a project to invest government money in small business bonds to help them expand, is a sign that the coalition has begun to feel the same way. It is a sign that ministers realise not just that Project Merlin has failed, but that if you want something done, you will be as old as Methuselah (as Ebenezer Howard used to say) if you expect the money to trickle down magically into the right sectors.

You have to use money more precisely, not just from the centre but locally too. We have to find the enterprising people and the green business projects, help them with their plans, find them the start-up finance, provide them with mentors. There is no point waiting politely for the trickle down that never trickles.

So here is the real test. When we get a new round of quantitative easing, as we almost certainly will, can we persuade the Bank of England to abandon the gentlemanly -- and, let's face it, downright wasteful -- hands-off method?

If they are going to create the money we need, interest-free, then for goodness sake, they must direct it to where it matters. We don't have the time for trickling. They must:

  • Put it directly into the new institution, buying small business bonds.
  • Buy bonds in the new Green Investment Bank, so that the money goes directly into loans that build the green economy (green quantitative easing).
  • If necessary, create the money to pay off the euro debt that threatens the world.

No more polite distaste for the mucky business of making things happen. It is time to act and to innovate. Because, at the end of the day, economics was made to serve humanity, not humanity to serve economics.

David Boyle is a fellow of the New Economics Foundation and the author of The Human Element (Earthscan).

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The Fire Brigades Union reaffiliates to Labour - what does it mean?

Any union rejoining Labour will be welcomed by most in the party - but the impact on the party's internal politics will be smaller than you think.

The Fire Brigades Union (FBU) has voted to reaffiliate to the Labour party, in what is seen as a boost to Jeremy Corbyn. What does it mean for Labour’s internal politics?

Firstly, technically, the FBU has never affliated before as they are notionally part of the civil service - however, following the firefighters' strike in 2004, they decisively broke with Labour.

The main impact will be felt on the floor of Labour party conference. Although the FBU’s membership – at around 38,000 – is too small to have a material effect on the outcome of votes themselves, it will change the tenor of the motions put before party conference.

The FBU’s leadership is not only to the left of most unions in the Trades Union Congress (TUC), it is more inclined to bring motions relating to foreign affairs than other unions with similar politics (it is more internationalist in focus than, say, the PCS, another union that may affiliate due to Corbyn’s leadership). Motions on Israel/Palestine, the nuclear deterrent, and other issues, will find more support from FBU delegates than it has from other affiliated trade unions.

In terms of the balance of power between the affiliated unions themselves, the FBU’s re-entry into Labour politics is unlikely to be much of a gamechanger. Trade union positions, elected by trade union delegates at conference, are unlikely to be moved leftwards by the reaffiliation of the FBU. Unite, the GMB, Unison and Usdaw are all large enough to all-but-guarantee themselves a seat around the NEC. Community, a small centrist union, has already lost its place on the NEC in favour of the bakers’ union, which is more aligned to Tom Watson than Jeremy Corbyn.

Matt Wrack, the FBU’s General Secretary, will be a genuine ally to Corbyn and John McDonnell. Len McCluskey and Dave Prentis were both bounced into endorsing Corbyn by their executives and did so less than wholeheartedly. Tim Roache, the newly-elected General Secretary of the GMB, has publicly supported Corbyn but is seen as a more moderate voice at the TUC. Only Dave Ward of the Communication Workers’ Union, who lent staff and resources to both Corbyn’s campaign team and to the parliamentary staff of Corbyn and McDonnell, is truly on side.

The impact of reaffiliation may be felt more keenly in local parties. The FBU’s membership looks small in real terms compared Unite and Unison have memberships of over a million, while the GMB and Usdaw are around the half-a-million mark, but is much more impressive when you consider that there are just 48,000 firefighters in Britain. This may make them more likely to participate in internal elections than other affiliated trade unionists, just 60,000 of whom voted in the Labour leadership election in 2015. However, it is worth noting that it is statistically unlikely most firefighters are Corbynites - those that are will mostly have already joined themselves. The affiliation, while a morale boost for many in the Labour party, is unlikely to prove as significant to the direction of the party as the outcome of Unison’s general secretary election or the struggle for power at the top of Unite in 2018. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.