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Catastrophe averted?

The leaders of the rich countries went to Washington to save the world from sliding into deep recess

Vincent Cable

Shadow chancellor, Liberal Democrats

By the low standards of economic summitry, the G20 meeting rated quite high. There was a predictable, no doubt pre-written, communiqué, full of the usual banalities. And the meeting suffered from the absence of the world's most important politician, who hasn't yet taken up office. But, these necessary caveats aside, there were important achievements.

The first is that the meeting took place at all. The ludicrous pretence of the G8 (or G7) that the old western powers should set the global economic agenda has been punctured for good. On a purchasing power parity basis, China has the second-biggest economy in the world and India the fourth. It has been clear for some time that China is lender of last resort to the global system (by, in effect, underwriting US government paper) and the main source of global incremental demand (and commodity price inflation). The Chinese self-parody as the pupil sitting meekly at the feet of a dominant, but erring, master defies belief. It is obviously right that China, India and the other main non-G7 countries should be at the top table.

The second achievement was the clear realisation that unless governments hang together they will hang separately. Enough has been learned from interwar history for us to understand the follies of beggar-my-neighbour economics. Perhaps a warning shock was being sent across the bows of the incoming Obama administration not to reinvent the protectionist tariffs of the 1930s in a new guise, directed at China or Mexico in particular, or aiming to salvage the US auto industry through public subsidy. But this new-found concern for open markets has not yet communicated itself to EU or Indian or Chinese trade negotiators, who show no enthusiasm for lifting the block on trade liberalisation under the Doha round.

While trade policy is on the back burner, macroeconomic policy co-ordination is not. With a few exceptions - Germany notably - there is recognition of the need for aggressive monetary and fiscal policy and for large-scale intervention to recapitalise banks. These interventions can be and are being undertaken nationally. But governments acting in isolation attract critical attention from capital markets and currency speculators, as Gordon Brown is discovering. Structures like the G20 are the best safeguard against chaotic, unilateral action.

Will Hutton

Economic commentator

It was remarkable to gather so much economic and political power in one room to address a common agenda. That was the good news - along with commitments to co-ordinate fiscal expansion, to expand the lending power of the IMF and World Bank (Japan's $100bn loan to the IMF will increase the Fund's lending capacity by 40 per cent), to boost cross-border supervision, to tackle credit rating agencies, to reassess mad accounting rules and require member countries to attack the bonus culture in the financial services industry. A year ago such an agreement would have been inconceivable.

The bad news is that much of this is shutting the stable door after the horse has bolted. Four things have to be recognised: that the world has profound imbalances between high-saving, high-surplus areas in Asia and the Gulf and low-saving, structural deficit countries in the transatlantic economy (Germany excepted); that a system of floating exchange rates and private banks can no longer take the weight of recycling those savings; that unless the system is de-risked and the burden of adjustment is placed on deficit and surplus countries alike, the global system faces breakdown; and finally, that the business model used by the banks to recycle surpluses - securitisation and hedging in the $360trn global derivatives market - is broken.

In plain English, China must accept that its currency must appreciate; Britain and America, that they cannot run their economies on foreign savings; and all players that there has to be a system of semi-fixed exchange rates between the yen, the euro and the dollar.

One tough reality is that, for all their new economic weight, China, Brazil, Russia and India do not have fully convertible currencies - nor do they want to accept the discipline involved in having convertible currencies.

Ann Pettifor

Fellow, New Economics Foundation

Over the past decade, the Group of Eight leaders turned their exclusive annual meetings into jamborees. Rock concerts, protesters and celebrities added populist glitz. However, the real purpose of the meetings - international co-operation and co-ordination - was ducked. At last year's G8 Summit in Heiligendamm, Germany, George W Bush and Gordon Brown vetoed Angela Merkel's agenda item for co-operation over tighter international regulation and financial oversight of capital markets. That task, they argued then, could safely be delegated to "the invisible hand". Now that the fantastic, self-regulating machinery of free markets has proved grossly malfunctional, it is good to hear talk of enhanced co-operation and regulation.

But, in places, the joint statement issued by the 20 world leaders borders on the delusional. The phrase "We must . . . ensure . . . that a global crisis, such as this one, does not happen again" implies that they are avoiding the next war when they are still losing this one.

Even more questionable is the call for continued "economic growth". In a world of finite resources on a planet with limited capacity to absorb toxic emissions, and with bushfires encircling Los Angeles, we would have hoped that world leaders had some awareness of the threat of climate change and of the limits to economic growth. But no. The gravest threat to global security - our rapacious attitude to the earth's resources - is once again whipped up with talk of "market principles, open trade and economic growth".

Jesse Norman

Senior fellow at Policy Exchange

One might have thought the G20 summit a good moment for some straight talk from the Prime Minister. Instead, the political wind machine was cranked up to full blast. The summit would be a second Bretton Woods. Gordon Brown would forge a new global consensus on co-ordinated intervention to stimulate growth (while, of course, leading reforms to prevent the banking crisis from ever recurring). Luckily virtually none of this was true, or the summit would have been a hopeless failure. With fiscal measures already widely adopted, the G20 hardly needed Brown's leadership. No surprise that he returned empty-handed.

Labour has moved from despondency to a manic desperation to remain in office. The result is that the ever-fragile concept of truth in politics has wholly been cast aside. Thus the humiliating bank nationalisation has been dressed up as an act of far-seeing economic statesmanship. And a sensible warning from the shadow chancellor that current economic policy puts sterling at risk has been condemned for breaching an irrelevant semi-convention dating from the time of fixed exchange rates.

Alex Brummer

City editor, Daily Mail

There is a golden rule of international financial meetings. The larger the "G" number, in other words the more countries involved, the less likely it is that any worthwhile or binding decisions will be taken. So while it was wholly encouraging that the G20 summit brought a number of emerging market leaders to the top table of finance, including China, Brazil and Russia, there was never any real prospect of the event becoming the new Bretton Woods.

Furthermore, the summit took place in the final days of the lame duck administration of George Bush. Once it became clear Barack Obama was going nowhere near the confab, the event became even more of an irrelevance.

European leaders may like to blame Wall Street and Anglo-Saxon capitalism for the credit crunch and the recession now spreading through the Group of Seven like wildfire, but there is no hope of concerted international action without the new White House and Federal Reserve on board.

Almost all that was agreed could have been decided before the leaders left home. The commitment to reviving the Doha trade round is pure motherhood and apple pie. The prairie populists on Capitol Hill are unlikely to be enthusiastic.

At the core of the proposals was the commitment to use fiscal measures, tax cuts and public spending to kick-start global economies. But despite Gordon Brown's enthusiastic embrace of a new Keynesian big-spending approach - as advocated by Nobel prize-winner Paul Krugman - he neatly forgot to mention that such big-spending ways were only for those countries with a "policy framework conducive to fiscal sustainability". The UK with its ballooning budget deficit, which could hit £100bn or more next year, is clearly in no such position.

It is hard to fathom in what way the G20 was "historic", as the Prime Minister claimed in the Commons. There is little original in a bunch of old ideas designed to remove risk from the financial system and control executive pay. That is what regulators should have done before the banks ploughed into the iceberg.

James Buchan

Author and financial commentator

What is the Financial Stability Forum? What is "mitigating against pro-cyclicality in regulatory policy"? What, if anything, has the G20 summit in Washington on the weekend of the 15 November achieved?

Nothing very much, is the answer to all three questions. In the twilight of a discredited US administration, and with President-elect Barack Obama absent, the meeting was never likely to achieve a great deal or generate excitement in the US. Yet the final declaration, drafted with suspicious ease by the delegations on Saturday night, has something for everybody but not enough of anything to scare the financial horses.

Nicolas Sarkozy, the French president whose idea the whole thing was, gained some support for more institutional government of trade and finance, but no super-gendarme international of the type that has been directing financial traffic in the French imagination since the 17th century. As Jean-Pierre Robin wrote in the Figaro: "Those with fantasies of supranational supervision will need to change therapist." The US, jealous of its commercial sovereignty even when it is going about without its shirt, put paid to those Gallic dreams and also gained some platitudes about free trade.

The new commercial powers, not only Brazil, Russia, India and mainland China but also rich oil producers such as Saudi Arabia, received diplomatic recognition of their deep pockets. "The world's geopolitical structure has a new dimension," the Brazilian president, Luiz Inácio Lula da Silva, said. "There is no logic to making any political and economic decisions without the G20 members - developing countries must be part of the solution to the global financial crisis."

I suspect the winner is Gordon Brown. The next meeting will be held under his presidency in London in April. The Washington ragbag of proposals to reform or tinker with the current system, such as reminding us about the Financial Stability Form and mitigating against that regrettable pro-cyclicality in regulatory policy, appeals to his technical vanity and plays to his technical strengths.

Paul Mason

Economics editor, Newsnight

There was a sense in Washington, despite the throbbing engines and bulletproof glass, of powerlessness. The communiqué was stronger on the causes of the crisis than on co-ordinated solutions. Policymakers are right to stay focused on the near-term dangers: these are country-level debt default, the rising cost of borrowing for non-financial companies, rapid job losses and - via feedback - further destabilisation of the banking system. We are moving into the phase of fiscal stimulus but there are powerful technical arguments that say without "quantitative easing" - that is, printing money to stimulate demand - it doesn't work. The same people who told me it would come to recapitalisation, that the TARP (troubled assets relief programme) would not work, are now saying: nationalise the banks and print money.

Despite the urgency of the focus on near-term dangers, what was obvious at G20 was the lack of vision as to the future growth model of capitalism. The problem was seen as a failure of regulation; the solution a pretty weak brew of re-regulation that will get diluted even more as the lobbyists begin to have influence. But the problem is more fundamental: the growth model based on high debt instead of high wages has failed and will be hard to revive.

Peter Mandelson

Secretary of State for Business

We have been caught in a global whirlwind of extraordinary force.

It has brought with it a fear that has gripped the world economy and taken hold here at home. We are seeing it every day, with fear among consumers that is depressing demand; fear among banks that is inhibiting them from lending; fear among small- and medium-sized businesses that banks are just about to cut off their credit lines. The choice facing us and governments around the world is this: do we act decisively to counter and overcome this fear, or do we become paralysed by it and fail to act?

The government has already shown its willingness to take the bolder course as the first mover in setting about stabilising the banks. What is needed now is action to stimulate the demand essential for recovery. The UK economy, like economies in the rest of the world, needs a shot of adrenalin.

The Bank of England has already made a significant cut to interest rates. This monetary stimulus now needs to be matched by a fiscal stimulus. And because this is a global crisis this is best done if the benefit of the measures taken nationally is maximised by the same measures being taken around the world. That was the message from the international conference in Washington, as governments recognised the need to take the action necessary to stimulate their economies.

People will say, "But you are resorting to borrowing in order to deliver the stimulus that's needed." My answer to that is, what is the alternative? We certainly haven't heard one from the Conservatives.

David Cameron and George Osborne, trapped by their desire to oppose everything the government does, refuse to accept the scale of the challenge the world's economies now face and the prescribed international action. Their stance appears to be, if the rest of the world disagrees with us, it is because the rest of the world is wrong. The result is incoherence and an Opposition at sixes and sevens. One minute this is "do all it takes" and the next it is - as we heard this week - leave the recession to "take its course".

Sitting on our hands watching houses repossessed and businesses go to the wall is certainly not the approach being urged on me by people I have been speaking to up and down the country. They want their government to act to stimulate demand in the economy here and now. With all due prudence, that is what we are going to do.

Diane Coyle

Author and economist

The G20 meeting confirmed a robust and rapid response (by past standards) to recession, even in the US operating under a rump free-market administration. Policymakers around the world have been shaken to see the financial system at the brink of collapse - on their watch.

Yet it is difficult to predict how severe the recession will be. Bank lending to businesses and individuals is virtually frozen. In many (but not all) areas of the economy, activity has come to a halt. The last financial boom and bust, ending in 2001, had surprisingly little impact on jobs and growth, as the financial bubble had become increasingly untethered from anything real. Today's vicious circle of evaporating liquidity is much more serious, but lower interest rates and bigger government deficits will help. The underlying trends are easier to outline. Some challenges are clearly unaltered, such as climate change and our ageing society.

The technological opportunities are still there, too, in communications, the internet and biotechnology. Globalisation will be less driven by finance in future, but it will not be unwound. It would take a generation to turn back the clock on economic linkages, and the cultural impacts are permanent. In fact, the crisis has underlined our interdependence across national borders.

What has changed is the political economy of globalisation. In the triad of efficiency, fairness and freedom which dominates political choice in democracies, fairness will take priority in the years ahead, and the drive for ever greater productivity gains will retreat. The semi-nationalisation of the banks has started to shift the boundary between public and private domains; we will have to think more carefully about how to govern private choices that have big social spillovers. The G20 did not touch on this profound question of governance.

Iain Macwhirter

Political commentator

The G20 was largely a throat-clearing session and was never going to put in place the foundations of a new international financial system. Progress on the stalled Doha trade talks is encouraging but provides no guarantee that protectionism will not raise its head in the coming economic slump.

It is inevitable that countries faced with financial collapse will try to defend their economies by any means possible. Britain is already far down the road of "beggar my neighbour" economics by the "managed" devaluation of the pound, a crude attempt to boost UK industry by lowering the prices of British exports and creating a de facto tariff wall around imports from abroad. It won't work because Britain does not make much of anything any more except debt, and the world has plenty of that already.

But the collapse of the pound will seriously damage what is left of UK financial services. No one in their right minds would put money into the UK economy now, with the property market collapsing, UK banks insolvent and government borrowing likely to reach £100bn in the next 18 months.

Gordon Brown seems to believe that sterling is like the dollar, and that people will buy our dud pounds whatever the likely losses. However, as we are discovering, sterling is not a reserve currency and unlike the US we cannot force other countries to pay our debts. The future for our battered island is likely to be hyperinflation punctuated by appeals to the International Monetary Fund for emergency aid. Forget about spending our way out of recession - the UK government simply lacks the resources to fund the huge borrowing that would be required. Something will have to give. Brown will have cause to regret being so beastly to the Icelanders.

Richard Reeves

Director of Demos

James Carville, the hardened political aide to Bill Clinton, said that if he was reincarnated he'd want to come back as the bond market: "You can intimidate anybody." Right now it seems odd to think of any financial markets threatening anybody. But it is one of the ironies of the current economic situation that the capital markets still have some serious muscle.

Western governments, faced with recession, need to throw a lot of money at their ailing financial institutions - money that can be raised only by selling Treasury debt, mostly to the capital-rich investors of the Far East. For Gordon Brown, this is likely to become a more difficult sell, as Prudence is given the push and the pound takes a nosedive. Even national exchequers invite sceptical scrutiny in this new, nervous world.

The financial crisis is at heart a loss of faith. The word credit derives from the Latin credo - "I believe". When the Titanic of the financial world - in the shape of Lehman Brothers - was allowed to sink, the bonds of trust stretching around the world were snapped. In an instant, everyone stopped believing in each other.

A number of sensible measures should be on the agenda when the G20 reconvenes next year, including legislation to ensure bonuses in financial services are paid on the basis of five-year performance; new "pro-cyclical" provisioning rules requiring finance houses to increase their store of capital in economic upturns; and tougher, independent regulation of the rating agencies whose doe-eyed assessments of banks built on a mountain of paper helped get us in this mess.

There is, however, no quick technical fix for such a dramatic loss of confidence. Trust can be lost in the blink of a market-trader's eye - but it will take years to rebuild.


  • 1 Created a road map aimed at stabilising the world economy and overhauling the banking system with targets for the end of March 2009
  • 2 Advocated Keynesian big-spending
    “fiscal stimulus”
  • 3 Expanded from a small club making world decisions to recognise the importance of the economies of Brazil, Russia, India and China
  • 4 Agreed to reform international finance institutions, including better transparency and supervision of credit ratings agencies
  • 5 Agreed that the Financial Stability Forum should include emerging economies
  • 6 Banks and hedge funds to hold increased levels of capital and cash
  • 7 Recommended “supervisory colleges” for all major cross-border financial institutions
  • 8 Return to the Doha round – trade ministers to meet in Geneva next month
  • 9 Instructed G20 finance ministers to draw up plans and timeline
  • 10 Agreed to meet again, in London next April


  • 1 Agree a future growth model for capitalism. Instead they reconfirmed their “shared belief in market principles”
  • 2 Agree detailed plans for regulatory reforms of banking
  • 3 Establish a plan of action for achieving the already endangered Millennium Development Goals
  • 4 Set up an international supervisory body with sufficient power to control global markets
  • 5 Halt the run on sterling, which fell sharply against the euro and dollar

Alyssa McDonald

This article first appeared in the 24 November 2008 issue of the New Statesman, How to get us out of this mess

Photomontage by Dan Murrell
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Trotsky, Blair and the new politics

The turmoil created by Jeremy Corbyn’s leadership could help the Labour Party rediscover its purpose. But another source of renewal is practice – listening and learning from the doers.

I was a teenage Corbynite and grew up to be an employee of Ken Livingstone and John McDonnell, as well as Tony Blair and Gordon Brown. Because of this chequered past, I have seen, up close, their virtues and their vices. Having written a book entitled Politics in an Anti-Political Age many years ago, I am not surprised by this latest eruption of hostility to the political class and I welcome challenge to conventional wisdoms and the breaking of taboos, especially in economic policy. Parties need periodic upheavals to remember what they are for. But they also need the humility to learn from the world around them and an ability to empathise, not just with their own side but also with those who do not automatically support them.

I first became involved in politics in the constituency of Hornsey, where Jeremy Corbyn was the agent. I doubt he remembers me but I spent a fair amount of time in his genial company. I enjoyed helping to organise jumble sales (an underrated but essential political skill, though not one he was all that good at) and canvassing often angry and reluctant voters. I was then on Labour’s far left and took part in feverish discussions with him and others in the Labour Party Young Socialists that echo today’s arguments.

Then, as now, we discussed the betrayal of the Parliamentary Labour Party and what we considered to be the moral ambiguity and occasional corruption of the previous Labour governments (of Wilson and Callaghan) and their failure to change the system. As we sat talking earnestly in our damp houses and flats, piled high with books and parcels of the unsold weekly papers that were an odd fetish of the Trotskyite left, we put our faith in Tony Benn as the standard-bearer of a more decent and radical politics and, despite our tendency towards Groucho Marxism (“Whatever it is, we’re against it!”), we were serious about changing the world for the better.

Fairly soon, I was brutally expelled as a heretic from the group that I had joined. Academic politics is notoriously vicious because the stakes are so small, and the same was true of the Trotskyites (which is perhaps why so many ended up as academics).

A few years later, I found myself in another milieu that has also just returned to centre stage against the odds. My first proper job was as a civil servant with Ken Livingstone’s Greater London Council (GLC), then a bastion of progress facing off against the reactionary power centres over the river in Westminster and Whitehall. Looking back, I think it was ahead of its time in taking equal opportunities seriously, deepening democracy and pursuing economic ideas that became conventional in business schools a decade later.

It also accumulated vices. It was often poor at management and, at times, flagrantly wasteful of money. Its leaders seemed more comfortable with giving speeches and holding rallies than with making things happen and appeared to prefer a fantasy world out of Eisenstein films (in which they would be carried to power on the shoulders of cheering crowds) to the hard grind of achieving change. To my surprise, I came away from the GLC with a greatly enhanced respect for the boring virtues of good management and administration.

The GLC was lively but also chronically factional. I worked for a time in John McDonnell’s staff and saw at close quarters his cleverness and his keen interest in power, which led him to take on the unglamorous but strategic finance committee. Before long, he attempted a putsch against Livingstone, whom he seemed to think of as rather wayward and indulgent, and there was always some plot under way.

Luckily I was fairly removed from the knives being stuck into backs. Instead, my work at the GLC focused on the creative industries, jobs and investment. I was part of a group that became rather heretical advocates of markets, since it was obvious that markets were giving more opportunities for small-scale creatives in fields such as music, publishing and TV than public subsidy, which was usually captured by the London elite. (An extraordinary proportion was being spent on the opera, for example.)

The ideological commissars hated this conclusion. Yet there were enough freethinkers around to keep them at bay and we embraced ideas of flexible specialisation and post-Fordism that pointed to a much more dynamic view of how a future economy could work. It seemed clear that the old-left arguments for wholesale nationalisation and planning were anachronisms.

Indeed, it felt as if an entire approach to politics was on its last legs and, in the years after the GLC, I was involved in two very different attempts to bring Labour kicking and screaming into the late 20th century, both of which have been cast into a new light by Corbyn’s victory. One was Red Wedge, a collective made up of musicians such as Billy Bragg and Paul Weller and comedians including Lenny Henry and Ben Elton. I had a weird mix of roles ranging from van driver to company director, along with Bragg and Weller.

The stars’ main motivation was to persuade young people to vote and displace the all-conquering Thatcherites. The concerts were also combined with open meetings – in the hope that Red Wedge could help reanimate Labour’s then stagnant political culture, which was, paradoxically, symbolised for us by people waving around their tiny-circulation Trotskyite newspapers.

We had a great time and Red Wedge ran fantastic events. We were, however, victims of hope over experience. We failed to dislodge Margaret Thatcher. We also failed to shift the Labour Party’s culture of stultifying meetings, overseen by serried ranks of ageing white men in suits and woolly cardigans making formulaic speeches. Like so many before and since, we mistook the exhilarating enthusiasm of the thousands of people who came to our events for a shift in the mood of the tens of millions of other people who weren’t there. On the morning after the election of 1987, I was not
just disappointed that Labour had been crushed at the polls. I felt foolish for not having understood better what was happening around me.

The other attempt at transformation was intellectual: the attempt by the journal Marxism Today to reach out far beyond the comfort zones of the left with a deliberately promiscuous exploration of ideas and theories and, above all, a curiosity: about why the Conservatives were triumphing, why they were winning the battle of ideas and why the British working classes appeared so unwilling to fit the roles prescribed for them by the traditional left.

I had spent a year at the Massachusetts Institute of Technology learning about ­telecommunications from the people who were then inventing the internet and took it for granted that digital technologies would be a more revolutionary force than the trade unions or the newspaper sellers. I tried, unsuccessfully, to persuade the intellectual gurus – Eric Hobsbawm, Stuart Hall, Anthony Giddens, and so on – to think in terms of networks and different ways of organising the state. Marxism Today was at least open to these ideas and, although it was very much of its time, its spirit of openness and curiosity has much to teach the parties today.

My experiences made me a ready convert for New Labour, working first for Gordon Brown and, later, for seven years in government under Tony Blair, including as head of the Downing Street Policy Unit and the government’s strategy team. I saw at first hand the many strengths and weaknesses of that kind of politics. I took little convincing that there was no sense in being a pure but powerless opposition and had lost all patience with indulgent rallies and meetings. I wanted government to use its considerable power to do good: to cut poverty, rebuild public services and give people justified hope. I didn’t believe then – and don’t believe now – the facile claim that governments no longer have any power. They do, which is why politics matters.

I also believed that government should encourage entrepreneurship and innovation and that many of the best ideas would come from people taking risks, often on the margins, and not just from senior officials, politicians or professors at grand universities. It was obvious then, as it is now, that governments play a decisive role in innovation, funding many of the fundamental technologies that end up in smartphones or new drugs. It was also apparent that governments are pretty hopeless at turning those technologies into useful products and services. Corbyn and McDonnell accept the first proposition but not the second, which is one of many reasons why their economics risks looking implausible and incomplete.

Most of what Tony Blair promised was achieved, beyond my expectations, with the longest period of sustained economic growth in history, poverty reduced, huge improvements to public services and fundamental devolution. But, as often happens, what were once virtues turned into vices. The virtue of discipline became the vice of numbingly bland conformity. The necessary adoption of parts of the Tory/Saatchi model of centralised parties constructed around national advertising campaigns displaced the direct, movement-building politics that had kept Labour – and the Conservatives – alive at the grass roots. In government, a healthy focus on getting results reinforced old-fashioned silos and overcentralisation. Labour’s success in attracting bright new politicians became a vice when too many jumped straight into advisory roles and ministerial posts, in which the highest ambition was to get a well-honed soundbite on to the evening news. It is not surprising that so many appeared ill-prepared and inauthentic when they offered themselves up for leadership.

More than a century ago, the sociologist Robert Michels wrote of the “iron law of oligarchy” that he perceived in Europe’s social-democratic parties, as movements that were set up to change the world became machines to keep their leaders in power. I continue to be amazed at how many politicians today speak as if it were obvious that the only purpose of their parties’ existence is to win elections. I can understand why that is so important for them. For everyone else, however, politics is a means and not an end and holding power is desirable only if you know what to use it for.




This is why part of me welcomes the turmoil of a Corbyn victory. Nietzsche’s comment that what doesn’t kill you makes you stronger isn’t exactly true. But politics does need challenge and crisis to rediscover its inner core, and what is true of Labour has often been true of the Conservatives and Liberals, too. It is through argument – robust, passionate and often bad-tempered – that new truths are found. Labour had forgotten how to have these
authentic, open arguments.

But the other source of renewal is practice: listening and learning from the doers. Movements such as Podemos in Spain have their roots in civic action rather than in the residues of Marxism-Leninism. One of the many odd features of Corbynism is that it appears rather uninterested in what every­day radicals are doing – the grass-roots pioneers in fields such as food or recycling, mental health or elderly care. This could be a fatal weakness.

After a few years in government, I became deeply sceptical of the idea that policy is best designed either by small groups of experts in London or by composites and committees. Both approaches privilege words over practice and often generate policies that come badly unstuck when implemented. I followed the example of Michael Young, the author of Labour’s 1945 manifesto, by turning back to the grass roots and working with innovators and entrepreneurs creating real-life answers, rather than solutions on paper. Through the Young Foundation and the National Endowment for Science, Technology and the Arts (Nesta), I became part of the extraordinary global movement for social innovation that is offering a much more enlivening approach to politics than the ones that I was brought up with.

Its underlying ethos is that if you see a problem, you should try to act on it yourself, instead of just waving placards telling someone else to act, and that if you want to change the world, you should test out your ideas on a small scale before taking them big. This should be natural territory for Labour. Yet David Cameron has often looked more in touch with this movement than the Labour of either Ed Miliband or, so far, Jeremy Corbyn. Here in Britain, the “big society” idea may have been at best incoherent but it did reflect an eagerness to learn from society and a recognition that practice would often be far ahead of theory. Angela Merkel has also spotted the importance of this space and, over the past two years, has attempted to integrate the ideas of social innovation
as well as happiness as a societal goal into her Christian Democratic programme.

The core left has been slow to understand this shift. Yet it could choose what the Brazilian thinker and now minister Roberto Mangabeira Unger describes in a recent book, New Frontiers in Social Innovation Research (published by Palgrave Macmillan), as “maximalist”, as opposed to “minimalist”, social innovation. The minimalist view puts social innovations squarely within the third sector and: “Its resonance is with solidarity and communitarianism . . . with the tradition within classical liberalism that prizes voluntary associations as well as with the strand within socialist thinking that proposes a non-statist socialism.”

By contrast, the maximalist view, Unger writes, is concerned with “the whole of society, of its institutional arrangements, and of its dominant forms of consciousness . . . At its maximalist best, the social innovation movement [undertakes] the small initiatives that have the greatest potential to foreshadow, by persuasive example, the transformation of those arrangements and of that consciousness.”

This is a debate that has scarcely started in Britain. Yet it offers a different approach to linking local devolution with national policy, the creativity of the radical margins with the power of the centre. It also offers ways to advance thinking on some of the big questions. For example, experiments on basic incomes in Finland and the Netherlands may illuminate whether this truly is part of the future of welfare. The many attempts to adapt schooling to fit the lives of the future better may prove more fertile than tired debates about local authority control and free schools. Similarly, the global movement to put self-management and peer support in health care on a much more equal footing with care in hospitals offers far more energy than yet another argument about top-down reform.

Some issues cannot be addressed in this way. Constitutional reform is hard to do in small steps. Perhaps the biggest social issue of the next decade – how to achieve a fundamental redistribution of assets to reverse the vast recent shift towards more unequal wealth – will also require the power of national governments. In most of the fields that dominate political argument, however, the iteration between micro and macro offers a better route to solving complex problems than drafting resolutions or passing new laws.


So what might we expect now? I doubt that a Corbyn leadership will need much external conspiracy or pressure to buckle. Political leadership is a craft, like plumbing, nursing or teaching, only more so, and it takes time to learn its many dimensions. The best leaders often have long apprenticeships before they become good at the job. It is bad enough that so many of today’s leaders had never run anything and jumped straight from being special advisers to becoming ministers responsible for budgets of billions. It is not much easier to leap from being a backbench MP to becoming a party leader. Even a genius would fumble and stumble.

I am also sceptical about whether the party can be run for long as a movement. Parties periodically need to regain some of the energy of movements but movements are different in nature from parties that aspire to govern. Movements are about opposition, anger and mobilisation: they derive their energy from the tension between them and the world around them. They are hot, whereas parties aiming at government have to be cooler, more solid, designed for compromise, for programmes and for action. Internal democracy makes perfect sense for a movement. But unless the membership reflects the public, it can be disastrous for a party seeking wide support from an electorate concerned about its interests, or the competence of its prospective leaders. That is why – as parties as varied as the SNP and Syriza have discovered – movements have to mutate when they turn into serious parties, losing some of their vital qualities but gaining others.

Similar considerations apply to readiness for government. You can be great at being a movement or party and lousy at running a town or nation. That requires many pretty boring, practical skills, such as handling budgets, or thinking through the realities of how people might react to policies. It is a very long way from running a demo and has always been undervalued by the far left and the populist right, whose metier is writing, talking and often shouting. Indeed, both are even less interested in the experiment that I also see as vital for good government – trying things out to find out what works, an approach almost opposite to government by diktat, decree or resolution. This is well understood by Labour’s many foot soldiers embedded in local government.

Yet the Trotskyite milieu in which Corbyn, McDonnell, Livingstone and others were formed took a different view. Much was made of the “transitional programme”, an idea developed by Leon Trotsky in the late 1930s. This was a manifesto or platform put forward by a left-wing party in elections that was not designed to be put into practice but was rather meant to be impossible. Having such impossible demands rejected would energise the workers, disorientate the enemy and accelerate the contradictions opening the way to revolution. Any incremental gain or compromise had to be rejected, as things had to get worse for the revolution to have any chance.

I do not know if Corbyn’s team still believes this. It is possible that they may not really care if their programmes are plausible or coherent; what matters is the effect. Yet “impossibilism” also has another unwelcome consequence – it militates against learning. If you do not care whether your programme is realistic or not, you have no need to grapple with the big and difficult questions: what to do about jobs and automation; how to transform the health services to cope with ageing populations; how to handle migration; how to overhaul the state. Like many of the academics advising the new Labour leadership, you can enjoy analysing the problem but avoid having to answer the question: “So, what would you actually do?”

In the 1990s, Tony Blair and Gordon Brown, like David Cameron and George Osborne in the late 2000s, were hungry to understand what made their opponents tick and where the world was heading. There is not much evidence of any comparable hunger now. The new group Momentum could be one source of change but, so far, it has offered only vague rhetoric, rather than showing any appetite for unsettling ideas and practice, or empathy for the unconverted. What that may presage is a dumbing down at the precise moment when Labour, like any opposition party, should be encouraging a thousand flowers of creative imagination to bloom. After all, no “transitional programme” ever led to a revolution, or an election victory. Trotskyism turned out to be one of the narrowest cul-de-sacs of 20th-century politics. British politics will be the poorer if the Labour Party has just turned down one of its own.

Geoff Mulgan is the chief executive of Nesta and a senior visiting scholar at Harvard University in Cambridge, Massachusetts. He writes here in a personal capacity

This article first appeared in the 14 October 2015 issue of the New Statesman, The Corbyn supremacy