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The New Depression

The business and political elite are flying blind. This is the mother of all economic crises. It has

We are living through a crisis which, from the collapse of Northern Rock and the first intimations of the credit crunch, nobody has been able to understand, let alone grasp its potential ramifications. Each attempt to deal with the crisis has rapidly been consumed by an irresistible and ever-worsening reality. So it was with Northern Rock. So it was with the attempt to recapitalise the banks. And so it will be with the latest gamut of measures. The British government – like every other government – is perpetually on the back foot, constantly running to catch up. There are two reasons. First, the underlying scale of the crisis is so great and so unfamiliar – and, furthermore, often concealed within the balance sheets of the banks and other financial institutions. Second, the crisis has undermined all the ideological assumptions that have underpinned government policy and political discourse over the past 30 years. As a result, the political and business elite are flying blind. This is the mother of all postwar crises, which has barely started and remains out of control. Its end – the timing and the complexion – is unknown.

Crises that change the course of history and transform political assumptions are rare events. The last came in the second half of the 1970s, triggered by the Opec oil price spike and a dramatic rise in inflation, which marked the end of the long postwar boom. Its political consequences were far-reaching: the closure of the social democratic era, the rise of neoliberalism, the discrediting of the state, the embrace of the market, the undermining of the public ethos and the espousal of rampant individualism. For the next 30 years, neoliberalism - the belief in the market rather then the state, the individual rather than the social - exercised a hegemonic influence over British politics, with the creation of New Labour signalling an abject surrender to the new orthodoxy.

The modalities of this present crisis are entirely different. Extreme as they may have appeared to be at the time, the economic travails of the 1970s were progressive rather than cataclysmic. The old system did not hit the wall, but became increasingly mired and ineffectual. What swept the social democratic era away was not the force de frappe of an irresistible crisis but that it was accompanied by the steady rise of a new ideology and political force in Thatcherism - and Reaganism in the United States - and its victory in the 1979 general election.

In contrast, the financial meltdown of 2007-2008 demolished the neoliberal era and its assumptions with a suddenness and irresistibility that was breathtaking. The political class, from New Labour to the Conservatives, is standing naked. They are still clinging to the wreckage of their old ideas while acknowledging in the next breath that these no longer work. The financial crisis is a matter of force majeure; political ideas and discourse change much more slowly, even when it is obvious that the old ways of thinking have become obsolete. Meanwhile, there is no political alternative waiting in the wings, refining its radical ideas in think tanks ready to storm the citadels of power as there was in the 1970s, notwithstanding the fact that think tanks are now far thicker on the ground. Instead, it has been the mainstream which senses that neoliberalism no longer works, fatally undermined by events and, ultimately, the author of its own downfall. This crisis will have the most profound and far-reaching political consequences and will in due course transform the political landscape, but it remains entirely unclear in what ways and when that might be.

In all these senses the financial meltdown has far more in common with the Great Depression than the Great Inflation. When the financial crisis consumed Wall Street in 1929 and proceeded to undermine the real economy, engulfing Europe in the process, it was not accompanied by a radical shift towards Keynesianism, but rather a reassertion of sound finance orthodoxy, followed in due course by the adoption of protectionism. The political mainstream as represented by Labour's Ramsay MacDonald and Philip Snowden and the Conservative Stanley Baldwin all sang from the same hymn sheet. Only Keynes and a faction of the Liberal Party enunciated a plausible alternative. Eventually a programme of fiscal deficits and public works was pursued by Franklin D Roosevelt in the United States, but in Britain Keynesianism was not properly embraced until rearmament and the approach of war. Indeed, it was not until 1945 that the combined legacy of war and the Depression belatedly resulted in a fundamental political realignment and the birth of the social democratic era.

The Grim Reaper has finally spoken:

a boom pumped up by credit steroids and a bust that takes us back to the 1930s

Since the financial meltdown dramatically intensified in September 2008, Gordon Brown has managed to ride the economic storm rather more successfully than the Conservatives, or, for that matter, than Tony Blair would have done. It is Vincent Cable, the Liberal Democrats' econo­mics spokesman, however, who has indubitably emerged as the political sage, unafraid of confronting neoliberalism's shibboleths, demonstrating a clarity of mind and the political courage to tell things as they are, in a way that has escaped all other prominent politicians. Although Brown was the economic architect of the past decade and was responsible, more than anyone else, for its excesses and was shaping up to be a rather disastrous Prime Minister, he displayed last autumn, at least initially, an agility of mind and nimbleness of foot that defied the expectations of those who believed he was capable of neither. He revelled in the sense of purpose and vision offered by the crisis, seemingly prepared to jettison the thinking that had imbued his previous decade as chancellor.

But Package Part I, widely hailed at the time and imitated elsewhere, proved woefully inadequate, and the financial system remains frozen. Meanwhile the waters are rising up the Good Ship UK, threatening to transform the banking crisis into a fiscal and currency crisis. It seems unlikely that, if that should happen, Brown will survive the next election.

Even if it does not happen, Brown faces a serious problem about his own past role, because Britain’s crisis has been greatly exacerbated by the soft-touch regulation, easy credit, runaway house inflation and overexpansion of financial services over which he presided and for which he is accountable. So far he has refused to admit or accept responsibility for his actions – he initially had the temerity (or foolhardiness) to argue that the UK was better placed than other countries to deal with the credit crunch, even though it has become abundantly clear since that the very opposite was the case. So while Brown remains in denial, the plausibility of his new turn, and his understanding of what is entailed, must be seriously doubted.

Indeed, after its initial boldness, the government now seems trapped by its past actions and its former ways of thinking. Brown's failure to accept the need to nationalise the banks suggests the limits of his new-found political courage, and his inability to embrace the logic and imperatives of the new situation. He is still a prisoner of his old timidity and his conversion to the neoliberal cause. It is his good fortune that the Cameron Conservatives have been hugely wanting in their response to the financial meltdown. Having spent his first years as leader of the opposition seeking to reassure the country of his centrist credentials, David Cameron, at the first whiff of gunfire, has turned on his heels, rejected Keynesianism and, at the very moment when events have shown Thatcherism to be deeply flawed and historically out of time, headed back to the Thatcherite womb of sound finance, arguing that a government must balance its books and that deficit financing, Keynesian-style, is reckless and irresponsible.

But all this, it must be said, is the small change of politics. The crisis threatens in time to sweep away the political world as we know it and those who fail to grasp its magnitude and meaning. Far more is at stake than the fortunes of a few leaders, be their name Brown or Cameron. Who knows where things will be this time next month, let alone next year or, indeed, in 2012? The financial meltdown now rapidly plunging the western world into what increasingly looks like a depression is the first great crisis of globalisation. There was plenty of warning. The Asian financial crisis of 1997-98 proved a salutary lesson about the dangers posed by huge capital movements that were subject to precious little regulatory control. Three economies capsized (South Korea, Thailand and Indonesia) and others stood on the brink.

There were other earlier warning signs, notably Mexico in 1995, when GDP fell by 9 per cent and industrial production by 15 per cent, following a run on the peso. These crises were blamed on the immaturity and fecklessness of national governments - in the case of east Asia on so-called crony capitalism (which, incidentally, prompts the question of how we should describe Anglo-American capitalism) - which the International Monetary Fund obliged to engage in swingeing cuts in public expenditure as a condition of their bailouts.

Yet what if such a crisis were to be no longer confined to the peripheries of global capitalism but instead struck at its heartlands? Now we know the answer. The crisis has enveloped the whole world like an uncontrollable virus, spreading from the US and within a handful of months assuming global proportions, at the same time mutating with frightening speed from a financial crisis into a fully fledged economic crisis. In so doing, it has undermined the foundations on which the present era of globalisation has been built, namely scant regulation, the free movement of capital, a bloated financial sector and immense reward for greed, thereby bringing into question the survival of globalisation as we now know it.

Enormous international flows of unregulated capital have capsized the international financial system - with disastrous consequences for the real economy - in a manner akin to the effect of a roll-on, roll-off ferry shipping too much water. We can now see the cost of free-market capitalism and light-touch regulation. Iceland may provide an extreme example of the consequences of the credit crunch but it also illustrates the dangers facing the more vulnerable economies, the UK included, in a deregulated world where the market rules: a small, open economy; a large, internationally exposed banking sector; an independent currency that is not a serious global reserve currency (of which there are only three); and limited fiscal strength. These propositions have constituted the core economic beliefs - from Thatcher and Lawson to Blair and Brown - that have informed policymaking over the past three decades and without which, it was claimed ad nauseam, an economy could not succeed. Heavy-handed regulation and an overbearing state would serve only to frighten off capital and condemn a country to slow growth, stagnation and global marginality. Now we know the fallaciousness of these claims and the consequences of "letting the market decide".

Like Iceland, albeit not as extremely, Britain has been living in a fool's paradise. A failure to regulate the banks and other financial institutions in any meaningful fashion allowed bankers to behave in a grossly irresponsible and avaricious fashion; a boom that was made possible only by a government-enabled credit binge in which people borrowed recklessly; a bloated financial sector that grew to represent over 8 per cent of the total economy and which was found to have been built on foundations of sand; an overvalued currency that made manufacturing exports uncompetitive and thereby resulted in an unnecessary and counterproductive contraction in the manufacturing sector which must now be reversed; an absurd belief that boom and bust had been banished for ever, allowing the banks to turn a blind eye to the inflating of various asset bubbles and display a profound ignorance of the history of capitalism; a persistently chronic current account deficit that can no longer be compensated for by inward capital flows; monstrous salaries for those at the top of the financial and corporate tree, which were justified in terms of a trickle-down effect that remained a chimera, and as the reward for risk which was, in fact, a reward for greed and failure; growing inequality, which was justified in the name of a more competitive economy accompanied by declining social mobility in the cause of an open and flexible labour market; and, finally, the mushrooming of what can only be described as systemic corruption on a mega-scale as the state ignored the gargantuan abuses of those who ran the banks and other financial institutions, while regulatory authorities willingly colluded in their excesses.

This is the sad story of the New Labour era.

The ultimate cost of this debacle as yet remains unknown. What began as a financial crisis is threatening, as the government seeks to bail out a bankrupt financial sector, to become a currency crisis, with foreign investors concerned about the effects this might have on the value of sterling, and perhaps even worse, ultimately a sovereign debt crisis, with growing doubts about the UK’s financial viability. Until there is some end in sight to the financial crisis, and a line can be drawn under the banks’ indebtedness, we will not know the answer to these questions. One thing is clear, however: whatever the limitations of the social democratic era, it was never responsible for such an all-enveloping and cataclysmic crisis as the one that the neoliberal era – and the Thatcherites and New Labour – have managed to produce. After all the boasting about the virtues of the Anglo-American model of capitalism, the Grim Reaper has finally spoken: a boom pumped up by credit steroids and a bust that takes us back to the 1930s.

There are two key aspects to this crisis: national and global, with the latter promising to be rather solutions are concerned, we are in uncharted territory, with close to zero interest rates, a Keynesian-style fiscal boost that may prove inadequate to the task and could well fail, a hugely indebted financial sector that threatens to leave us with an enormous future tax burden and a greatly expanded national debt. All of this, furthermore, must be addressed in the context of an open-market regime which is very different from those of previous eras, and which could render Keynesian-style national solutions ineffectual. What would greatly assist any national recovery is a co-ordinated global response to the crisis; in other words, global co-operation at the highest level. This cannot be ruled out, but it would be a brave person that would bet on it. It was exactly the lack of international co-operation that bedevilled recovery in the 1930s and eventually led to the Balkanisation of the world into regional currency and trading blocs.

The most important single question in this context is the relationship between the US and China. Will the Obama administration be able to resist the slippery slope of creeping protectionism? Will arguments over the revaluation of the Chinese renminbi be resolved amicably? If the answer is in the negative, then the global outlook will be very bleak indeed and so, also, as a result, will be the prognosis for national recoveries. Indeed, the prospects would look disturbingly like those of the 1930s, with growing international antagonism and friction and a continuingly intractable crisis at a national level, with only the very slowest of recoveries.

Around the world there is growing evidence by the week of a resort to national solutions at the expense of others: measures to subsidise industries that are in severe difficulties; the Buy American clause that was inserted by the House of Representatives into Barack Obama's latest package (though since weakened); the industrial action in Britain against foreign workers; the withdrawal of banks to their national homes; the attack by Timothy Geithner, the US treasury secretary, on China as a currency manipulator. No Rubicon has been crossed but the warning signs are clear. A retreat into protectionism and beggar-thy-neighbour policies will deliver the world into a second Great Depression.

So what will be the political effects of the financial meltdown? Some are already evident. Just as the Great Inflation of the 1970s played to the tunes and concerns of the right, with its invocation of the market, the New Depression suggests the opposite, the inherent limitations of the market and the indispensability of the state. Indeed, the speed with which the neoliberal refrains and invocations have unravelled has been breathtaking. The single most discredited aspect of the social democratic legacy was nationalisation, and yet the government, with the most extreme reluctance, has been obliged to nationalise Northern Rock and partially nationalise the Royal Bank of Scotland and the merged Lloyds TSB and HBOS. Who would have ever imagined, at any point during the past 30 years, that no less than the financial commanding heights of neoliberalism would have ended up in the hands of the state, with precious little opposition from anyone except a few disgruntled shareholders? Even now, however, the Labour government, still trapped in the ideological straitjacket of New Labour and displaying extreme timidity in the face of powerful vested interests, which has always been a New Labour characteristic, is running scared of the inevitable logic of the situation, namely that all the high-street banks should be taken into public hands until the mess is sorted out. Anything else leaves the public responsible for all the debts and risks, while the banks continue to be answerable to the very different interests of their shareholders. But such is the fury and depth of the crisis that this scenario is highly likely.

The state is experiencing an extraordinary revival. The credit crunch is the most catastrophic example of market failure since 1945. It became almost immediately obvious to wide sections of society that there was only one institution that could potentially sort out the mess: the state. Far from being a rational distributor of resources, the market had proved the opposite. Far from bankers and financial traders embodying the public interest, they have been exposed as irresponsible and dangerous risk-takers whose primary motivation was voracious greed. If trade unionists and the nationalised industries were the demons of the 1970s, bankers and the financial sector have assumed the mantle of public enemy number one in the late Noughties. In fact, the irresponsibility of bankers, and the damage they have inflicted on the economy, hugely exceeds anything that the unions could possibly be held responsible for in an earlier era. Meanwhile, the fallen heroes of the pre-Thatcher era, most notably Keynes, are duly being exhumed, restored to their rightful position, and pored over for their ability to throw light on the present impasse and what might be done; if the recession turns into a depression, Marx will once again become required reading.

This political shift is not just a British phenomenon, but a more general western one. The most striking feature of President Obama's inaugural speech was the way in which it embraced and legitimised African Americans for the first time in American history. But it also had another powerful theme, namely its invocation of the public interest and public service. After decades during which American political discourse has been dominated by the language of individualism and the market, it came as a shock to hear a US president articulate a very different kind of philosophy, renouncing private greed in favour of the public good. Obama's election can in part be seen as a response to the failure of the neoliberal era, as well as of Bush's neoconservative agenda; certainly his election represents a remarkable shift to the left in US politics, in contrast not just to Bush, but every recent US president, including Reagan, Bush Sr and Clinton. That Obama is the first African-American president also represents a remarkable redrawing of the political landscape. There is no more powerful - nor difficult - way of redefining society or to embrace a new form of representivity than to include a racial minority that has been excluded.

This brings us finally to what might be the longer-term global consequences of the crisis. Again, we are inevitably stumbling around in the dark because so much depends on whether the recession metamorphoses into a fully fledged depression and in what way and shape the world eventually emerges from the debacle. That said, two key points can be made. First, the credit crunch signals the demise of the Anglo-American, neoliberal model of capitalism, which has exercised a hegemonic influence over western capitalism and been the blueprint for globalisation since 1980. Because of its catastrophic failure there seems very little chance of its resurrection. The process of recovery - whenever that might be - will be accompanied by an overriding concern to ensure that the events of 2007-2009 are not repeated in the future, just as happened in the US in the 1930s with the strict regulatory framework that was introduced for the banks after their comprehensive failure in 1929. This will include the search for a new global regulatory framework that controls and constrains international movements of capital, as well as strict controls over the financial sector at a national level. A new set of political priorities - and with it a new political language - will be born.

Meanwhile, the influence and prestige that the US, and to a far lesser extent Britain, have enjoyed will vaporise in the same manner as their neoliberal model. Their 30-year project has failed and they will be obliged to pay the price in their reputation and the esteem in which they are held. The countries of the former Soviet Union and the casualties of the Asian financial crisis that were forced to swallow the neoliberal medicine will have good reason to feel aggrieved and resentful. The west has been forthright in accusing the non-western world of corruption. The financial meltdown suggests that the west has been guilty of huge hypocrisy. Systemic corruption has lain at the heart of the western financial system. An entirely disproportionate and extortionate level of bonuses has ensured the enormous enrichment of top executives in the financial sector, all in the name of reward for success, when in fact it was the reward for failure. In addition, we have had the collusion of the credit-ratings agencies; a regulatory system characterised by its failure to act as any kind of constraint; and governments that ensured the continuation of this web of relationships and applauded its achievements. The corruption was on a breathtaking scale as evidenced by the size of the bailouts required to rescue the banks. It will be difficult for western governments to make these kinds of accusations of others in the future. That Obama represents such a voice of hope will help to mitigate the inevitable ill-will towards the US, but this should not be exaggerated amid the euphoria surrounding developments in Washington.

The second point is more far-reaching. It is doubtful whether we can still describe ourselves as living in the American era or, indeed, the Age of the West. If not yet quite over, both are certainly drawing to a close, and it seems likely that the effect of the financial meltdown will be to accelerate the rise of China as a global power. The contrast between the situation in China and that in the US could hardly be greater, even though it has been partially obscured by the depressive effect of the western recession on Chinese exports and on China’s growth rate. While the US economy is contracting, China’s grew at roughly 9 per cent in 2008 and is projected to grow at about 6 per cent in 2009. Its banks, far from bankrupt like their US counterparts, are cash-rich. China enjoys a large current account surplus, the government’s finances are in good order and the national debt is small. This is a crisis that emanates from the US and whose impact on China has been essentially indirect, through the contraction of western markets. It is the American model that has failed, not the Chinese.

One of the factors that intensified the Great Depression, and indeed was part cause of it, was Britain's growing inability to continue in its role as the world's leading financial power, which culminated in the collapse of the gold standard in 1931. It was not until after the war, however, that the US became sufficiently dominant to replace Britain and act as the mainstay of a new financial system at the heart of which was the dollar. The same kind of problem is evident now: the US is no longer strong enough to act as the world's financial centre, but its obvious successor, namely China, is not yet ready to assume that mantle. This will undoubtedly make the search for a global solution to the present crisis more difficult and more protracted.

Martin Jacques's new column will be published fortnightly in the New Statesman. His book "When China Rules the World: the Rise of the Middle Kingdom and the End of the Western World" will be published in June (Allen Lane, £25)

the global downturn in numbers

    0.5%

    IMF prediction for global growth in 2009 - worst since WWII

    Up to 40 million

    Number of people who will lose their jobs this year, according to the International Labour Organisation

    $9.7trn

    Total pledged by the US alone towards solving the crisis

    3.6%

    Proportion of GDP pledged by the G7 and BRICs countries towards fixing the crisis (1.5% this year)

    2.3m

    Number of US properties that received a default notice or were repossessed in 2008. In the UK, 45,000 homes were repossessed - another 75,000 are expected to be taken in 2009

    14

    Number of major global banks which collapsed, were sold or were nationalised during 2008

    200,000

    Number of European companies expected to fail this year; an additional 62,000 are expected to fail in the United States. These figures represent record levels of insolvency

    52%

    Increase in UK company failures between late 2007 and late 2008

    14%

    Drop in level of Chinese exports during January

    1%

    Current UK interest rates (down from 5% in October 2008). In the US, rates have fallen to between 0 and 0.25%

How the crisis unfolded

13 September 2007 Run on Northern Rock begins when it is revealed that the bank has requested emergency support from the Bank of England

21 January 2008 FTSE suffers worst falls since 11 September 2001

February 2008 Northern Rock nationalised

17 March 2008 JP Morgan Chase takes over the US investment bank Bear Stearns

12 July Mortgage lender IndyMac collapses - second biggest US bank in history to fail

9 August 2007 European Central Bank pumps ?95bn into banking market

7 September Financial authorities step in to rescue Fannie Mae and Freddie Mac

9 September Bradford & Bingley becomes second British bank to be nationalised

15 September Lehman Brothers files for bankruptcy

16 September AIG, biggest insurance firm in the US, receives $85bn rescue package

3 October 2008 US government announces $700bn Troubled Assets Relief Programme

8 October UK launches its first bank bailout plan, making £50bn available

October 2008 Iceland's banks collapse. IMF extends £1.4bn ($2.1bn) loan a month later

24 November Alistair Darling announces a temporary cut in VAT from 17.5 to 15 per cent

23 January 2009 UK enters recession

28 January US Congress passes Barack Obama's $819bn stimulus package

5 February UK Monetary Policy Committee votes to cut interest rates to 1 per cent - the lowest in over three centuries

Michael Harvey

Martin Jacques is a journalist and academic. He is currently a visiting fellow at the London School of Economics Asia Research Centre and at the National University of Singapore. Jacques previously edited Marxism Today and co-founded the think-tank Demos in 1993. He writes the World Citizen column for the New Statesman. His new book on the rise of China, When China Rules the World, will be published in June.

This article first appeared in the 16 February 2009 issue of the New Statesman, The New Depression

Laura Hynd for New Statesman
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Having the last laugh

How Diane Abbott – overlooked, mocked and marginalised by her own party for three decades – ended up as the closest ally of a Labour leader

“I don’t think you’re up to it.” It is 1970, and Diane Julie Abbott, aged 17, is keen to apply to Cambridge University, but her history teacher has other ideas.

“I was an omnivorous reader,” she says now, sitting in her parliamentary office, in a prime spot overlooking the Thames, “and in all these books, particularly these novels between the wars, if you went to university, you went to Oxford or Cambridge.”

The teachers at Harrow County School for Girls, where Abbott was the only black girl in her class, were not supportive. Her memories are less happy than those of her contemporary Michael Portillo, who attended the affiliated boys’ grammar school, and who played Macduff to her Lady Macduff in a school play.

Even when Abbott succeeded, she was regarded with suspicion. She remembers getting an A-minus in an English class – a mark that disappointed her – and being asked to stay behind by the teacher. “She picked up my essay between her thumb and her forefinger and said: ‘Where did you copy this from?’ I was genuinely shocked.”

The story suggests that she acquired her ability to shrug off criticism early. It is also a reminder of how often she is underestimated. The Times journalist Matt Chorley once described a successful day for Labour as one in which “Diane Abbott was on TV a bit less”. Julie Burchill described her in the Spectator as a “preposterous creature” who “blotted the landscape of English politics, speaking power to truth in order to advance her career”. In the Guardian, Michael White dubbed her a “useful idiot”.

She has been endlessly dismissed as stupid, untalented and bad at politics – an obvious “diversity hire”. These criticisms are immune to evidence: her time at Cambridge, the only black British student from a state school in the entire university; her 12 years on the sofa with Portillo on BBC1’s This Week; her time in the shadow cabinet under Ed Miliband; her reliable ability to hold the line in television interviews; and now her status as Jeremy Corbyn’s closest political ally. She is largely ignored by lobby journalists, even as they lament their failure to secure a line into the Labour leader’s thinking. In 2017, Diane Abbott celebrates her 30th year in parliament. Should we take her seriously?

 

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Abbott’s mother, a nurse, and her father, a welder, were born in the same village in Jamaica, but met and married in London and lived in Notting Hill “before it was a fashionable place to live”. Abbott was born there in 1953, 12 years before the phrase “race relations” first made its way on to the statute books. “My father was very aspirational,” she recalls, “and so every weekend, he and my mother would drive round houses in Pinner, and every Monday they’d ring the estate agent, and the estate agent would say the house had gone. But, of course, the house wasn’t gone.”

Eventually, they did buy a house, not in Pinner but in Edgware, north London. “My brother – his best friend was Jewish,” she tells me, “and he’d attend the Jewish youth club with his friend, and one day his friend said in a really embarrassed way: ‘I’m really sorry, I’m afraid you can’t continue to attend the club, because they’re afraid it will encourage the girls to marry out.’

“The thing was,” she continues, “my brother was upset about this. We were all upset on his behalf but it was just part of life.” And in 1970, a black straight-A student being told that she wasn’t good enough to go to Cambridge was, again, part of life. It was her response that was out of the ordinary: “Well, I do think I’m up to it. And that’s what matters, isn’t it?”

At university, Abbott didn’t get involved in politics, and she found the Cambridge Union off-putting. Her hall tutor advised her to go into the civil service, and so she arrived at the Home Office in 1976, the lone black graduate trainee on what she now describes as “a quixotic quest to do good”.

In turn, that took her to the National Council for Civil Liberties, now Liberty. Believing it to be a hotbed of communist sympathisers, MI5 tapped the office phones, an action that was ruled unlawful in 1990. “One of the things that Diane still talks about,” a friend tells me, “is her experience not only of the Home Office, but of being the subject of official surveillance. She has a cynicism about the state that hasn’t gone away.”

Abbott also joined local campaigns on some of the issues that have defined her career, such as the abolition of the “sus laws”, the informal provision that allowed the police to stop and search anyone under the ­Vagrancy Act, which activists claim was used to target ethnic minorities in Britain. After joining the Labour Party, she became a councillor in Westminster in 1982.

In the 1970s and 1980s, as today, Labour took the lion’s share of the ethnic minority vote. But no one from an ethnic minority had ever sat as a Labour MP. In the 1983 election, just one person from a minority was selected as a parliamentary candidate, and in an ultra-safe Conservative seat. In response, Labour’s minority activists formed the Black Sections, a campaign to secure ethnic minority representation.

It was through these that Abbott met Linda Bellos, who was the leader of Lambeth Council, where Abbott worked as a press officer – her last job before entering parliament. “I was born here in 1950, one of 50,000 black people [living in the UK],” Bellos tells me. “We might have talked about going home but home for me was bleeding London, wasn’t it? Hence the need to make sure we were involved in all of the parts of the state. Someone like Diane had been to Cambridge, she’d been a councillor, she knew the democratic process, she was friends with a number of MPs, she knew the score. If someone like her couldn’t be selected, what was the point of any of us being here?”

The Black Sections wanted affiliated status, similar to that of the Fabians. But there were concerns that black candidates would not appeal to Labour’s presumed core white working-class vote. Some on the left saw “identity politics” as a distraction from the class struggle; and some on the right thought the Black Sections were too radical. At the 1984 conference, their plan was thrown out by a margin of ten to one.

Despite this setback, the fight had an important legacy. In the 1987 elections, four ethnic minority MPs entered the Commons for Labour: Paul Boateng in Brent South, Keith Vaz in Leicester East, Bernie Grant in Tottenham – and, in Hackney North and Stoke Newington, there was the 33-year-old Diane Abbott.

 

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She was the first black woman to be selected for a safe parliamentary seat. The Times marked the occasion with a leader denouncing her “rhetoric of class struggle and skin-colour consciousness”.

A few months later, the Sun profiled the “ten looniest Labour candidates” in Britain. “We were all there,” Abbott recalls. “Jeremy [Corbyn], the rest of us, and I was number eight.”

The local party in Stoke Newington was delighted with this firebrand reputation. “They said: ‘Stick with us, and we’ll take you right to the top!’”

The voters of north London were less welcoming. A brick was thrown through the office window of her local party. With Abbott as the candidate, some traditional Labour voters switched to the SDP-Liberal Alliance, taking the Labour vote below 50 per cent for the first time in the seat’s history (the second occasion was in 2005, just after the invasion of Iraq).

In parliament, the intake of ethnic minority MPs was regarded with caution. Abbott recalls that the then speaker of the House of Commons, Bernard Weatherill, was “very anxious”. She adds: “He thought we’d be like the Fenians and disrupt and collapse parliamentary process. So he invited Bernie [Grant], who was regarded as our leader, for port. And Bernie came for port and the speaker was very nice to him. And I imagine the speaker thought this was what stopped us being like the Fenians.”

Those Labour MPs who were disruptive – such as Corbyn the serial rebel – were in low spirits for other reasons. The marginalisation of Abbott and her allies during the late 1980s and 1990s explains why they have so little sympathy for the party’s beleaguered centrists in the current power struggle.

At the Labour conference in Liverpool this year – where she spoke as shadow health secretary – Abbott told me: “I came to party conference every year for 20 years, and we would lose and lose and lose. These people have lost twice and they’re complaining!”

Her thick skin was toughened during the New Labour years – and it reaffirmed her close friendship with Corbyn. (The two had a short sexual relationship in the early 1980s, which ended amicably. Abbott was married for two years to a Ghanaian architect from 1991 to 1993; her son, James, was born in 1992.) “She’s always had an odd hold on Jeremy,” one Labour MP tells me. “You would see them having lunch together and her bossing him about. I think people underestimate how influential she
is on his thinking.”

When David Lammy, her neighbouring MP in Tottenham, entered parliament in 2000 following the death of Bernie Grant, he found her “vilified, ostracised and exiled by the Blairites”. There were several attempts to remove her as an MP – another reason why the Corbyn camp is unconcerned by complaints from MPs such as Stella Creasy and Peter Kyle about their local parties threatening to deselect them.

Abbott retains a network of friends from her time before politics, including from her stint as a television producer. They urged her to quit in the Blair years – or to end her association with the left-wing Socialist Campaign Group. “I never thought I was willing to trade what I thought was right for some position in the party,” she says.

Some allies see it differently. “I don’t think Diane is someone who can quit [politics],” a friend told me. “I see her tweeting at all hours. She has interests, books and so forth, but she couldn’t walk away.”

Abbott says that Keith Vaz convinced her to stay, telling her, “You have forgotten what it took for us to get here.” (Some of Corbyn’s allies believe that this is what made the leader so supportive of Vaz during his latest scandal.) This sense of solidarity with other ethnic minority MPs has led to the long-standing rumour that Abbott would have nominated Chuka Umunna had Corbyn not stood for the Labour leadership.

“Diane is absolutely loyal to Jeremy,” one MP who knows them both well tells me. “She’s loyal to the project, yes, but she’s also loyal to him, in a way I don’t think you could honestly say about John McDonnell or Clive Lewis.” During the coup attempt against Corbyn last summer, Abbott spoke forcefully in favour of Corbyn remaining in place, rather than striking a deal to put Lewis or McDonnell on the ballot. “Her position,” one insider recalls, “was that we’d got a candidate we knew could win, and that candidate was Jeremy.”

Not that they always agree. Abbott advocated a less conciliatory approach after Corbyn’s first victory in 2015. “The thing that can be infuriating about Jeremy is that he likes to think the best of everyone,” she says. “I’m always perfectly straight with him as to what I think, and even if he doesn’t believe me at the time, he always does come round to my point of view.”

Abbott is one of the few people in the Parliamentary Labour Party whom Corbyn trusts completely. In their relationship, it’s hard to see who is the senior partner.

In the late 1990s and early 2000s, Corbyn and Abbott settled into a pattern of dissent, followed by defeat. Corbyn spent the time attending to foreign and human rights campaigns and signing thousands of early day motions. Abbott carved out a niche as a reliable critic of the Labour government under Tony Blair, with a month-long slot at the launch of the BBC’s This Week in 2003 blossoming into a regular gig alongside Michael Portillo. But away from Westminster, Abbott was making a decision that she knew could destroy her political career.

 

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The London borough of Hackney is today a national leader in schooling, but in 2002, just a third of students received five or more A*-C grades. That prompted Abbott to send her ten-year-old son, James, to City of London, a leading private school.

“I knew I could lose the seat over it,” she told me. “I was a single parent, and time after time, I had not been there for things at school, or I was too tired to take him out somewhere . . . I just thought, just this once, I should be prepared to make a sacrifice for him. If I lost the seat, then I lost the seat.”

She kept the seat. “Other things do annoy Diane – reporters saying things about her that aren’t true, people talking down to her,” one friend tells me. “But with [the schooling] I think she was very happy with that deal and to take that blow.”

Then, in 2010, Abbott’s career began a surprising second act: a bid for the party leadership. Activists and commentators felt uninspired by the choice in front of them – Ed Miliband, David Miliband, Andy Burnham and Ed Balls, four former special advisers from the New Labour era. Abbott called them “geeky men in suits”. Harriet Harman, in particular, was keen that the contest should not be an all-male field. Her support swayed Abbott. “If you had to pick one person, it was her,” she says, “because she was more mainstream.”

David Lammy set up a meeting between Abbott and David Miliband. The front-runner told her that, if she were a vote short in the nominations from MPs, he would vote for her. “But because it was David Miliband, I didn’t believe him.”

The elder Miliband had his own reasons for backing her. He believed that having her on the ballot would deprive his brother, Ed, of valuable support from the left. This was also the calculation that allies of Yvette Cooper made about Corbyn in 2015. “David’s legacy,” the Wakefield MP, Mary Creagh, wrote five years later, “made it normal – Blairite, even – to put a left-winger on the ballot to ‘have a broad debate’.’’

Of Corbyn’s campaign, Abbott says now: “I knew he’d do well, because what people missed is that had it been one person, one vote [in 2010], I’d have come third.”

Had the unions and the MPs not had a disproportionate influence on the result, she says, “I’d have beaten Andy Burnham, I’d have beaten Ed Balls. I’d been to 53 hustings – most Labour people are where Jeremy and I were. I knew there was much more left-wing sentiment in the Labour Party than the lobby thought.”

As a result of Corbyn’s victory in 2015, she is shadowing one of the great offices of state in what once looked like her final term in parliament. Her policy priorities as shadow home secretary are broad but include her favoured subjects of police reform and anti-racism. “I want to help shape the debate on migration,” she tells me. “I think we’ve had a very vacuous debate.”

That has put her at odds with the shadow chancellor, John McDonnell. Though both are long-time friends of Corbyn, their relationship is not warm. Allies believe that the division stretches back to the late 1980s, when McDonnell – then outside parliament – gloried in not going “soft” in the manner of Neil Kinnock. Abbott attracted suspicion, in part because of her early conversion to a pro-European position. Many believe that McDonnell never embraced the European project. He has ruled out opposition to Brexit and is behind the toughening of the party’s line on immigration. Abbott, privately and publicly, is determined to hold Labour to a more open and pro-immigration position. She has said that Labour cannot win as “Ukip-lite”, a coded rebuke to McDonnell.

The shadow chancellor is the only MP with a comparable influence to Abbott’s on Jeremy Corbyn and, thus far, the Labour leader has struck a middle path on migration, supporting Abbott’s line that the single market cannot be traded away for restrictions on the free movement of people but stopping short of a full-throated defence of free movement in principle.

As well as winning that internal battle, Abbott faces the task of landing more blows on Amber Rudd than her predecessors – Andy Burnham, Yvette Cooper and Ed Balls – managed against Theresa May when she was the longest-serving home secretary in a century, transforming the reputation of a department once regarded as a political graveyard. Not many give Abbott much chance of success but, as always, she believes in herself and thinks that she’s up to it.

Stephen Bush is special correspondent of the New Statesman

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

This article first appeared in the 12 January 2017 issue of the New Statesman, Putin's revenge