Labour's acting leader Harriet Harman speaks at the party's HQ on May 18, 2015. Photograph: Getty Images.
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Labour's week of crisis: the inside story

How acting leader's Harriet Harman's stance on welfare cuts became a battle for the soul of the party. 

When Labour MPs gathered for their weekly meeting in committee room 14 at the House of Commons on the evening of 13 July, the mood was grimmer than at any point since the party’s general election defeat in May. Five days earlier, they had watched George Osborne triumphantly deliver the first Conservative-only Budget in 19 years, which included policies such as a “National Living Wage” and an apprenticeship levy on firms – measures considered but rejected under Ed Miliband. The Chancellor’s political opportunism was a reminder, as one shadow minister told me, that: “Being in opposition is horrible.”

In the days after the Budget, unease grew as Harriet Harman, the party’s acting leader, and Chris Leslie, the shadow chancellor, signalled that Labour would not oppose Conservative policies such as the 1 per cent cap on public-sector pay rises for four years and the reduced benefit cap of £20,000 (£23,000 in London). The tipping point came when Harman announced on 12 July that the leadership would also abstain on the welfare reform bill and would not reject the two-child limit on tax credits. To their fury, neither the shadow cabinet nor MPs had been consulted in advance.

“It’s gone to her head,” a senior figure told me of Harman’s ascension to leader of the opposition following Ed Miliband’s resignation in May. “She wants to teach Labour a lesson.”

After arriving at 6.10pm – ten minutes late – at committee room 14, Harman began by telling the meeting that as soon as the exit poll was published on election night, she knew that her constituents would “take a thumping” under the Tory government. Yet she reaffirmed her view that Labour could not credibly resist all of the government’s welfare cuts. “If we oppose everything, people will not hear those things we are opposing and why,” she said. Harman recalled that in the last parliament, Labour voted against all 13 of the government’s welfare bills but only its rejection of the “bedroom tax” registered with the public.

The acting leader was described by one Blairite MP as having been “mugged by reality”. Harman believes that Labour will only return to power if it explicitly repudiates its Miliband-era positioning on the deficit and welfare. When at a shadow cabinet meeting on 6 July Andy Burnham, the leadership front-runner, cautioned against embracing austerity, Harman acidly replied: “But Andy, we lost that argument. You may have noticed that we lost the election.”

In committee room 14, one MP after another rose to rebuke her. Of the 25 who spoke, just five defended Harman’s stance. One rebel, Andy McDonald, warned that she was tolerating the policies of “Mao Zedong and King Herod” by refusing to oppose the two-child tax credit cap. Frank Field, the work and pensions select committee chairman, began by praising Harman’s performance as acting leader, declaring that he would vote to give her the job permanently. He ended, however, by berating her refusal to table reasoned amendments against the cuts to tax credits. Keith Vaz, the chair of the home affairs select committee, quipped that he never thought he would see the day when Harman was attacked “from the left” by Field.

Midway through the meeting, the former party leader Neil Kinnock emerged. “Not much,” he replied disdainfully when asked what he thought of Harman’s speech. His son, Stephen, the MP for Aberavon, had earlier remarked that the two-child cap was “awfully reminiscent of some kind of eugenics policy”. Support for Harman came from the Labour leadership candidate Liz Kendall, who praised her for “a great speech” as she left the room. (Kendall’s rivals – Andy Burnham, Yvette Cooper and Jeremy Corbyn – were absent from the meeting.)

At an uneasy shadow cabinet meeting the following day, Labour’s senior figures were “completely divided”, in the words of one of those present. Some, such as Leslie and Rachel Reeves, the shadow work and pensions secretary and Burnham’s shadow chancellor-in-waiting, endorsed Harman’s call to abstain on the welfare bill. Others, such as Cooper, suggested tabling reasoned amendments. Three, including Burnham, argued that Labour should vote against the bill. The decisive stand taken by the shadow health secretary has helped his campaign. “This could be the day that he won,” one shadow cabinet minister told me afterwards.

Labour’s left is in despair at an acting leadership that it regards as needlessly austere. The right is in despair at a party that it regards as recklessly profligate. Yet their angst has points of crossover. Many MPs confess to being unenthusiastic about the party’s leadership contest and concede that Labour will likely lose the next election. One senior figure told me: “Nobody is interested in the leadership campaign. I liken it to one of those albums that people release and no one buys. They’ve printed loads of albums, all the sales teams are really into it – but no one is buying the record. It’s really quite serious now. We are falling outside of the affections and the interests of the people.”

Conversation frequently turns to who could lead the party after another defeat in 2020: the former paratrooper Dan Jarvis; the shadow business secretary, Chuka Umunna (who withdrew from the race after just a few days); the former director of public prosecutions Keir Starmer; even David Miliband. The question, an insider said, was whether the party was electing “Iain Duncan Smith or Michael Howard” – someone who will take the party backwards or someone who will achieve modest progress.

The only leadership candidate who has had consistent momentum is Corbyn, the 66-year-old left-winger who was elected in 1983. When the Islington North MP first made the ballot, after colleagues nominated him to ensure a “broad debate”, many dismissed him as a token contender. Now, almost all in the party expect him to finish ahead of Kendall and some predict that he will come second. It is a prospect that has caused alarm. Umunna told me: “In this leadership contest, there are no free hits when you’re voting. People have got to consider very carefully what message the result on 12 September will send to the public.

“It’s not just about who wins this contest, it is the shakedown of the results.”

At the time of writing, Corbyn had been nominated by 41 Constituency Labour Parties, putting him ahead of Kendall (5) and Cooper (30). One MP warned of “1980s-style entryism” as the left grew in strength. An aide to Cooper, however, told me that CLP meetings represented “a fraction of the membership”, adding that this was not “a panic situation”. The irony of Corbyn’s ascension (to the point where an increasing number ask whether he could win), one source said, is that "He doesn’t want to be leader, he was very open about just wanting to influence the debate. It would ruin his summer, it would ruin his life."

 

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Jeremy Corbyn’s supporters are satisfied that he has already shifted the terms of debate leftwards on issues such as the 1 per cent public-sector pay cap – which all of the candidates oppose – and the child tax credit cuts. Some MPs believe that Harman’s intervention was an attempt to halt this trajectory.

In the Kendall camp, there is anger that Burnham and Cooper have not rejected Corbyn more forcefully. John Woodcock, a member of Kendall’s campaign team, told me: “We all shared a view, the mainstream of the Labour Party, that advocating Jeremy’s route as a party spells sure-fire marginalisation and electoral defeat. But of all the people who are involved in this leadership race, Liz is the only one saying it. Are the others not saying it because they have changed their mind? Do they believe the basic approach of the Labour Party since Kinnock was wrong? Or are they not saying it out of misplaced tactics or convenience?”

Among MPs, the view is that Kendall recklessly positioned herself as the “New Labour” candidate, guaranteeing defeat among a selectorate that lies to the left of that of 2010. Umunna, who endorsed the shadow health minister after withdrawing from the race, told me that the “modernising part of the party” was “identifying the right problems” but was “wanting in coming up with the solutions”. He added: “We are using the vocabulary and concepts that were being used in the late Nineties and early Noughties when we’re heading towards the 2020s and the 2030s. I think we’ll know that we are ready and have successfully rebooted and are ready to govern again when we are actually using a different vocabulary and have new concepts to offer.”

Although many MPs predict that Cooper will ultimately triumph on second preferences as the least divisive candidate, her team concedes that Burnham remains the front-runner. Some believe the presence of Corbyn in the race has helped Burnham by making it harder to paint him as the creature of the left and the trade unions (it was Corbyn who won Unite’s nomination). And to the relief of the Blairites, Burnham has distanced himself from Cooper by apologising for the pre-crash deficit under the last Labour government. It is a stance that some suggest the shadow home secretary will not countenance, because it would amount to disowning the position of her husband, Ed Balls. A Cooper aide, however, told me that “Andy had set traps for himself” by ­“playing into Osborne’s hands” on the issue.

All of this does little to distract MPs from the defeat of 7 May and the defeat that many fear the party will suffer in 2020. Umunna describes Labour as still being “in shock and grief at what happened”. Even at the lowest moments of Ed Miliband’s leadership, a route back to power appeared open. Now, there is no consolation available, including of the false kind.

“We’ll be here all over again in five years’ time and probably the five after that,” one MP concluded. Labour, they fear, is once again the natural party of opposition.

George Eaton is political editor of the New Statesman.

This article first appeared in the 16 July 2015 issue of the New Statesman, The Motherhood Trap

Picture: Archives Charmet / Bridgeman Images
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What Marx got right

...and what he got wrong.

1. You’re probably a capitalist – among other things

Are you a capitalist? The first question to ask is: do you own shares? Even if you don’t own any directly (about half of Americans do but the proportion is far lower in most other countries) you may have a pension that is at least partly invested in the stock market; or you’ll have savings in a bank.

So you have some financial wealth: that is, you own capital. Equally, you are probably also a worker, or are dependent directly or indirectly on a worker’s salary; and you’re a consumer. Unless you live in an autonomous, self-sufficient commune – very unusual – you are likely to be a full participant in the capitalist system.

We interact with capitalism in multiple ways, by no means all economic. And this accounts for the conflicted relationship that most of us (including me) have with capitalism. Typically, we neither love it nor hate it, but we definitely live it.

2. Property rights are fundamental to capitalism . . . but they are not absolute

If owning something means having the right to do what you want with it, property rights are rarely unconstrained. I am free to buy any car I want – so long as it meets European pollution standards and is legally insured; and I can drive it anywhere I want, at least on public roads, as long as I have a driver’s licence and keep to the speed limit. If I no longer want the car, I can’t just dump it: I have to dispose of it in an approved manner. It’s mine, not yours or the state’s, and the state will protect my rights over it. But – generally for good reason – how I can use it is quite tightly constrained.

This web of rules and constraints, which both defines and restricts property rights, is characteristic of a complex economy and society. Most capitalist societies attempt to resolve these tensions in part by imposing restrictions, constitutional or political, on arbitrary or confiscatory actions by governments that “interfere” with property rights. But the idea that property rights are absolute is not philosophically or practically coherent in a modern society.

3. What Marx got right about capitalism

Marx had two fundamental insights. The first was the importance of economic forces in shaping human society. For Marx, it was the “mode of production” – how labour and capital were combined, and under what rules – that explained more or less everything about society, from politics to culture. So, as modes of production change, so too does society. And he correctly concluded that industrialisation and capitalism would lead to profound changes in the nature of society, affecting everything from the political system to morality.

The second insight was the dynamic nature of capitalism in its own right. Marx understood that capitalism could not be static: given the pursuit of profit in a competitive economy, there would be constant pressure to increase the capital stock and improve productivity. This in turn would lead to labour-saving, or capital-intensive, technological change.

Putting these two insights together gives a picture of capitalism as a radical force. Such are its own internal dynamics that the economy is constantly evolving, and this in turn results in changes in the wider society.

4. And what he got wrong . . .

Though Marx was correct that competition would lead the owners of capital to invest in productivity-enhancing and labour-saving machinery, he was wrong that this would lead to wages being driven down to subsistence level, as had largely been the case under feudalism. Classical economics, which argued that new, higher-productivity jobs would emerge, and that workers would see their wages rise more or less in line with productivity, got this one right. And so, in turn, Marx’s most important prediction – that an inevitable conflict between workers and capitalists would lead ultimately to the victory of the former and the end of capitalism – was wrong.

Marx was right that as the number of industrial workers rose, they would demand their share of the wealth; and that, in contrast to the situation under feudalism, their number and geographical concentration in factories and cities would make it impossible to deny these demands indefinitely. But thanks to increased productivity, workers’ demands in most advanced capitalist economies could be satisfied without the system collapsing. So far, it seems that increased productivity, increased wages and increased consumption go hand in hand, not only in individual countries but worldwide.

5. All societies are unequal. But some are more unequal than others

In the late 19th and early 20th centuries, an increasing proportion of an economy’s output was captured by a small class of capitalists who owned and controlled the means of production. Not only did this trend stop in the 20th century, it was sharply reversed. Inherited fortunes, often dating back to the pre-industrial era, were eroded by taxes and inflation, and some were destroyed by the Great Depression. Most of all, after the Second World War the welfare state redistributed income and wealth within the framework of a capitalist economy.

Inequality rose again after the mid-1970s. Under Margaret Thatcher and Ronald Reagan, the welfare state was cut back. Tax and social security systems became less progressive. Deregulation, the decline of heavy industry and reduction of trade union power increased the wage differential between workers. Globally the chief story of the past quarter-century has been the rise of the “middle class”: people in emerging economies who have incomes of up to $5,000 a year. But at the same time lower-income groups in richer countries have done badly.

Should we now worry about inequality within countries, or within the world as a whole? And how much does an increasing concentration of income and wealth among a small number of people – and the consequent distortions of the political system – matter when set against the rapid ­income growth for large numbers of people in the emerging economies?

Growing inequality is not an inevitable consequence of capitalism. But, unchecked, it could do severe economic damage. The question is whether our political systems, national and global, are up to the challenge.

6. China’s road to capitalism is unique

The day after Margaret Thatcher died, I said on Radio 4’s Today programme: “In 1979, a quarter of a century ago, a politician came to power with a radical agenda of market-oriented reform; a plan to reduce state control and release the country’s pent-up economic dynamism. That changed the world, and we’re still feeling the impact. His name, of course, was Deng Xiaoping.”

The transition from state to market in China kick-started the move towards truly globalised capitalism. But the Chinese road to capitalism has been unique. First agriculture was liberalised, then entrepreneurs were allowed to set up small businesses, while at the same time state-owned enterprises reduced their workforces; yet there has been no free-for-all, either for labour or for capital. The movement of workers from rural to urban areas, and from large, unproductive, state-owned enterprises to more productive private businesses, though vast, has been controlled. Access to capital still remains largely under state control. Moreover, though its programme is not exactly “Keynesian”, China has used all the tools of macroeconomic management to keep growth high and relatively stable.

That means China is still far from a “normal” capitalist economy. The two main engines of growth have been investment and the movement of labour from the countryside to the cities. This in itself was enough, because China had so much catching-up to do. However, if the Chinese are to close the huge gap between themselves and the advanced economies, more growth will need to come from innovation and technological progress. No one doubts that China has the human resources to deliver this, but its system will have to change.

7. How much is enough?

The human instinct to improve our material position is deeply rooted: control over resources, especially food and shelter, made early human beings more able to reproduce. That is intrinsic to capitalism; the desire to acquire income and wealth motivates individuals to work, save, invent and invest. As Adam Smith showed, this benefits us all. But if we can produce more than enough for everybody, what will motivate people? Growth would stop. Not that this would necessarily be a bad thing: yet our economy and society would be very different.

Although we are at least twice as rich as we were half a century ago, the urge to consume more seems no less strong. Relative incomes matter. We compare ourselves not to our impoverished ancestors but to other people in similar situations: we strive to “keep up with the Joneses”. The Daily Telegraph once described a London couple earning £190,000 per year (in the top 0.1 per cent of world income) as follows: “The pair are worried about becoming financially broken as the sheer cost of middle-class life in London means they are stretched to the brink.” Talk about First World problems.

Is there any limit? Those who don’t like the excesses of consumerism might hope that as our material needs are satisfied, we will worry less about keeping up with the Joneses and more about our satisfaction and enjoyment of non-material things. It is equally possible, of course, that we’ll just spend more time keeping up with the Kardashians instead . . .

8. No more boom and bust

Are financial crises and their economic consequences part of the natural (capitalist) order of things? Politicians and economists prefer to think otherwise. No longer does anyone believe that “light-touch” regulation of the banking sector is enough. New rules have been introduced, designed to restrict leverage and ensure that failure in one or two financial institutions does not lead to systemic failure. Many would prefer a more wholesale approach to reining in the financial system; this would have gained the approval of Keynes, who thought that while finance was necessary, its role in capitalism should be strictly limited.

But maybe there is a more fundamental problem: that recurrent crises are baked into the system. The “financial instability” hypothesis says that the more governments and regulators stabilise the system, the more this will breed overconfidence, leading to more debt and higher leverage. And sooner or later the music stops. If that is the case, then financial capitalism plus human nature equals inevitable financial crises; and we should make sure that we have better contingency plans next time round.

9. Will robots take our jobs?

With increasing mechanisation (from factories to supermarket checkouts) and computerisation (from call centres to tax returns), is it becoming difficult for human beings to make or produce anything at less cost than a machine can?

Not yet – more Britons have jobs than at any other point in history. That we can produce more food and manufactured products with fewer people means that we are richer overall, leaving us to do other things, from economic research to performance art to professional football.

However, the big worry is that automation could shift the balance of power between capital and labour in favour of the former. Workers would still work; but many or most would be in relatively low-value, peripheral jobs, not central to the functioning of the economy and not particularly well paid. Either the distribution of income and wealth would widen further, or society would rely more on welfare payments and charity to reduce unacceptable disparities between the top and the bottom.

That is a dismal prospect. Yet these broader economic forces pushing against the interests of workers will not, on their own, determine the course of history. The Luddites were doomed to fail; but their successors – trade unionists who sought to improve working conditions and Chartists who demanded the vote so that they could restructure the economy and the state – mostly succeeded. The test will be whether our political and social institutions are up to the challenge.

10. What’s the alternative?

There is no viable economic alternative to capitalism at the moment but that does not mean one won’t emerge. It is economics that determines the nature of our society, and we are at the beginning of a profound set of economic changes, based on three critical developments.

Physical human input into production will become increasingly rare as robots take over. Thanks to advances in computing power and artificial intelligence, much of the analytic work that we now do in the workplace will be carried out by machines. And an increasing ability to manipulate our own genes will extend our lifespan and allow us to determine our offspring’s characteristics.

Control over “software” – information, data, and how it is stored, processed and manipulated – will be more important than control over physical capital, buildings and machines. The defining characteristic of the economy and society will be how that software is produced, owned and commanded: by the state, by individuals, by corporations, or in some way as yet undefined.

These developments will allow us, if we choose, to end poverty and expand our horizons, both materially and intellectually. But they could also lead to growing inequality, with the levers of the new economy controlled by a corporate and moneyed elite. As an optimist, I hope for the former. Yet just as it wasn’t the “free market” or individual capitalists who freed the slaves, gave votes to women and created the welfare state, it will be the collective efforts of us all that will enable humanity to turn economic advances into social progress. 

Jonathan Portes's most recent book is “50 Ideas You Really Need to Know: Capitalism” (Quercus)

Jonathan Portes is senior fellow The UK in a Changing Europe and Professor of Economics and Public Policy, King’s College London.

This article first appeared in the 22 June 2017 issue of the New Statesman, The zombie PM

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