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14 October 2022

The left shouldn’t gloat when the markets dictate policy

When an elected party is prevented from making policy by unelected investors, it’s hardly cause for celebration.

By Jonny Ball

Tufton Street, Westminster, is home to many of the UK’s most influential right-wing brain trusts. Lost tourists looking for the neighbouring Westminster Abbey may not notice the understated brass-plate signs or the smartly anonymous red-brick facades. But behind closed doors, think tanks, political consultancies and lobby groups of radical free marketeers and small-state, anti-tax libertarians draw up plans to unleash full-throttle capitalism on a Britain that is apparently still in thrall to bloated government and European-style social democracy.

For this subset of British conservatives, Trussonomics was a godsend. High taxes, the green agenda and an overbearing state were stifling the entrepreneurial spirit of these great islands. In the Prime Minister and her (now former) chancellor, Kwasi Kwarteng, they saw like-minded true believers. The mini-Budget last month would slash away at Johnsonian tax rises and spur a new “Big Bang”. Growth would be unleashed as red tape and regulations were dumped. The initial lost Treasury revenues would soon be more than compensated for by ballooning GDP.

That vision soon collided with reality as Kwarteng’s “fiscal event” provoked chaos in bond markets, a tumbling pound, soaring borrowing costs and emergency intervention from the Bank of England that cost the chancellor his job. A resident of No 11 for just 38 days, he truly lived up to his “Kami-Kwasi” moniker.

But the left should pause (if only for a moment) before celebrating the downfall of the chancellor, the humiliation of the PM, and the dismantling of a budget that acted as an unfunded cash giveaway to the wealthy. That’s because Truss, Kwarteng and their ideology of fiscally incontinent neoliberalism have been brought to heel by the same mechanisms that would pose the greatest threat to any radical, transformational programme of the left: the impersonal and unaccountable power of international finance and “market forces”.

There’s a reason why Jeremy Corbyn’s shadow chancellor, John McDonnell, told the Momentum faithful that his team were engaging in “war-game type scenario planning” for a run on the pound and capital flight in the first hundred days of a Corbyn-led Labour government. There’s a reason his shadow Treasury team launched a “charm offensive” on the City of London, financiers and business grandees. Every time a radical party has entered the corridors of power in an open, advanced market economy, its plans have been priced against the wishes of gilt traders, currency speculators and international investors. The policy programmes of elected governments – from Mitterrand’s Socialists in France in the 1980s to Syriza in Greece in the 2010s – have had to be tailored to satisfy the whims of the markets.

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In the 1980s the response to this perennial conundrum of how to build a socialist model in a capitalist world led the British left to advocate for what was described by detractors as a “siege economy”: capital, currency and import controls; high tariffs and trade barriers; public investment in nationalised domestic industries; and wages and prices determined by government. Few in today’s globalised, integrated world economy would vouch for such an approach, and so the financial sages and ineffable market forces must be placated.

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Truss’s deficits would have meant money flowing towards the wealthy, in the hope that it would “trickle” down, rather than the improved investment in services, public sector salaries, council budgets or capital spending that the left might prioritise. Yet the same fate awaits any radical manifesto, whether it focuses on the cost of living or the climate crisis. If it involves any kind of deficit spending, any hint of “monetary financing” or any sign that Britain might not be a safe haven for investment, it will be sacrificed on the altar of sound money.

Labour has surged ahead in the polls as the government flounders in the face of unprecedented economic turmoil, its credibility exhausted after twelve years of Conservative power. The left should therefore have hope. But while today it might be the plans of the right that are being rewritten by the markets, one day it could be the left.

[See also: Liz Truss makes Jeremy Hunt her human shield, but how long can she last?]

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