This is why Corbyn’s economic policies are dangerous for the UK

The British economy would suffer a ‘double whammy’ of a Corbyn government under a hard Brexit regime. I don’t think the country knows that yet

Tuesday 25 July 2017 15:39
The Labour leader’s appearance on the ‘Andrew Marr Show’ last Sunday made clear his instincts on Brexit
The Labour leader’s appearance on the ‘Andrew Marr Show’ last Sunday made clear his instincts on Brexit

Jeremy Corbyn. Excellent election result. Ahead in the polls. Wildly popular among his party members. Standing ovation from his MPs in the Commons. Grudgingly praised even by the likes of Tony Blair. He could soon be in Downing Street, if the Tories have some sort of meltdown or just mess up – which I don’t think anyone can exactly rule out in the age of weak and unstable government. Labour is keeping the summer heat on the Tories with impressive determination. Jeremy, I freely concede, may well be on his way.

One thing that will be different at the next election, though, is the degree of scrutiny he will come under – and especially on his economic policies. Last time round this wasn’t the case. We just had a load of old obscure stuff about Corbyn meeting the IRA/Hamas/people you’ve never even heard of, some racist ridiculing of Diane Abbott and ridiculous claims that the Labour Shadow Cabinet weren’t patriotic enough to want to blow all that cash on Trident. Silly and, worse, ineffective.

As my colleague John Rentoul has perceptively, as ever, written, then, the reason why Corbyn did so well last time is that his policies went largely unexamined. This was because no one expected to him to win. Now they do, and I think the time has come to take a closer and detailed look at Labour’s economic agenda. Under any leader of any party it could be truly disastrous, with or without Brexit. The fact it is “extreme”, as was so often said in the general election, is not an argument – as someone once nearly said, extremism in the pursuit of social justice is no vice. The point is that the policies won’t work. Here is a guide to just some of the low points in Labour’s programme:

Sectoral collective bargaining

In the last election campaign I cannot remember a single question being put by the media to Labour figures on this superficially jargony and dry aspect of industrial relations. There were a few news reports on it, but that was about that. Yet Labour plans the biggest revolution in industrial relations since the 1980s, with huge implications for private sector workers. What it means is that, say, all the journalists in the country, all the car workers, all the office support staff, say, will have to be involved in a national negotiation for the sector or industry they work in, rather than as now dealing with their own employer, whether individually or collectively. It implies an unprecedented advance in trade union power, especially among private sector employers, and will bring the private sector in line with the public sector, where this type of arrangement for, for example, NHS staff and teachers, is more usual.

The practical effect of this will be to make the weakest employers in an industry pay wages and other benefits on the same rates as the most successful and profitable players. The consequences of that are obvious: lower profitability or higher losses among the marginal companies, them going out of business and a net loss of jobs as a result. Those who manage to hang on will have done well; but those made redundant will be paying the price for the next man or woman’s pay increase. In the short term such pay arrangements would also be inflationary, especially if a Labour government “accommodated” these changes by stimulating the economy as unemployment edged upwards.

What’s more, sectoral pay bargaining rather than bargaining by company or operation will blunt the force of a dynamic economy; workers will have few incentives to move from less competitive enterprise and activities to the more profitable ones because it would make less and less difference over time to their pay.

There’s more on unions, in fact. A Corbyn government would be “only awarding public contracts to companies which recognise trade unions”, and recognition would be much easier, one assumes. There is just the hint that, added together, these proposed reforms would bring back the closed shop. This is a lost world to today’s workers, and a horrid one too. This was the system, operating until the late 1980s in some places, whereby a trade union could sack someone from their job by expelling them from the union, the rule being that only union members could work for a company under a collective agreement. It’s not explicit, I admit, but some of Corbyn’s ideas would only really work if they brought such a rule in, as, say, statutory recognition doesn’t make sense in a workplace where there are few if any union members.

Instead of having high employment and the most flexible labour market in Europe, one of Britain’s few advantages, we’d have one of the most sclerotic. That would make Britain less competitive, reduce employment and depress living standards in the longer run.

State subsidies and public procurement for trade and industry

Anyone under any illusions about Jeremy Corbyn’s instincts on Brexit should go and watch the interview he did with Andrew Marr last Sunday. Here he made it perfectly plain that one reason he is, and always has been, sceptical about the European Union is that it restricts “state aid” to industry. Corbyn and John McDonnell do not wish to be trammelled in this way by Brussels. If they want to rescue the Port Talbot steel works, say, then they want the freedom to do so, with public money, and not have some EU commissioner in Brussels or EU judge telling them off. That is why they reject the single market.

Labour would take Britain out of the EU single market, Corbyn says

OK, you might say, but you have to wonder why the EU would cheerily allow “tariff-free access” to EU markets for British steel and other goods and services, if the UK is allowed to dole out subsidies and others in the EU are not (at least in theory). Thus would the British steel industry, or what’s left of it, be left entirely in the hands of the taxpayer. Behind that is a transfer of taxation from successful enterprises to unsuccessful ones, at least if this was more than emergency aid.

A Labour government also wants the freedom to, in the words of the manifesto, “safeguard the capacity for public bodies to make procurement decisions in keeping with public policy objectives”. That means buying more expensive and less efficient British kit rather than cheaper and more efficient equivalents from Spain, Poland, Germany or wherever, whether they’re police cars or ready meals for school lunches. In other words the taxpayer gets a raw deal, and the producer interest triumphs. Again, the opposite of a market economy. It maybe what people want, or even need, but they should be aware that it has its downsides too. There is no “costing” for this in Labour’s manifesto because in a sense it has no direct identifiable visible financial cost, like so much else. But some cost and efficiency penalty there will certainly be.

Chaotic Brexit

Corbyn has done well by finessing the line that Labour will be able to have its cake and eat it, as his industry spokesperson Rebecca Long-Bailey admitted. The 2017 manifesto states: “As our trading relationship with the EU changes it is vital that we retain unrestricted access for our goods and services” and “Labour will develop and implement fair immigration rules. We will not discriminate between people of different races or creeds.”

Even without a British Corbyn government dishing out subsidies and nationalising industries, and favouring British workers over the rest of the EU with government contracts, this formula is patently unacceptable to the EU. It would take much more than a personalised Arsenal shirt to persuade Michel Barnier that that nice Mr Corbyn deserves a deal that defies the whole logic of the single market, the four freedoms and the EU’s, yes, capitalist tenets. Without such a deal we would be left with hard Brexit. That is a situation that could be made to work if the UK turned itself into the free-wheeling Singapore or Hong Kong of Europe, slashing taxes, deregulating markets and encouraging job creation and enterprise. It will not get there under state intervention and a massive extension of trade union power. The British economy would suffer a “double whammy” of a Corbyn government under a hard Brexit regime. I don’t think the country knows that yet.

Paid internships

The 2017 manifesto states: “Ban unpaid internships – because it’s not fair for some to get a leg-up when others can’t afford to.” Well, yes, but it means many employers will simply scrap their schemes. So no one gets a “leg-up”.

Maximum pay

Pledged: “Roll out maximum pay ratios of 20:1 in the public sector and in companies bidding for public contracts – because it cannot be right that wages at the top keep rising while everyone else’s stagnates.” Will that work? Of course not, but the bosses will either find an easy way round it (eg paying themselves in shares or remitting funds abroad or postponing payments til post-employment) or not come to the UK to work.

Rent controls

Promised: “Labour will make new three-year tenancies the norm, with an inflation cap on rent rises”.

True, this isn’t the worst form of rent control, but it is irrational to index rent rises to a basket of the CPI or RPI that includes, say, air fares, cinema tickets, new and used cars, cornflakes, cooked chicken and all the other things we buy that at are determined by utterly different factors of supply and demand. Over time rents would probably be lower, but it would also mean more run-down properties where landlords skimp on maintenance (even with government enforcement of standards), more sub-letting rackets (where sub-tenants get charged the higher market rate and tenants pocket the difference) and a reduction in supply and the responsiveness of the rental market to changing demands. Maybe the rise in provision of social housing would help, but that too would be subject to controls and distortions.

I take one thing back though. “Back to the Seventies”, which we heard a lot of in the election campaign was indeed always an overused and slightly meaningless slogan to a generation who were born 20 years or more after the era of Heath, Wilson, Healey, Callaghan, Powell and Benn. To those of us who did live through that tumultuous decade, however, it means a lot. We suffered from the union power, rent controls, pay controls and other unworkable policies of Tory and Labour governments of that statist, corporatist time.

All the ministers of the time were well-meaning and decent people, as are Corbyn and his colleagues – but the policies failed. The very policies that were designed to help working people had the opposite effect. They would do so again. It was an experience that we would not wish to visit upon millennials or anyone else, with or without Brexit.