Busting the austerity myth, part 1

Gideon Calder interviews the former Welsh Secretary, Peter Hain, about his challenge to the neoliberal orthodoxy

Gideon Calder:  I’m here with Peter Hain, to discuss his book Back to the Future of Socialism.  I suppose the question with which to start is: you spent 24 years as MP for Neath.  Do you miss it?

Peter Hain:  Well you’re only asking me seven weeks into retirement, as it were!  It’s not a question of missing it or not missing it.  It was a fantastic privilege to do it, and I enjoyed it all the time.  But I’m planning a new future, and making a transition to that.

GC:  So what have you got planned?

PH: All sorts of things.  Some are in train, some are still to be announced.  It’s a mixture of politics, maintaining activity nationally, and also doing charitable work – on Africa, and other matters.

GC: So still involved in Labour politics?

PH: Oh, still intrinsically involved with Labour politics.  I was at my first ward meeting for over 25 years last night, and was appointed to the General Committee of the local constituency party.  Labour will still be very much at the centre of my heart.

 GC: Are there particular lessons to be learned from May’s general election result?

PH: Well there are lots of lessons.  My view is that the key one should be – and this is the theme of my book – that Labour has to have a credible alternative to austerity.  Our failure to present that, and our failure to look credible on the economy therefore, in my view was a central (perhaps the central) reason for our defeat.  There were other reasons, and they have been well-canvassed across the debate and the commentary.  But I think that’s the main one.

 GC: Right.  So there’s a kind of orthodoxy around austerity and neoliberalism that Labour have not sufficiently challenged?

PH: Yes.  I think that there’s a kind of suffocating orthodoxy that the only way to get rid of the deficit and the high national debt, and along with it the borrowing, is to cut and cut and cut.  It’s a version of the old medical practice, centuries ago, of bleeding the patient.  And it doesn’t work.  Growth is the path to getting the deficit down and the debt down – not cuts.  That was a verity projected by John Maynard Keynes in taking on exactly the same kind of neoliberalism (though it may not have been called that then) before the Second World War.  And people just don’t seem to have learned the lessons.  And although I think the Labour leadership in the last election kind of knew that, and half alluded to it, it was never convincingly projected.  And you have to start with what I call the ‘big deceit’ with regard to the record of the last Labour government.  It’s as if it was Labour spending on police officers and nurses and schools and care workers that caused the sub-prime market in America to implode, and the worldwide financial and banking crisis to ricochet through all our lives.  It’s just absurd.  And yet, we allowed the Conservatives and the Liberal Democrats to embed that story so deeply in the public’s mind – with an enthusiastic chorus of support from the media.  And we got defensive on that.  I saw so many Labour leaders, candidates and spokespersons on programmes from Question Time to Good Morning Wales to the Today programme getting absolutely caught in the headlights of that onslaught, and just blinking at it.  If you don’t deal with it, you’re dead.

 GC:  Among economists, there is increasing recognition that Keynes is due a comeback.  There is a great deal of scepticism about the whole austerity package – even from the WTO and the IMF, let alone Joseph Stiglitz, Paul Krugman, Anthony Atkinson, Will Hutton and other familiar dissident voices.  It’s striking that while intellectually, that battle seems to be being won by the Keynesians, that at ground level, amongst the general public, ‘common sense’ wisdom seems to align much more closely with the austerity agenda.  This seems a key success of George Osborne’s narrative.  It’s kept the Keynesian alternative sounding like an odd idea.

PH: Yes, I think you’ve got a fair point, in that what Osborne and Cameron have done very successfully – and it’s principally Osborne that’s the architect of this – is to make the analogy between household finances and national finances, household budgets and national budgets.  Whereas actually, the two are not the same.  It’s like comparing apples and pears.  But in addition, it misrepresents the household budget.  If you have a mortgage, you’re borrowing.  And you borrow to realise an asset, and to pay off your mortgage (and therefore your debt) in the longer term.  I’ve just written an afterword for Back to the Future of Socialism for the paperback which is coming out in September.  And I’ve gone back to the 1950s, and looked at what Harold Macmillan’s government was doing – let alone Attlee’s government before it.  And you find, sixty years before the general election of last May, Harold Macmillan totally unconcerned with a ginormous national debt – by today’s comparison, never mind what it was immediately after the war.  What he’s doing – and where the debate was then, also among socialist writers like Anthony Crosland – is debating how many houses can be built, how much investment can be made in our infrastructure, in railways and so on.  And the deficit kept steadily falling in the years after the war when Clement Attlee’s Labour government created and invested in the National Health Service and the welfare state, rebuilt a shattered, war-torn economy.  Churchill, Eden and Macmillan all understood that actually the way to bring down these (in today’s terms) luridly high deficits in borrowing and national debt is actually by getting growth into the economy.  That’s when people start spending money, when businesses start investing, when people get decent jobs rather than the kinds of job that far too many are in at the moment – zero hours contracts, insecure, part time and badly paid.  That’s the way forward.

And also, it’s pretended that Osborne’s economic policy is working.  Actually, they overshot their borrowing and national debt targets.  That’s to say, the targets the Coalition government set in 2010.  By the May general election, they had massively overshot on the deficit, way over what Labour planned in 2010 – which they criticised at the time as liable to bankrupt the country.  And now it’s: ‘No matter, our economic plan [as they called it] is working’.  And nobody in the media questions this, from the print media to the BBC, Sky and ITV.  Nobody questions it.  It’s what I call the ‘big deceit’.  There’s a drip, drip, drip effect, into the national consciousness.

 And I think all this is beyond party politics.  I think it’s much more serious than that.  It’s about the future of the country.  Because actually, what is happening to the economy is that the bit of growth that we have is pretty fragile and falling compared to where it initially was as the economy bounced back (as all economies do, after depressions).  And what’s it based on?  It’s based on an assets bubble – a housing price increase, a kind of consumerist bubble.  The trade deficit is actually at a record high.  Our productive economy – our manufacturing base – is pathetically small.  And they don’t seem to worry about the gigantic trade deficit, and the ways in which we’re indebting ourselves to foreign nations.  That seems to be beyond the pale for popular debate.

GC: The title of your book deliberately echoes Tony Crosland’s The Future of Socialism, which came out 59 years ago.  The world has changed a lot since then.  The word ‘socialism’ itself is used rather less these days, though many might say it’s due a comeback.  Why return to that particular juncture, as a launchpad for this rethinking of our priorities now?

PH: Well I thought it was important to look at Crosland because his book formed, effectively, the foundations of the agenda of the Labour governments of Harold Wilson, Jim Callaghan, Tony Blair and Gordon Brown – all the way up to the banking crisis of 2008.  His philosophy was one of growth, and careful management of spending, getting to balanced budgets when you could, and paying down the national debt when you could (as the last Labour government did before the banking crisis, though you’d never believe this from the media coverage and the political propaganda).  But the key thing was investing in growth.  That was the whole rationale of his approach.  Obviously a lot has changed since then, as I describe in the book.  But I wanted to use that as a framework.  It’s noticeable that Crosland was saying then was attacked by the Left, a position which I’m now arguing from, in terms of the Labour Party debate.  The Left attacked Crosland’s agenda then because it wasn’t about nationalising the commanding heights of the economy.  He was arguing that under a capitalist framework, you could achieve Labour’s major goals by investment in growth and greater equality.  The extra wealth that such growth produces, if harnessed properly (in all sorts of ways but principally through public spending) can actually create a much better society.  And that seemed to work, as a Labour agenda, up to the banking crisis.  But now we seem to have forgotten the truths of all of that.  And that’s why I wrote the book in that way.

GC: There are various ways in which the landscape has changed a lot, since the 1950s.  Some of these were anticipated by Crosland, in fact.  He foresaw an increasing individualism, for example, as a factor which would shape any viable social democratic agenda.  But other changes also seem especially significant.  One is the marketization of society.  This has run a lot deeper than Crosland saw coming.

PH: Definitely.

GC: Another is the prominence of environmental priorities.  It wasn’t really on the table then, in the same way.  It’s not mentioned in The Future of Socialism, and it’s not something he felt he had to grapple with.  Whereas now, clearly, any serious progressive agenda has to weave in serious attention to green issues.  You address these in your own book.  But I wonder the extent to which you think they, as it were, blow a hole in Crosland’s original project?  Does the green agenda necessitate a substantively different shape to social democratic politics?  Or is it just a matter of adjusting the framework we find in post-war British socialist thinking?

PH: Well it’s a fair point.  And of course the other thing he didn’t anticipate was the whole question of equal opportunity, in all its forms: equality with regard to gender, sexuality, disability, age and so on.  And he never anticipated, either, the fragility of the banking system, to the extent that we are now aware of that.  (I don’t think it’s been repaired – there will be another banking crisis in due course.  It’s as if they got drunk, they’ve had a big hangover, emerged out the other side, and are now thinking ‘Ah well, let’s keep drinking’.  The fundamentals haven’t changed.)

But your question is a serious one.  Does all this require a completely different approach?  Well, I think you have to put the foundations of the argument in first, which I try to do in the book – just to give progressive opinion some greater confidence.  It’s a very modest project that I’m attempting, in that respect!  We need more confidence when talking about ‘the economy, stupid’, to use the famous phrase of Bill Clinton’s campaign guru.  And that was my main objective.  Beyond that, there’s the age-old debate on the Left about whether a capitalist economy is sustainable in the long term, and so on.  I haven’t really addressed that directly, because in a way I think it’s a diversion.  We are going to have a capitalist economy, warts and all, for as long as I can foresee.  And alternative systems – that’s to say, systems without markets, systems without a flourishing, entrepreneurial, enterprising private sector – have not succeeded.  And it’s difficult to see how they would succeed, in any kind of foreseeable world.  We’re talking about how, from a democratic socialist point of view (or a wider progressive point of view, if you don’t put those labels on yourself) we might make a society in Britain with a sustainable economy (not just environmentally speaking, but economically sustainable) capable of generating the sorts of living standards to which we had in the past become accustomed and expected for our children and grandchildren.  I think neoliberalism means that isn’t sustainable.  I’m just amazed at the extent to which the popular debate just swallows the so-called ‘success’ of Osbornism.  It’s extraordinary.  People are not going to have pensions in the future which are worth having.  Their kids are not going to be able to get houses, of the standards that their parents and even grandparents were accustomed to.  They’re not going to have jobs which are secure, unless they’re right at the top.  Everything that’s been taken for granted about the post-war settlement of Keynesian economy and welfare state – a settlement adjusted according to whether you’re on the left or the right of the British parliament – everything about that is actually under threat.  And yet people just assume that we can continue to exist on this bubble.

And that’s why I think it’s beyond being a party issue – though the main responsibility to act on this does fall on the Labour Party.  We need to construct a programme, and above all rediscover a winning ideology, that will resonate with the public.  And it’s got to be, it seems to me, in the territory of this book.  Which after all is not wild, unrealistic leftism.  It’s supported by serious economists.  So when I call for a two-year, £30 billion per year, infrastructure investment above what is currently planned – that’s a position widely supported by respectable economists.

GC: It’s striking that the stance you’re taking up has been described more than once in our conversation as solidly outside the mainstream.  The Croslandite position has, by staying still, become a much more radical voice on the spectrum.  Roy Hattersley, similarly, now sounds way to the left of the mainstream of political debate, even in the Labour Party – where once he would have been regarded as on its right.  In some ways this is demoralising, for those enthused by the case that you’re making.  Yet in other ways it offers an opportunity.  There really is a need to disrupt some of the assumptions which have come to dominate political discourse.

PH: I agree with your question, and the reference to Roy Hattersley having stood in the same ground and the world moving past him, rapidly to the right, leaving him on the left of the debate as it’s now framed.  But I think it comes back to self-confidence.  The self-confidence of Labour, and of progressive opinion, has been very badly damaged, ironically, by the banking crisis.  Ironically because that crisis was not caused by our politics.  It was caused by the very economics which we have long criticised.  Although in government (I was in cabinet at the time), we didn’t see it coming.  Maybe a few clever economists did — but there was no sense that this was an armageddon just around the corner.

GC: You refer to a lack of confidence on Labour’s part.  In many ways the fight against austerity in the UK has been waged not necessarily from within the Labour Party but from other quarters: the nationalist parties, the Green Party, and so on.  These other voices seem much more confident than Labour in critiquing austerity in the way that you would prefer to.  To what extent can an agenda like the one that you stake out transcend party boundaries, and be adopted as a shared project regardless of the different historical directions from which those parties arrive at these issues?  You’ve mentioned that this is about bigger matters than Labour strategy.  It’s about the whole shape of the social and economic futures we’re moving towards.

PH: Well, Nicola Sturgeon, for example, didn’t use the same framework I advocate.  If you look beneath the SNP’s anti-austerity sloganeering you won’t find much programmatic substance.  As one economist pointed out, the SNP’s spending plans were in some ways more conservative, with a small ‘c’, than the orthodoxy.  But leaving that aside, as a party political point: it’s actually easier, in today’s climate, to make that point as a party which is never going to form a majority UK government – and which is therefore not subject to that ferocious, repeated ‘what are you going to do about the deficit?’ line of questioning that you get from John Humphrys or Jeremy Paxman or Andrew Neil.   There’s a relentless attack from the commentariat and the journalists, assuming that all that matters is the deficit.  I think that just as much criticism should be levelled at journalists for their swallowing of this orthodoxy as at Labour politicians.  Leanne Wood or Nicola Sturgeon or Natalie Bennett were never really properly boxed in on the whole deficit narrative by the journalists.  They were not the alternative government.  When you are the alternative government, different rules apply.  The big difficulty that Ed Miliband and Ed Balls faced was that this paradigm had been established.  There was a failure on Labour’s part to challenge that paradigm in the first four or five months months of the Tory/Liberal Democrat government, so that it was deeply set in by the time Labour had a new leader.   There was a relentless mantra that both parties successfully deployed — that it was Labour that caused the crisis – to the point that it was coming back at the doorstep from Labour voters.  But there’s a big question here for the whole anti-Conservative majority in Britain, and certainly in Wales, to answer.  It goes beyond the Labour Party.

Peter Hain’s book, Back to the Future of Socialism (recently published by Policy Press) presents an evidence-based case for a radical alternative to the neo-liberal economic agenda. He was interviewed at his home in Neath in late June 2015 by Gideon Calder, Professor of Social Ethics at the University of South Wales. The interview ranges from the political aftermath of the 2008 global financial crisis and the future politics of the Left, to (in the second part) recent Welsh policy on health, education and alternative energy. Part two will be published on ClickonWales tomorrow.

5 thoughts on “Busting the austerity myth, part 1

  1. It looks like the outstanding 1997 victory by the Labour Party under Anthony Blair is being consigned to the ‘dustbin’ of history which is almost ironic as the party is now facing ‘oblivion’ in coming general elections. The levels of public expenditure after 1997 was limited for 3 years to amounts agreed by the outgoing government,so as to assure the ‘markets’ of financial prudence and it broadly worked,however afterwards the taps were turned on,and increasingly so when huge sums pumped into Banks to maintain the economy in some sort of condition.I notice that Mr. Hain does not refer to the opening of Lehman Brothers European HQ in London on the 5/4 /2004 and the fulsome praise of the bank by the Chancellor of the Exchequer,i.e Mr. Gordon Brown a well know ‘socialist’!!.In speeches to City of London our Mr. Brown praised the City for its ‘brilliance’ and ‘innovative’ talents which was through taxation mainly funding the public sector ‘splurge’.There was policy of ‘light touch’ supervision over the City,and the fact that the economic genius’s in charge of Treasury,i.e Brown/Balls did not see the collapse first in the USA and then rest of world seems to be ignored by Mr. Peter Hain. The wider changes made by Blair /Brown in relation to a)EU,b)globalization which has opened up our economy/social fabric to massive changes was barely explained by the government at the time and this has led to the two losses in 2010 and 2015 and probably in 2020,particularly after seat redistribution away from Labour areas/seats etc etc.With regard to ‘austerity’ it doesn’t seem to be affecting the ‘fat cats’ in Assembly/Local Government/favoured Quangos,but looking at general conditions of roads/street cleaning/leisure centres they are getting worse at a rate of knots.The idea that we need to more ‘state’ socialism is surely a joke,particularly as the ‘better off’ are taking more and more responsibility for their lives and this is likely to continue and accelerate in future years. We are moving to the USA rather than France in terms of mental attitudes/spending priorities.

  2. An interesting read in which I worryingly found myself agreeing with Peter Hain on a number of issues.

    Nonetheless some comments:

    1) Labour did not mess up the economy because they overspent, but because they continued to de-regulate and worship the febrile financial sector in London (https://www.jacobinmag.com/2015/07/cameron-miliband-blair-ukip/). What does Peter Hain say to that, and to the obsession with finance capital more generally?

    2) ‘Back to the future of socialism’ seems just a bit misleading when the author in this interview claims that capitalism is here to stay and will never be overthrown or indeed profoundly altered. Trying to manage capitalism and to make it caring is what the Labour party has always been about. Yet taming capitalism is impossible, and the welfare state which Hain and others lionize was a unique epoch which will not be repeated. I would like him to have been challenged on this by Gideon Calder.

    3) Glorious example of Labour language/logic in this interview. First Hain says that neo-liberalism is an ideology that must be urgently confronted, and that this transcends party politics etc. In the next sentence the mask slips and he attacks the SNP and Plaid and implicitly rejects any progressive coalition!

    P.S.. The reason the SNP weren’t interrogated on the UK deficit is that they were campaigning to leave the UK….so why would they be planning a UK wide deficit reduction plan?

  3. The national debt in relation to GDP was just over 40 per cent when Labour took office in 1997. It was down to 37 per cent on the eve of the banking crisis and recession so you cannot really argue that they spent too much before they bailed out the banks. It is true they swallowed all the light-touch regulation stuff and ignored the credit bubble but were the Tories urging tighter regulation? You must be kidding; they were urging still lighter regulation! However Hain puts a bum rap on Nicola Sturgeon when he says SNP spending is conservative. Of course it is because they can only spend what they get from Westminster. Their borrowing is limited by the Treasury. Fiscal policy in the sense of overall budgetary stance is not devolved in the UK. The Welsh government too can only spend more on services if it raises taxes. It can borrow a bit to invest but even that is limited.

  4. Like it or loathe it,Hain is a unionist and has never pretended to be anything else. How can he advocate a “progressive” coalition with the SNP whose stated aim is the break-up of the UK?
    If capitalism cannot be tamed or amended we are in deep trouble since socialism cannot be implemented. All attempts from the USSR and China to Ghana via Yugoslavia and Ethiopia have been failures, often grotesque failures at that. Social democracy working through regulated capitalism has constructed the nearest that earth has to show to fair and prosperous societies. Old hat, I know but I think it was Edmund Burke who said: boredom with established truths is the great enemy of free men.

  5. I agree completely with R. Tredwyn in his first comment above. And now I’ve had a little lie down: I don’t like the term neoliberal. It’s old and extremely poorly defined. What is happening in Europe is quite simple – deregulation of the banks has caused massive increases in their debt/asset leverage and therefore huge consolidation which was overheated by the american housing market. States stepped in to prop up their liquidity and instead of letting some of them go bankrupt like they should have they were then too large to fail. The cost of propping up the banks and massive state fiscal stimulation caused large growths in sovereign debt across the continent at the same time as a global DEPRESSION which then created debt servicing problems. Instead of implementing a tremendous economic growth strategy like the New Deal they have opted for the single most stupid policy of crucifying economic demand by implementing enormous budgetary cuts further reducing confidence and increasing job insecurity. At the same time the relatively stable corporations have taken advantage of low interest rates and consolidated and automated the crap out of their industries creating low employment demand. Because budgets have been cut for years now skills are lower, productivity is lower, economic growth is lower and debt to GDP looks worse than it should do. Inflation is low due to low demand so that sovereign debt isn’t being burned off either. The only clear answer is considerable GDP/head growth and that is going to take further QE targeted not at the banks as it was but at considerable state investment in R&D, skills and enterprise creation which is where it should have been placed in the first place.

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