As Kawan Patel suggested on LabourList a few days ago, New Labour was founded on the idea that while Margaret Thatcher might not have ‘saved the nation’ as her Conservative supporters claim, there were things she ‘got right’. I believe that this focus on the specifics of the Thatcherite legacy, such as privatisation and reductions in union power, is wrong. It is what was entirely responsible for New Labour’s failure to reverse inequality and for allowing a massive financial bubble to replace a sustainable industrial infrastructure in Britain. We must learn this lesson.

For a start, the image of 1970s Labour government in hapless thrall to left-wing union leaders leading their unwilling rank-and-file members to destroy the British economy is almost entirely a creation of the press and Conservative myth-makers. The root cause of the industrial unrest of the 1970s that culminated in the ‘Winter of Discontent’ of 1978-79 was consistent annual inflation in double digits. This was mainly as a consequence of massive hikes in the price of oil. Firms showed no restraint in allowing their prices to rise to maintain their profits; for workers to maintain their standards of living required credible threats to withdraw labour. In doing this they were, on average, successful – but no more than that. In relation to labour productivity, hourly wages were at exactly the same point in 1979 as they had been in 1972.

Figure 1: Labour Productivity in UK. From Pessoa and Van Reenen 2012, Decoupling of Wage Growth and Productivity Growth? Myth and Reality. Sources ONS, OECD.

There were a record number of days lost to labour disputes in 1979, yet this amounted to only just over one day per worker. These disputes were often unofficial, initiated by local militants or groups of workers whose earnings were low, as they are today, despite the importance or unpleasant conditions of their jobs. They were not in general the consequence of ‘union barons’ seeking to usurp the government of the day. While causing inconvenience, sometimes unpleasantly so, industrial action did not even have a significant effect on the economy as a whole. National output fell slightly in the first quarter of 1979, after what was in any case a harsh winter. But it roared back in the second quarter of that year to be bang on the rising trend for the decade as Mrs Thatcher first took office. And this was to be its peak until the second quarter of 1983, by which time unemployment had doubled. In economic terms, far from saving the nation, Mrs Thatcher’s government appears to have laid waste to it! Yet, thanks to the Falklands war and the UK electoral system, this same government was returned to office that year with a huge majority on only 42% of the popular vote.

Figure 2: Real GDP in £millions 1970 – 1984. Source ONS

Cherry-picking policies that seemed ‘to work’, whether Thatcherite in origin or more social democratic, without an overarching understanding and commitment, is precisely what led New Labour to ultimate failure. Thatcherism was much clearer. We can see this in a recent quote from the Margaret Thatcher Foundation for Freedom’s senior research fellow:

There was never any reason to believe that governments – which are just small collections of individuals – would have the necessary wisdom to make better decisions than the market – a much larger collection of individuals.

This is pure Friedrich Hayek, and pure nonsense as an approach to economic governance in a properly-functioning democracy, but it served well in guiding the Conservatives toward their chosen constituency. The case for markets is twofold: firstly free exchange of goods and services is fulfilling in its own right; secondly under certain circumstances the distributions that result from free exchange cannot be unequivocally bettered. These circumstances are quite restrictive: equality of initial resources and access to the market, complete information about the goods and services exchanged and clearly-formed preferences. They sound unrealistic and they are – so, most of the time, to let the market decide is as much as a decision by government as to try to adjust or over-ride its outcome. Moreover, a government is only ‘a small collection of individuals’ in a dictatorship (whether of an elite based on political or economic power). An effective democracy, to a greater or lesser extent, involves all who vote or express an opinion that reaches policymakers – almost all those in fact who take part in the market. What is more, each individual has, in principle, equal weight in this process, whereas weighting in the market always occurs by wealth. If we want better economic outcomes, therefore, we should look at least as much to improvements in the way democratic processes balance individual and collective voices as to ways of mimicking market mechanisms.
The lessons Labour should learn from the Thatcher experience are not specifics to do with trade union power or privatisation but more general lessons. Unbuffered fanaticism is dangerous for society and the economy, and while the market should certainly be embraced it can have no automatic primacy for determining fair, or even efficient, outcomes. In policy terms this means improving the workings of democracy to widen the range of voices heard, being clear about the merits and limits of markets, and being willing to make intelligent and informed interventions where these limits bind.

Future Economics - People, Money and Power

Since my post Leveson, the Press and Labour there have been further developments. The Prince Harry photos episode was hardly edifying for the press or the Royal Family. That the Sun editor could claim that publishing these photos of a silly over-privileged young man was somehow ‘about the freedom of the press’ should re-inforce my main point. The primary freedoms most of the current press industry are ultimately interested in are the freedom to make money and the freedom to promote their owners’ interests.

That News International in particular are an organisation whose values are seriously removed from human concerns was re-inforced today by the publication of a seriously awful picture of Cheryl Cole. She had been photographed through a car windscreen bleeding from the nose after an accident. For all the photographer knew at the time this image was taken, this woman had a basal skull fracture and was minutes from death. The fact that she is well known for her celebrity career gives only public prurience rather than public interest to this photograph.

The tendency for the press to close ranks in denial at the overall damage done by a press with skewed ambitions was emphasised yesterday in the Independent editor Chris Blackhurst’s BBC Radio 4 interview on the ‘Section 13′ letter he has received from the Leveson Inquiry outlining the criticisms likely to be made. Unable to give detail due to the confidential nature of this communication, Mr Blackhurst had to accept that Leveson certainly had plenty of evidence for his ‘point by point demolition’ of press behaviour. But nonetheless he was at pains to say that these were things that his newspaper and others ‘at that end of the market’ had not done. It should of course be noted that the circulation of the Independent is currently 84,000 and that of the Sun 2.5 million, so Leveson’s focus seems understandable!

Strangely Mr Blackhurst described newspapers as ‘an adornment to society’. This seems odd, since if newspapers are only an ‘adornment ‘, ie: something that ‘increases the beauty or distinction, etc’, their freedom to say what they like at anyone’s expense seems hardly of such importance. On the other hand, if they are to be viewed in such trivial terms, the importance of their playing their true part instead of being corporate propaganda mouthpieces can also be downplayed.

He also defended newspapers’ ‘fantastic good work’ work done by ‘no-one else’ in exposing scandals, which ignores much important work done by the more independent UK broadcasters such as the BBC and Channel 4. It’s also fair to say that newspapers have been fairly selective in the ‘scandals’ they have covered. News International’s coverage of the phone-hacking and related scandals has often been evident by its absence. Systemic bank and corporate failure and wrongdoing have been slow to appear in the pages of most newspapers, and are in any case usually drowned out by celebrity exposes, scare stories and misrepresentation of the role of the EU.

In a bit of ‘whataboutery’ Mr Blackhurst also attempted to tar other industries with similar misdemeanours to those of the press. This is no doubt true, but completely ignores both the point I made in my post about the ‘dual effect of profit-led and promotion-led dominance’ as well as the claims of exceptionalism by the press that justify purely self-regulation. Indeed, get it right with the press and we are a lot more likely to hear what other corporations are up to.

Finally, back to the Royal Family, and a quote from Amol Rajan of the Independent’s daughter tabloid, the ‘i’:

But scolding posh aristos for partaking in strip billiards is a sign of the emotional infancy of a people too cowardly to vote for their head of state.

Seconded!

Future Economics - People, Money and Power

The riots that engulfed London and other cities in England began one year ago today. Just to hark back to my piece ‘Riots: Looking Deeper’ on this topic last year, written one week after they started. I think it’s fair to say that it was a reasonable analysis. In particular the Independent Panel set up to investigate their causes stated

Clearly the importance of those attributes becomes even more pronouncedwhen young people are faced with growing up in a time of austerity, a struggling job market and pervasive messaging telling them that criminality provides a fast track to achieving status among their peers. For example, while we know that most convicted rioters were not gang members, we also know that gangs operate in a large number of areas where the riots occurred. Some young people are exposed to imagery and attitudes associated
with gang culture from an early age, which glamorise a life of criminality outside the system and which eschews any empathy for the victims of crime.

An article by Richard Wilkinson and Kate Pickett (of ‘The Spirit Level’ fame) on today’s Guardian CiF specifically blames inequality. You might care to look here at my general response to that thesis.

As Laura Wilkes, Policy Manager at the Local Government Information Unit, points out today on LabourList

…with local authority cuts set to continue the environment will become more challenging than ever before – if we are to avoid a repeat of 2011 councils need to have the funding to invest in key intervention programmes, community development and economic growth; all things that could help to prevent future riots. As things currently stand, government policy could threaten this.

Future Economics - People, Money and Power

Moody’s threatened to downgrade Spain’s debt yesterday. Why do we pay any attention to anything they, or the other ratings agencies, say?

In conclusion, I have tried to show that Moody’s managers deliberately engineered a change to its culture intended to ensure that rating analysis never jeopardized market share and revenue. They accomplished this both by rewarding those who collaborated and punishing those who resisted…The adjusted European CLO Rating Factor Table appears to have been adopted for the sole purpose of preserving Moody’s European CLO market share despite the fact that it might have resulted in Moody’s assigning ratings that were wrong by as much as one and a half to two notches….every single investor in a Moody’s rated European CLO may have a claim against Moody’s for damages associated with the fact that their CLO investments were not priced correctly.

Testimony from Mark Froeba, former Moody’s Senior Vice President, to the US Financial Crisis Inquiry Commission, June 2nd 2010.

Future Economics - People, Money and Power

I’m interested to see that the Real World Economics Review (an e-journal for heterodox economists) now has a blog. They already have some interesting contributions, and I hope fertile discussion will follow!

Future Economics - People, Money and Power