Labour’s economic policies: can socialists support them?

The UK’s Labour Party

The trade union movement founded the Labour Party over one hundred years ago with the explicit aim to reform capitalism and move towards a society based on socialist principles.

Since then the Labour Party has managed UK capitalism during periods when the Conservative Party is unpopular. Once in power Labour typically enacts limited redistribution of wealth from capitalists to workers, while protecting capitalist property rights and pursuing an imperialist foreign policy.

In 2015 the Labour Party took an unexpected leftward turn when Jeremy Corbyn was elected to lead the party. Corbyn’s election reflected the deep seated anger and frustration of Labour’s base with its explicit and virulent pro-capitalist and pro-imperialist policies of Blair, Brown and Milliband years. Since this turn, Labour’s election performances have improved, and Party membership has significantly and dramatically increased.

Labour’s 2017 election manifesto is the only official and definitive evidence we currently possess of what the Labour Party might do in power when led, for the first time in decades, by actual socialist reformers.

Of course, within Labour the policy debates never stop, and this manifesto will soon be superseded So things are in flux. But during an election all wings of the party must agree on a programme. And in 2017 the manifesto was the outcome.

Here I pose the following question: Can socialists support the Labour Party’s domestic economic policies?

Criteria for judgement

To judge the 2017 manifesto we first should reflect on what it means for a economic policy to be essentially pro-socialist or pro-capitalist.

In theory, the crucial difference between these two political ideologies can be reduced to something extremely simple.

Socialists oppose capitalist exploitation, which occurs when production is organised in firms that have two classes of members: those that own it — and take profit — and those that work for it — and take a wage. Capitalist property rights allow the owners to distribute the firm’s profit to themselves regardless of whether they supply any capital or labour to production.

Yes, owners typically supply initial capital to get businesses started. But initial investments are always eventually paid off, if firms are viable.

And yes, owners may continue to supply their labour in management roles. But supplying labour need only be compensated by a wage, not profit.

The crucial point is that capitalist owners take profits merely in virtue of paper ownership (i.e. by fiat encoded in legal property rights). We can see this especially clearly where firms are entirely profitable and self-financing with absentee owners who extract profits.

But, as we all know, profit is created by actually doing some work, not by simply owning. The very same firm output, which gets sold in the market for a profit, could be produced without the input of capitalist owners and without compensating them.

So capitalists get something for nothing. They get profit for contributing zero to production. And an important consequence of this social fact is that a worker’s wage is never a fair exchange for the value they create.

In summary, under capitalist property rights, workers make, while capitalists take.

And it’s precisely on this fundamental aspect of social life where pro-socialist and pro-capitalist politics depart from one another. Fundamentally, socialists oppose capitalist property relations because they exploit the working class and institutionalise a form of theft.

This ABC of socialism versus capitalism shouldn’t be news to anyone on the left. But given the disastrous state of political education in the Labour Party many members lack a grasp of even these basics. So the basics unfortunately need repeating. Plus this fundamental difference in political ideology provides the criteria to judge Labour’s economic policies.

Socialists are naturally very interested in ideas for common ownership where profits are shared. The Labour Party, for example, has been affiliated with the UK’s Co-operative Party since 1927, and, after the Second World War, engaged in large-scale nationalisation of industry.

In contrast, pro-capitalist parties, such as the UK’s Conservative Party, or the Liberal Democrats, deny that capitalist property relations are inherently exploitative, and have little or no interest in alternative property relations, or new methods to organise economic production.

We can therefore ask: will a specific policy reduce or increase capitalist exploitation? does it move towards the abolition of class distinctions in production? will it enlarge the non-exploitative sectors of the economy, and shrink the exploitative sectors? and so on.

So with this fundamental criteria in mind, let’s now look at Labour’s 2017 manifesto.

The 2017 Manifesto: For the many not the few

The manifesto is titled “For the many, not the few” which implicitly points to the class-based nature of capitalist society, where the vast majority work for a wage, and a small minority don’t have to work, but live of profit or rent.

The manifesto declares that the Labour Party wants to “create an economy that works for all”.

Now, of course, “all” includes capitalists. And the manifesto is quick to assure any capitalists who might be reading it that Labour isn’t out to stop them taking profits. Here’s a quote from the beginning of the manifesto:

Labour understands that the creation of wealth is a collective endeavour between workers, entrepreneurs, investors and government. Each contributes and each must share fairly in the rewards.

So we’re all in this together. Everyone contributes to production, and therefore everyone must receive their fair share. And who could disagree?

But the precise meaning of this paragraph depends on what is meant by the word “fair”.

So let’s consider the role of the investor in a firm. Do they get their fair share?

An investor lends one million pounds to a firm. The firm promises to repay this sum, in a year, plus interest to cover price inflation, and also mitigate the risk of default. The investor also demands collateral, such as a claim on premises, equipment or unsold inventory. So, if the firm defaults, the investor can recover some losses.

At the end of the year, when the firm repays the loan, the investor is made whole again.

And this does seem perfectly fair, at least in terms of an equal exchange in the market: the investor lends money, and the firm repays it. This is an equal exchange of like for like.

Yes, the interest rate may favour the borrower or the lender, depending on accidental circumstances. And if the interest rate equals inflation, then the investor isn’t even making a profit. So there’s no systematic exploitation going on here.

But this is not how investment typically works in capitalist economies.

Investors don’t simply lend capital and get repaid. Instead, they typically lend capital and receive equity in the firm. In other words, they invest in order to become part owners of the firm.

So, at the end of the year, when the firm could repay the initial loan, and make the investor whole, something else happens instead. The investor now has equity with a cash value that covers their initial loan, and are therefore made whole, yet now have something more: an additional property claim on the future value created by the workers, who supply labour to the firm, in perpetuity. As owners of the firm they can extract profits, without having to supply any additional labour or capital. They are now getting something for nothing.

And this is when an investor changes from a money lender to a capitalist owner of a firm. And this is where exploitation really begins. And this is not fair at all.

The investor has been repaid. And yet they still get more in return. They are getting more than their fair share. In fact, they are getting an unfair share.

So when Labour’s manifesto says:

Each contributes and each must share fairly in the rewards.

a crucial distinction has been effaced. An investor that contributes capital should expect to be repaid. But investors contribute capital and receive equity, and therefore get repaid again, and again, ad infinitum, without having to provide one additional pound of capital or one additional hour of their labour.

So this is not fair, and socialists have always been fundamentally opposed to it, even before Marx wrote Capital.

Any political party that claims to be socialist should deliver complete political clarity on this crucial issue of socialist versus capitalist property rights. But, right at the beginning of its manifesto, Labour does the opposite.

So now that Labour’s manifesto has established we’re all in this together, and everyone should continue to receive unfair shares, the manifesto turns to more comfortable ground: proposing reforms to manage capitalism better.

Let’s take a look at some of these reforms.

An industrial strategy

Labour proposes to pursue an industrial strategy to create high-skilled and high wage jobs. Labour will invest 250 billion pounds over 10 years in infrastructure, such as train lines and transport links, and renewable energy production for the green economy.

To give an idea of scale, New Labour in 2008, at the height of the financial crisis, committed to providing immediate loans of 500 billion pounds to bail-out the financial sector. So 250 billion over 10 years is not much.

High-skilled jobs attract a wage premium. So Labour hopes that UK workers will enjoy a better life by out-competing workers from other countries. Of course, high wages are better than low wages. But the manifesto fails to mention that receiving any wage, whether high or low, already represents a low income life where you don’t receive your fair share.

The 250 billion will be administered by a new institution, the National Investment Bank.

The Bank will not be under direct democratic control but will be supervised by a board consisting of representatives from unions, businesses and local government.

The manifesto carefully explains that the Bank will not interfere with the business model of existing private banks, will not contravene the EU’s state aid rules, and will eventually be cost-neutral to the government.

The primary aim of the National Investment Bank is to provide patient capital to support technical innovation. This is an area where UK Capital has spectacularly under-performed compared to other capitalist countries.

Socialists like technical innovation. But then, so do capitalists. So the crucial issue, for socialists, is what types of firms the National Investment Bank will invest in.

The main reason why the co-operative sector doesn’t crowd-out the exploitative sector is access to capital. Capitalists don’t lend to worker co-ops because they typically don’t offer equity. Capitalists can’t easily own worker co-ops. So they’re not interested in lending to them.

So it’s very difficult to get a co-op off the ground. And since co-ops can only self-finance they can’t quickly scale into emerging market opportunities, and so miss growth opportunities, which are instead grabbed by capitalist firms (think early Google or Facebook).

Labour’s National Investment Bank therefore represents a historic opportunity to wield the power of the state to redress this imbalance. The Bank could be directed to only lend to co-operatives, and therefore strengthen economic democracy and shrink the exploitative sector of the economy.

But Labour’s manifesto doesn’t grasp this opportunity. Instead, the Bank will lend to any firms that pursue objectives in line with its industrial policy. So that means capitalist firms, since they constitute the vast majority.

But, unlike capitalist investors, the Investment Bank will not ask for equity. It will merely lend. Otherwise, the Bank, and therefore the State, would start to own firms, and that would lead to socialism. And we can’t have that can we? So, instead, the Bank will offer cheap loans to capitalists to start new ventures.

Labour’s Investment Bank will fund new cohorts of capitalist exploiters, and function to enlarge and strengthen the exploitative sector of the economy.

Labour’s industrial strategy, according to our simple criteria, is therefore fundamentally pro-capitalist and anti-socialist. A policy for the few, not the many. And therefore I think it must be thoroughly opposed.

Notably, more recent Labour policy documents recognise this problem, and call for the National Investment Bank to “prioritise” the creation of new co-operative startups. Obviously, genuine socialist currents do exist within the Labour Party.

But this seems like a rearguard action.

An ostensibly socialist political party cannot commit to offering cheap loans to capitalists in order to reproduce the exploitation of workers. Labour’s industrial strategy is not even reformist, but will wield the power of the State to ensure that workers don’t get a fair share of the wealth they create.

So, despite the most left wing leadership in decades, Labour here offers watered-down Keynesianism with the added gloss of an “entrepreneurial state” that intervenes to stimulate innovation.

Of course, this is fairly sensible stuff, if you’re a pro-capitalist party that wishes to manage, rather than reform, capitalism. And — it has to be said — the explicitly class collaborationist character of Labour’s industrial policy leaks out in embarrassing paragraphs such as:

Everyone will be a part of our innovation nation: businesses and workers. Rather than destroying jobs, the Fourth Industrial Revolution can deliver good, high quality jobs if businesses invest in them and British citizens are empowered to fill them.

Government procurement

Another area where the state has significant power to shape the social relations of production are government contracts. The UK government currently spends about 200 billion pounds per year buying goods and services from private industry, and many companies and sectors entirely rely on the State for their survival. So the State has huge power here.

Pro-capitalist parties, such as the Conservatives or Liberal Democrats, favour privatisation because it expands the exploitative sector of the economy, by funnelling state funds to capitalist owners, who take a profit share. So their policy of privatisation favours the capitalist constituencies they essentially represent.

Note that pro-capitalist parties very aggressively wield state power to move the economy towards greater exploitation. The Conservatives continue to deepen the privatisation of the NHS and Education systems. And many new capitalist firms have popped up to provide medical and educational goods and services, which previously were supplied by the state.

Government procurement represents an opportunity to use the power of the State to move private enterprise towards co-operative and mutual forms, and away from class-based exploitation.

So what does the Labour manifesto propose here?

Labour merely requires that all firms that supply national or local governments to, I quote, “meet high standards”, such as: paying taxes, recognising trade unions, respecting workers rights, equal opportunities, protecting the environment, and paying any downstream suppliers on time, and so on.

In other words, Labour will require that all government suppliers abide by existing law.

Which, of course, they should do anyway.

This laundry list of “high standards” is merely progressive gloss on very weak policy proposals that completely avoid using State power for socialist ends.

A minimal socialist policy for government procurement would require all firms that tender for contracts be worker co-operatives. A transition period — say of five years — could be proposed to allow existing suppliers to convert. The National Investment Bank could extend loans to workers for management buyouts, in order to facilitate this transformation.

Such buyouts don’t even need to expropriate existing owners. Independent accountants can easily calculate the capitalised value of enterprises, and therefore buyouts would ensure existing owners are made whole (i.e., their initial capital investments get repaid). They would walk away with the present cash value of “their” business, but would no longer be able to lay claims on the fruits of others’ labour.

But the Labour Party has no intention of doing any such thing.

There are a few sops offered to those with socialist instincts. Labour will only award contracts to firms that recognise trade unions, and will expect all firms to reduce boardroom pay excesses by gradually moving towards a maximum 20:1 ratio between the highest and lowest paid.

But such reforms can very easily be brushed aside by the next pro-capitalist Party that takes State power.

Instead of funding worker co-ops, which remove the conditions that make unions necessary, Labour will merely ensure trade unions are “recognised”. This is great for capitalists, great for the trade union bureaucracy, but does nothing to shrink the exploitative sector, or fundamentally alter the position of workers in society.

So Labour’s policies on government procurement are a significant missed opportunity.

New models of ownership

The most interesting part of Labour’s manifesto is devoted to new models of ownership. New models of ownership include worker co-ops, nationalised industries, national profit-sharing schemes such as sovereign wealth funds, where capitalists are forced to transfer a percentage of their equity, per year, to the state as communal property.

Here Labour commits to doubling the size of the co-operative sector. This is very much to be welcomed, and a policy that clearly moves society in a socialist direction.

Note, however, that doubling the UK’s co-operative sector would only bring it into line with those other well-known socialist economies, such as Germany and the USA. So this is good, but still small beer.

In this section, the manifesto changes tone and move towards the language of class struggle. It notes that a “narrow elite” own almost everything, and, as a consequence, democracy is subverted. Very true. It notes that privatisation hasn’t led to efficiency gains, but rather higher prices and poorer quality services. Also true. So Labour commits to bring key utilities back into public ownership. And this is also to be welcomed (although the details will matter here).

So, in summary, we have commitments to some nationalisation, and some encouragement of the co-operative sector.

The manifesto states:

the predominance of private property ownership has led to a lack of long-term investment and declining rates of productivity, undermined democracy, left regions of the country economically forgotten, and contributed to increasing levels of inequality and financial insecurity.

This is of course true. But more should be said. Yes, if you organise production with a class of owners, who take profits, and a class of workers, who take wages, then of course you get extreme inequality, and all the associated social evils.

But even before these macroeconomic symptoms, we already get significant social evils in the local productive unit: most people work in dictatorial top-down institutions, where they are systematically robbed of the value they create, and lack any democratic say in how their organisation is run, or the work they perform. In capitalist firms, people are resources to be commanded, rather than equals that co-operate.

Work, for the vast majority, eats up our whole lives. And hence life, under capitalism, is significantly impoverished compared to what it could be.

So we don’t want new models of ownership to merely avoid bad macroeconomic outcomes, or increase GDP, or make the UK an “innovation nation”. We want to abolish capitalist firms because they are morally unconscionable institutions that treat people badly.

But such straightforward political statements are absent from the Labour manifesto.

Instead, we get anodyne statements about how co-operatives, as an empirical matter, increase employment stability and productivity. And how income gaps between workers and management tend to be lower in co-operatives.

But, even here, in arguably the most socialist and left wing section of Labour’s manifesto, the crucial concept of exploitation is entirely absent. In fact, it’s conspicuous by its absence.

Notably, the Labour Party, in 1976 and 1978, passed acts that gave state funding to co-ops. Obviously, these policies had no significant impact on the trajectory of UK society.

Let me come to a close by quoting directly from this part of the manifesto. Here I think we can actually hear either the anguished scream, or rallying call, of a section of the Labour Party that has suddenly found its voice after being silenced for many decades.

What we have presented, as an alternative, amounts to the first steps in challenging that dominant model of ownership and control. We have shown, in simple, practical terms, how a government committed to addressing those profound, structural problems could implement key policies that would rectify them. Its goal would be nothing other than the creation of an economy which is fairer, more democratic, and more sustainable; that would overturn the hierarchies of power in our economy, placing those who create the real wealth in charge; that would end decades of under-investment and wasted potential by tearing down the vested interests that hold this country back. The historic name for that society is socialism, and this is Labour’s goal.

Conclusion

So back to the original question: can socialists support Labour’s economic policies?

I’ve briefly outlined some of Labour’s key proposals. And I’ve argued that some are clearly pro-capitalist and some clearly pro-socialist. And therefore — and this isn’t really a surprise — it’s not logically possible for socialists to support the entirety of Labour’s economic program.

The question then becomes: Is there enough here for socialists to give critical support to the Labour Party? and will supporting the Labour Party help move society away from capitalism and towards socialism?

I think we can answer this question quite easily. If Labour had been elected in 2017, and had implemented the policies outlined in their manifesto, then (i) the quality of life of UK workers would have marginally improved, principally through better provision of state services, and (ii) the Keynesian policies of Labour’s industrial strategy would have stimulated some sectors of the economy. This might be a preferable choice if we want to manage capitalism better. But socialists have a different political goal.

The Labour Party, given the evidence of the 2017 manifesto, and under its most socialist leadership in decades, will not wield state power to dismantle the exploitative, and build the cooperative, sectors of the UK. In fact, given the focus of the National Investment Bank, and the absence of any mention of socialising the UK’s financial services sector, it would do precisely the opposite. The crucial political issue raised by socialism — the economic exploitation of the working class — still remains entirely absent from the Labour Party’s political discourse. And, for this reason, socialists cannot, and should not, support Labour’s economic policies.

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