We must seize the initiative on the economy
Wednesday, 01 October 2008

Labour shouldn't be afraid of intervening in a financial system – created by the Tories – which is on the verge of collapse

Ken Livingstone

The most interesting section of Gordon Brown's speech on Tuesday was his drawing of dividing lines between Labour and the Conservatives on the economy, presenting Labour as the party to step in to protect people and the Tories as a party that would leave it to the market to decide: " ... no rescue of Northern Rock, no action on speculation, no protection for mortgages, doing nothing to stop banks going under". Labour's prospects in the next election depend decisively on whether this argument can be developed into clear and widely understood differences between the two main parties.
 
No solution is offered by the "rebels" who want to precipitate the removal of Gordon Brown. Even though they wish to plunge the Labour party into a drawn-out leadership process most are not prepared to say in public who they want to replace the prime minister. I completely distrust, as will the public, a campaign with an immediate tactical objective but not motivated by any stated policy content – either in terms of the British economy or over foreign policy, or on global warming or anything else for that matter. It is policy that has to be addressed.
 
A financial hurricane is destroying the economic majority consensus that has dominated British politics since Margaret Thatcher came to power. When New Labour won the 1997 general election it did not propose to dismantle the basic economic framework of the Reagan and Thatcher era, but to weld onto it more steps on social justice, the environment and other measures. This was the "third way".
 
Now everyone admits that we are witnessing the greatest financial crisis since 1929. The financial structure of the Reagan-led era is disintegrating around us.
 
In the US a deeply right-wing Republican president has carried out, with Fannie Mae, Freddie Mac, and AIG, the largest nationalisations in the history of the world outside a revolution – taking over institutions whose assets are more than twice the size of Britain's GDP. Far from markets being left to run themselves, the US government is intervening on a daily, and in some cases an hourly, basis.
 
Labour's policy was initially hamstrung from responding to this adequately by the acceptance of the legacy of Thatcherism. Compare the rapid nationalisation of Fannie Mae and Freddie Mac, the largest non-governmental financial institutions in the world, with the protracted period before Northern Rock was taken over – something which undoubtedly damaged the government's reputation on the economy. Nonetheless, in his speech to conference yesterday, Gordon Brown was right to say that the difference with Cameron is now crystal clear – the Tory policy was to let Northern Rock fold in the name of Thatcherite dogma.
 
Similarly, there will be decisive choices on taxation and spending. We are facing a huge public spending crunch. Over the next three years borrowing will be £65bn higher than the Treasury's last projections – largely due to the economic slowdown precipitated by the current financial meltdown. The decisive question, the consequences of which will touch every person in the country, is who will pay for the collapse of the Reaganite-Thatcherite financial system? So far, the public have feared that the government may make them pay that price and they are nervous and apprehensive as a result. That is why our poll ratings are so dreadful. Brown is now seeking to project, both with his conference speech and with his welcome comments last week about cleaning up the financial markets, the view that only Labour can protect people in these circumstances. He is totally right and people can understand this clear position. The Tories will make ordinary people pay twice over – first for the construction of the financial system of Thatcherism and Reaganism and then for its collapse.
 
The adequate means to ensure Labour protects people are at hand. At present a windfall tax on energy companies, progressive taxation on higher earners, scrapping the absurdly costly plan for a new generation of nuclear weapons to replace Trident, and putting an end to military adventures such as Iraq would generate quite sufficient resources to mean there was no need for economic attacks on ordinary voters. They would finance real aid for people in facing high energy bills and help those worried about losses from falling house prices.
 
But it is quite possible this financial crisis will deepen further – that Northern Rock and HBOS will be the start of it, not its culmination. It is therefore vital that, unlike with Northern Rock, Labour is prepared to take decisive immediate action and not be shackled by disintegrating Tory dogmas.
 
George Bush and Hank Paulson have been prepared for the state to act decisively and quickly in a way Labour was not, and we should take a leaf out of their book – not in what they do, but in their understanding that faced with events of this magnitude only the state has the scale of resources required to take decisive action.
 
Strategically there are a number of key conclusions. This financial crisis is shifting the centre of growth of the world economy even more clearly to Brazil, Russia, India and China – the Bric economies. It is here that the UK must be building its key new links and it should be de-emphasising the relatively stagnant, and now crisis-ridden, US economy.
 
Even Bush has been forced to give voice to the anger in the US at the way so many American companies avoid paying tax through offshore tax havens. So this is a time for Britain and America to create new financial rules to squeeze these tax havens out of existence.
 
The economic system constructed under Thatcher and Reagan is collapsing around us. The Tory party was partly responsible for this failed system and this gives Labour the opportunity to take the offensive – provided it is bold and draws the necessary conclusions.
 
Gordon Brown now has an opportunity to set Labour's agenda for the coming decade.
 
Labour has to take the arguments of his speech that addressed these issues and follow through with policies that will protect the public. As someone is going to have to pay the price for this economic crisis, Labour has to make clear it will not be the people the party must represent but the Tories whose Thatcherite system created this mess in the first place.
Ken Livingstone is a former mayor of London

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