Labour—A ready-made recipe for success?

Peter Brooke

What do Mark Drakeford, Labour First Minister in Wales, and the two Labour Metro Mayors – Andy Burnham in Manchester and Steven Rotheram in Liverpool – re-elected in the North of England have in common, apart from getting the best results for Labour in the recent elections?

They all signed up to Gordon Brown’s ‘Alliance for Full Employment’.

I’m not suggesting that that in itself explains their success – I doubt if many voters were aware of it. But I would suggest that the fact that they were attracted to the AFFE implies a sense of political direction that seems sadly lacking in other parts of the Labour Party.

‘Full employment’ is a radical slogan to raise at the present time, and if there is one person who should understand just how radical it is it would, surely, be Gordon Brown.

It was, of course, announced as government policy by Ernest Bevin – in a speech reproduced in the April issue of Labour Affairs – prior to the end of the war, while the wartime all-party coalition was still in place. It was an ideal held in common by both Labour and Conservative governments and it was realised. According to the account by Nicholas Timmins (The Five Giants): ‘The bad winter of 1963 aside, it was to be the 1970s before unemployment rose above 3 per cent at all and between 1945 and 1970 it averaged little more than half that – 1.8 percent.’ Rising unemployment was one of the factors that brought Margaret Thatcher in (‘Labour isn’t working’) and from then on full employment as an ideal was dropped to be replaced by the battle against inflation, a change in emphasis that continued under Gordon Brown as Chancellor. Not that Brown would have been indifferent to the level of employment but he had essentially followed the Tory lead, reverting to the view of classical economics that high levels of unemployment were a temporary phenomenon, consequence of an economy that has gone out of balance. According to this view, relatively full employment (about 5% unemployment) is the natural state of affairs and an economy left to its own devices will always wobble towards it. This view was subject to withering criticism by Keynes in the 1920s. 

In 1977, after President Nixon had taken the dollar off the gold standard, the US Congress (at the time, Democrat, under President Carter) ‘amended the Federal Reserve Act, directing the Fed to “increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.”‘ If that looks like a triple mandate, it was basically manipulation of interest rates that were the means by which the first two aims – maximum (nb not ‘full’) employment and stable prices were to be achieved. Through the 1980s the idea of classical economics took hold that only one mandate was necessary – that ‘stable prices’ would ensure the maximum level of employment compatible with a successfully functioning economy, and this was now defined as the ‘NAIRU’ – Non-Accelerating Inflation rate of Unemployment. In 1998 when the European Central Bank was established and when Brown de-nationalised the Bank of England (it had been nationalised by the Labour Government in 1946) both were given the single mandate of maintaining a stable rate of inflation (a small regular, ie non-accelerating, degree of inflation, around 2%, was thought to be desirable).

Brown was highly impressed by the US example – the apparent skill with which the Federal Reserve Chairs Alan Greenspan and Ben Bernanke manipulated interest rates to control the fluctuations of a capitalist economy. Ben Bernanke called it the ‘Great Moderation’. But it blew up in Brown’s face with the Great Financial Crash of 2008. Brown was one of the first people to see ‘quantitative easing’ as the necessary response to the problem, that is to tear up the rulebook and pour money which, according to conventional thinking, the government didn’t have, into the economy. It’s now easy to see what was wrong with quantitative easing – the money went to the banks in the hope that they would lend it into the general economy, but with little prospect of getting a return on their lending, they just let it sit idle. And it was followed by the idiotic irresponsibility of the Cameron/Osborne/Clegg government which insisted on trying to recoup the ‘deficit’ that quantitative easing had created. Nonetheless it was a step towards recognition that, under the circumstances of a radical collapse of the market mechanism, it was the responsibility of the government to intervene and pour new money into the economy, despite all the fictions about fiscal responsibility and the independence of the Central Bank. It wasn’t until 2010 that the ECB defied the limits imposed on it by its own constitution and began timidly to do likewise and only in 2011 after Mario Draghi took charge that it did so on anything like the scale necessary. Making of course all the mistakes that Brown had made – putting the money into the banks rather than directly into the economy – combined with the mistakes Osborne had made, treating the money as a debt that had to be repaid by governments through the imposition of austerity measures which, predictably, sucked the demand necessary for growth out of the economy.

Would Brown recognise the above as an accurate account of what happened? I don’t know but I note that one of the demands of the AFFE is ‘Changing the constitution of the Independent Bank of England to match the new priorities of the US Fed such that it targets low unemployment as well as low inflation.’ Though it’s not clear why this talks about ‘new priorities of the US Fed’. It would be more accurate to see the targeting of unemployment as an old priority which was always maintained on paper but which is now once again being taken seriously. Another item on the programme is ‘A fully funded Youth Jobs Guarantee, which covers recent education leavers’ and it was pleasing to see this as one of the pledges offered by Welsh Labour in the recent election. But the main point is that given the whole experience of the post war period, Brown and his supporters must know that ‘full employment’ cannot be achieved without a degree of government control over the economy as great as if not greater than that which was regarded as normal in the 1950s and 60s. 

In other words it is what Labour needs. A simple two word ideal – ‘full employment’ – that immediately confronts what will be the most immediate pressing problem as we emerge from the covid crisis, that can bring many different issues together under its umbrella, that can be shown to be realisable (because it has been realised), that can make sense to people who are not natural Labour supporters, people who don’t define themselves as ‘Socialist’, but which still can’t be done without a radical overthrow of the Thatcherite revolution.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s