Ed Miliband says that voters should judge him not by his personality but by his ideas. If so, Labour is doomed, because Miliband has not made a single economic pronouncement that deserves to be called an “idea.” Although time is running out, he still has a chance to establish economic credibility by launching an intellectual strategy in three parts.
First, as suggested by Alan Milburn and John Hutton, he must decisively refute the Tory myths that Gordon Brown’s policies were responsible for the 2008 financial crisis and that Labour’s economic record is a cause for embarrassment rather than pride.
Second, he must convince voters that the root cause of the crisis and subsequent recession was the over-zealous application of Tory free-market principles. This had consequences for financial deregulation, macro economic management and the support or nationalisation of banking systems: faster and more aggressive government intervention was needed.
Having done all this, Labour’s economic strategy must move on to its third and most important objective. Miliband must explain that a new model of global capitalism has been evolving since the 2008 crisis and that Labour will support this evolutionary process, while the Tories will try to resist it.
The key characteristic of this economic model should be collaboration between business and government instead of the tension that existed between the two during the Margaret Thatcher and socialist eras. This supportive business-government relationship aligns closely with Labour principles, though not necessarily with past Labour policies. Thus even better economic results could be expected under future Labour governments than in the Blair-Brown era, which produced the longest period of uninterrupted economic prosperity in Britain’s history, closing the gap in productivity and living standards between Britain and continental Europe, as I argued in Prospect in February.
Intellectually, none of this should be a challenge, since the evidence in favour of these statements is clear. But Labour leaders are reluctant to challenge market fundamentalism directly, for fear of sounding like old fashioned anti-capitalists. This self-censorship is absurd. What Miliband needs to do is attack market fundamentalism, explain how it caused the crisis and denounce its dogmatic pursuit by the coalition ever since; but then he must present a constructive alternative that is unmistakably capitalist, too.
To define a Labour alternative to Tory economic policy as clearly capitalist, and not a throwback to 1970s socialism, Miliband must celebrate enterprise, avoid ad hominem attacks on the wealthy and abandon his absurd dichotomy between “predatory” and virtuous businesses. Instead of moralising about particular firms and individuals, Miliband should follow Karl Marx and concentrate on the intrinsic flaws of the capitalist system as a whole. His goal should be to define a new model of capitalism that is different both from the “market is always right” Thatcherism that dominated the 1980s and 1990s but failed in the crisis of 2008, and from the “government knows best” socialism that dominated the 1950s and 1960s but failed in the crises of 1974-79.
This may sound like a tall order, but it is merely a recognition of history and social reality. Capitalism is a naturally adaptive system and in response to the crisis, new relationships between politics and economics, between government and business, have already begun to evolve. Miliband could distinguish Labour from the Tories by embracing this adaptive process and explaining how the evolution of a new British capitalism coincides with Labour’s ideals.
Specifically, Labour policies have always had three related, but distinct objectives. These can be represented as the orthogonal axes in a three-dimensional grid: public ownership or control of production; government provision of social services; redistribution of income to limit inequality. In the past few years, capitalism has been moving along each of these axes as the free-market model has retreated around the world.
Consider some examples, starting with the first axis. Marxist nationalisation is discredited, but intensive regulation is now deemed essential in key industries such as finance and pharmaceuticals. In many others, including energy, transport and environment, government intervention, long-range planning and targeted subsidies are now taken for granted to a degree that would have been unthinkable 10 years ago.
On the second axis, governments have dominated healthcare and pension provision for decades. But the crisis has sharpened questions about how these services are financed. Should citizens pay the full cost of their lifetime benefits, assessed on actuarial principles? Or should health and pension spending redistribute income to relatively rich older voters from younger and poorer taxpayers? These are questions the Tories prefer to ignore since they are content to starve “unprotected” public services and the income redistribution favours their voters. But for Labour, sustainable financing for all public services should be a deep concern.
Finally the third axis: inequality and redistribution. All over the world, the use of taxes to redistribute incomes seems to be approaching limits of political tolerance, but does this mean that nothing can be done about inequality? An economic philosophy that allowed government to shape market forces and not just follow them could provide many opportunities to narrow inequality: much higher minimum wages, stronger collective bargaining, education and training subsidies, even infrastructure spending, which could redirect to poorer regions the huge sums earmarked by the Tories for rail and airport projects in London.
Miliband could doubtless come up with a laundry list of such ideas to differentiate Labour from the Tories. But to capture the public imagination he must do more. He must unify his policies into a coherent narrative with an over-arching structure voters can understand—a “new capitalism,” although Miliband may prefer to call it “new socialism” or “modern social democracy.” Whatever the name, Miliband desperately needs a big idea of this kind if he is to achieve economic credibility. The ragbag of unconnected sound bites that now passes for Labour economics—mansion taxes, energy freezes, random attacks on “predatory” businesses or bankers—will not do.