Keeping the Tories at bay.

Author:Coates, David

Sadly for New Labour, and indeed for anyone who cares about the future of progressive politics in the UK, we are back to a state of affairs from which, for the last decade at least, we have been relatively free. We are back into an election cycle dominated by the poor performance of the UK economy.

Prior to 1997, the normal driver of electoral politics in the post-war UK was the state of the economy. As James Carville once famously told Bill Clinton, 'it's the economy, stupid'. The normal pattern was that, if the economy was doing well, the party currently in office stayed in office; and if the economy was doing badly, the party in office did badly too. Indeed, the more individual voters felt personally impacted by exposure to unemployment or to its threat, the more likely were they to turn to some new political formation in order to avoid the loss of their job and the diminution of their income.

The UK economy is currently doing very badly, and the number of voters directly impacted by exposure to unemployment or to its threat is at a twenty-year high; so if the normal pattern of electoral politics in the post-war UK holds, the chances of New Labour keeping the Tories at bay look, at best, extraordinarily long and at worst, next to impossible.

But in part, whether Gordon Brown's government receives an electoral drubbing depends on how the present parlous condition of the UK economy is packaged and sold. If the financial crisis and the resulting recession is packaged and sold as a set of problems that were internally generated, then responsibility for them will visibly lie in New Labour's hands, and electorally the party will be toast.

If however, the financial crisis and the resulting recession can be packaged and sold as a set of problems that were externally generated and internally inflicted, then New Labour will have the political space to parade the claim that, but for the quality of Brown and Darling's economic management, the pain inflicted would have been significantly worse. If New Labour can sell that argument to a sceptical public, its electoral majority may yet survive. We can expect the entire party leadership to try, but in truth they will find it a very hard sell.

Truth and half truth

Why? Because the claim is only half true.

It is half true. There is no doubt that the causes of the financial crisis which swept the global economy, and impacted so heavily on the UK, were American in origin. The roots of the September 2008 financial meltdown lay across the Atlantic: in the dismantling of the regulatory wall dividing the US housing market from the rest of the US financial system; in the securitisation of progressively weaker and weaker US mortgage packages; and in the ever greater export of those toxic assets by reckless and greedy US financial institutions (for the argument in detail, see Coates, 2010a, 230-72; and Coates, 2010b). Wall Street made this mess--that cannot and should not be denied--and European political leaders, including Gordon Brown, have been called upon to clean up much of its global impact. Indeed Gordon Brown has been a leading voice in that clean-up operation, and has won much international praise for his leadership in doing so (Brown, 2008; Parker, 2009).

But New Labour's electoral problem in 2010 is that the claim is only half true. The crisis may be external in origin, but the UK's particular exposure to it is not. The particular exposure of UK workers and consumers to the recessionary consequences of the generalised drying up of the supply of credit is entirely home-grown. It is New Labour's fault. The fact that the UK economy was hit so hard by a financial crisis, and the fact that its rate of recovery relative to that of leading continental European economies is so modest, cannot be blamed on the US alone.

Financial deregulation in the UK as well as in the US caused this crisis; and New Labour in power was a major architect and supporter of that deregulation. Indeed it should be remembered that Northern Rock fell here before its equivalents in the United States--Countrywide Financial and Washington Mutual--followed suit. The crisis may have originated on the other side of the Atlantic, but it manifested itself here first.

The explosion of house prices, the lowering of mortgage standards, and the increasing dependence of generalised prosperity on the availability of unchecked volumes of bank-provided credit--all these things were not simply imported from the United States. They were generated within the UK as key elements in the growth strategy that Gordon Brown advocated and oversaw in his ten-year occupancy of No. 11. They were also key elements that were recognised as serious weaknesses in that strategy--by certain of his critics at least--before the crisis broke (see, for example, Coates, 2005, 166-84; Elliott and Atkinson, 2007).

The financial crisis that began in September 2008 has done more, therefore, than show the fragility and global danger of US-style deregulated finance capitalism. It has also blown a huge hole in New Labour's claim to have found a new economic paradigm for progressive politics. So if New Labour is to win a fourth term in 2010, long as those odds now are, it will need both to plug the hole and to present itself--re-plugged as it were--as the one party capable of avoiding a repetition of this disaster in the future.

That is a very tall order indeed. Doing it will at least require this: (1) an honest assessment of the scale of the present damage; (2) a clear understanding of the contribution of New Labour policies to that damage; (3) a strong emphasis on the inappropriateness of the Tory solutions being offered to it; and (4) a willingness to recast its own policies in a more progressive direction.

The present damage

One thing is clear. The immediate condition of the UK economy is truly awful.

Unemployment, projected to peak at 2.8 million in 2010 (BBC News, 2009d), is at a fifteen year high--at a level that has already wiped out entirely the job gains made under New Labour; and that is just the official story. The true level of unemployment, underemployment, and entrenched unemployment...

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