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Nightmare on Downing Street

Having no discernible agenda much different from the Tories, Labour are reduced to negative campaigning to try and win their second term. Their latest poster displays the post-modern ironic kitsch typifying their approach to politics: "the Tories present Economic Disaster II" it brays in mock movie-poster fashion, with Michael Portillo as Mr. Boom, and William Hague as Mr. Bust, in a Reservoir Dogs pastiche. Labour, the party that for nearly twenty-odd years was stifled by Tory-inspired memories of the Winter of Discontent, is now more than happy to return the favour upon them, and to strive to become the party of "economic competence".

Labour has consistently proclaimed economic stability to be the core aim of their economic policy; as the sound-bite has it: "No return to boom and bust". What this means, in effect, is the end of the expansionary economic policy attempted by previous Labour administrations. Instead of using state power to try to influence basic conditions of the market, such as interest rates, investment levels and currency values, they are now intent upon holding the economic playing field level. The intention behind this 'stability policy' is that firms can plan and invest ahead in a stable environment, thus eventually overcoming Britain's investment gap. To justify their change of direction, they pointed out (in their 1999 budget) that high inflation typically hits the poorest in a way not overcome by rise in incomes or employment rates.

The core of their stability programme was the independence of the Bank of England from day-to-day political control. Without interest rate levels being under direct political control, politicians can act as though the "economic levers" of capitalism are not in their hands, in a true laissez-faire fashion. So if something goes wrong they are not necessarily to blame and can plead that they are powerless to turn the situation around anyway (which is true enough).

Nevertheless, the Bank of England does not in reality have an entirely free hand and many of the parameters within which it operates are set by the government itself . For instance, after its independence was granted the Bank was given strict instructions to implement its monetary policies in such a way as to make a strict target of annual increases in the price level of 2.5 percent achievable.

The reasoning behind having a stable rate of price increases per annum is that it allows investors (and more particularly lenders, who can lose out badly through inflation) to plan their operations and investment strategies with greater certainty; in turn this encourages people from oversees to invest their finance capital in Britain. It also allows for the appearance of market discipline in the economy to the effect that industry cannot rely on government intervention to bale them out of economic problems.

Thatcherite legacy
It is not only this apparent aversion to inflation that Labour has carried over from the Thatcherite Tory policies of the past: attempts to trim the size of the state also feature as a central plank of their policy. To this end the size of the civil service continues to fall - from 431,000 in 1989, to 358,800 staff in 1999 (although some of this reduction has occurred due to civil servants being "hived-off" to Public Finance Initiative (PFI) firms, and thus continuing in place, just not on the government books).

It is noticeable that another continuation of Tory economic management - and thus a break with Labours past - appears to be in the area of state subsidies. According to the Office for National Statistics, subsidies under the Tories, in their final year, amounted to £6,124,000 whereas in the first year of Labour they fell to £4,870,000. By 1999 they only rose £5,758,000. This picture is slightly complicated by Europe, since agriculture will have received subsidies directly from the EU, and Britain received some £434,000,000 in European Social Fund subsidies in 1999 too. Since these funds don't come directly from the British government they don't add to the total for state subsidies.


But Labour has still managed to reduce subsidies and has done so in part in the same manner in which it with taxation -by use of 'Tax Credits' and alterations to taxation structures to provide incentives or confer advantages. A recent example is the Motorola plant in Scotland which is threatening closure: the government in an attempt to help keep it open has offered to send Treasury officials help it assess its current financial operations so that it can benefit to the fullest possible extent from the existing tax structure. This type of action allows the government to direct funds towards firms it wants to support without breaking European competition/subsidy rules, and without appearing to fund ailing firms from the taxpayers' purse. Likewise, they also offered Credit Guarantees to Cammell Laird, in an attempt to use state backing to enable private capital to keep the firm afloat.

Instead of intervening in the economy by legal and state powers, Labour has chosen instead to take a "mediating" rôle. Their main action has been to use 'good offices' to try and resolve economic problems without direct and overt intervention. Their rôle in the Rover/BMW deal typifies this well. Although they did not offer to use state cash or power, they discussed alternatives with all the parties, and used public statements to pressurise them where necessary. This is why they cried foul when Corus sacked its workforce without talking to the government first. Their aim all along has been to give the appearance of representing the "public interest", without actually and actively interfering in the operations of the market economy.

Partly, this reflects the central regard they have for the rôle of competition within the economy. This was typified by their passing of the Competition Act, and the renaming of the Monopolies and Mergers Commission as the Competition Commission. The investigation by the Commission into the operations of key supermarket chains is an example of the governments aptitude for using behind the scenes pressure to influence major economic actors.

Their reasoning for encouraging competition is that it increases economic efficiency, and promotes productivity. Instead of macro-economic control of the sort they attempted in the past they have turned instead to supply-side microeconomic measures where the engine for economic action and growth is seen as the individual firm and workplace. Their fervent hope is that through increasing the efficiency of business through competition , market discipline will enable firms to close the productivity gap with such near competitors as France and Germany, making Britain an attractive place for investors and so help further domestic economic expansion. Their policies are thus geared around actively encouraging competition and providing the "right environment" for businesses to grow and provide jobs.

The other main plank of their productivity policy has been education. By improving the skills on offer from workers to the employers they hoped to enable Britain to increase productivity through highly skilled labour. So far this aspect of their policy has been highly compromised by the shortage of teachers especially in key subjects like Maths and the sciences. Teaching numbers have fallen dramatically from 857,000 in 1990 to 730,900 in 2000 which has meant that despite increasing spending on education there have been minimal returns so far. In turn their main response has been to move the academic goalposts and also to try and use bullying tactics to increase the productivity of the existing teaching staff.

Despite some "local difficulties" so far the Labour government has benefited from a relatively buoyant world economy and their economic intervention has been just of a sufficient order for them to be able to claim some sort of rôle in this apparent "success". As the economic slowdown closes in on them though, their second term is likely to show what they are really made of when it comes to the hard choice of laissez-faire free-market capitalism as opposed to the active state interventionism of their corporatist past.

Whatever the outcome, their current billboard poster of Hague and Portillo is seriously misleading for by labelling the Tories an "Economic Disaster II" waiting to happen, they disguise the fact that there can be only one economic disaster, "Capitalism: the disaster continues", an epic for which they have been as responsible as anyone else.

Moreover, with turnout at the election expected to be the lowest in modern political history perhaps the working class are now beginning to see what socialists have been claiming over decades: that none of the small-time crooks from either gang vying for a starring rôle in this particular film can make any fundamental difference to the plot.