Cooking the Books – No magic wand

At last month’s Labour Party Conference Starmer’s rhetoric went so far as to promise that a future Labour government would be ‘totally focussed on the interests of working people’. A Labour government, he said, would remove what ‘the age of insecurity [had] loaded onto the backs of working people’ but that it was going to take ten years to do this as ‘there’s no magic wand here’.

How would Labour do this? Certainly not by any direct payments to ‘working people’ as he also said that under Labour there would not be ‘a cheque-book state’ and that ‘fiscal responsibility is non-negotiable’.

So how? By increasing investment: ‘We’ll set up a National Wealth Fund. Work hand in glove with the private sector to rebuild this country’. The day before, the would-be next Chancellor of the Exchequer, Rachel Reeves, declared:

‘Labour will aim to restore investment as a share of GDP to the level it was under the last Labour government, to bring us in line with our peers. Adding an additional £50 billion to our GDP every single year. Worth £1,700 for every household in Britain’.

So we are all going to get an extra £1,700 a year over the next years, are we? Not exactly. This is just a statistic calculated by dividing £50 billion by the number of households in the UK (28.2 million in 2002). It doesn’t mean that each household would receive that amount of cash. In any event, since it would be investment it would by definition be spent on buying producer goods and so not available to improve individual consumption. As someone once said, there are lies, damned lies and statistics.

It is not clear either where the figure of £50 billion comes from. It seems to be the money the government will borrow to put into the National Wealth Fund plus the amount that it is anticipated private capitalist enterprises will invest in its projects.

Reeves talked about ‘catalytic investment’ by which she meant government investment designed to attract additional private investment for some project. ‘For every pound of investment we put in,’ she said, ‘we will leverage in three times as much private investment’. In other words, a project would not go ahead unless, for every £1 the government puts up, the private sector puts up a further £3. But there is no guarantee that this will always happen. Whether or not it does will depend on how capitalist enterprises judge the prospect of making a profit at the going rate or more from doing so. If they won’t get a sufficiently high return they won’t put up the money.

A future Labour government is going to be completely dependent on the investment plans of profit-seeking private capital. Starmer said as much when he stated that Labour understood that ‘private enterprise is the only way this country pays its way in the world’. This contradicts his earlier rhetoric about a future Labour government being ‘totally focussed on the interests of working people’. It means that it would have to be ‘totally focussed’ on those of private capital.

True, growth (as measured by an increase in GDP) is driven by investment but private enterprises only invest if there’s a prospect of making profits, and the government – without raising taxes – can only invest money that it borrows. So the growth that Labour (and the Tories and the LibDems) are promising depends on the prospects for private profit-making. Such prospects, however, are not something any government can control; they depend on which stage of the business cycle the capitalist economy is going through.

Labour will find that there is no magic wand either to conjure up business investment.

Next article: Proper Gander – Gathering storm ➤

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