By far the most important issue for every political party in Britain is the economy. Britain is in the deepest recession since the Second World War.
For months, the pattern of media coverage has been circular. After weeks of trying to find every sign of economic recovery, the figures on the development of the real economy are published, further revealing that we may well be in a L-shaped recession or worse – with no dramatic recovery around the corner.
The total decline of the gross domestic product of the British economy up to the end of the second quarter of 2009 was
5.7 per cent from its peak in the first quarter of 2008. The decline in international GDP is already four times as severe as in any previous post-war recession.
So the critical issue for every party and for the Labour left in particular is to have policies to address the worst economic crisis in most people’s lifetime.
Unfortunately, too much of the left veers between fundamentalism – policies with no connection to reality – or tinkering at the edges with no conception of the scale of the economic challenge we face.
The Government’s initial response to this crisis gained it support, as the ideology of Thatcherism, a prime cause of the crisis, collapsed and massive state intervention was almost universally seen as essential.
However, the form of that intervention was primarily to bail out bank shareholders at the expense of taxpayers.
This meant that billions and billions of pounds were pumped into the banks with the government taking no direct control and planning to hand back ownership to the people who caused the problem (the bankers) as fast as possible.
The fruits of this approach have been a continuing collapse in bank lending to businesses and individuals while the bosses of those banks still reap obscene levels of bonuses.
As a result, the Conservatives have been able to shift the agenda from the failure of deregulated markets to the need to make deep cuts in public spending, and to establish a commanding lead in the opinion polls.
Yet the Tory policy of radical cuts in government spending would be catastrophic. They would cut demand in the economy, deepen the recession and hit the people already suffering rising unemployment and falling living standards.
The only way out of this situation is radical economic measures which address the root causes of the economic crisis.
First, the Government must take direct control of the core of the financial system and instruct the financial institutions to resume lending.
Second, it has to be understood that what is driving the economic crisis is a collapse in investment – and not only in Britain.
While economic output fell by 5.7 per cent to end of the second quarter this year, investment to the end of the first quarter fell by a whopping 14.7 per cent.
Nor is it evenly spread but concentrated in two key sectors, house building and transport equipment.
The decline in these two fields started more than two years ago, but investment in transport equipment has now fallen by 34.9 per cent from its peak and investment in house building has fallen by 29.7 per cent.
To give a comparison, investment in non-transport machinery has fallen by
13.7 per cent and investment in non-housing construction by 10 per cent.
An investment collapse on this scale cannot be reversed by only indirect measures like lower interest rates. It requires direct state intervention, at least into those sectors of the economy where the fall in investment is of 1929 dimensions. The left should not be afraid to spell this out.
Measures to reverse the economic downturn must be combined with steps to deal with climate change and the environment. As major areas of investment such as housing and transport have considerable environmental impact this is completely achievable.
Obviously, the Government cannot do everything it might wish. It has to ruthlessly give priority to what is necessary to revive the British economy and cut in those areas which contribute to neither.
This means, first, that we need a more progressive system of taxation. There is no point in whining about inflated giant bank profits and inflated bonuses.
They should be met by the appropriate, much higher, and in some case windfall, levels of taxation.
On state spending, real luxuries have to be cut. We have a level of military spending higher than that of Germany as a share of the economy.
Not buying a new generation of nuclear weapons and scrapping national identity cards are just some obvious examples that could save us billions.
The labour movement will walk into disaster – and millions of people will have their lives ruined – if the left in its broadest sense does not grasp the scale of the economic challenge we face and start working out realistic, radical measures to address it.
