Stumbling and Mumbling

Author: chris dillow   |   Latest post: Sat, 17 Mar 2018, 01:00 PM


Labour: the party of business?

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Is Labour now the party of business? This is the question posed by the fact that the CBI has endorsed Jeremy Corbyn's support for the UK to be part of a customs union with the EU.

I know, I know. The question seems absurd given Labour's calls for nationalization of utilities and higher corporate taxes*. From two other perspectives, however, the question is sensible.

First, let's assume that businesses' interest is in having a high profit rate.

This rate, by identity, is equal to the share of profits in output, multiplied by the output-capital ratio.

Many of Labour's policies might be bad for the share of profits - such as higher minimum wages, greater regulation of exploitative practices and stronger workers' rights.

But they might well be good for the output-capital ratio. A looser fiscal policy would have this effect, insofar as it is not offset by tighter monetary policy.

And several Labour policies might well expand profit opportunities. Infrastructure investment would have this effect, as would a Mazzucato-style "entrepreneurial state" - one which helps the private sector with research and development. And Labour's National Investment Bank is (pdf):

a response to the failure of the UK banking sector to provide longer- term loan funding for enterprises, for small and medium-sized enterprises especially, or to support innovation in forms of productive organisations.

It is perhaps insufficiently appreciated that many smaller businessmen (and ex-businessmen!) despise bankers, and would welcome anything that reduces their dependence upon them.

There is, though, a second perspective here. In the long-term, business needs not just profits but also legitimacy. And a system in which real wages for the many stagnate and in which young people have no hope of owning property, whilst a handful of people make millions and dodge taxes is one that lacks legitimacy. In removing egregious injustices, Labour promises to save capitalism from the capitalists, to use Rajan and Zingales' words (pdf), by shoring up support for a reformed system.

This poses the question: what is business? The grasping (and inefficient) plutocrat is only part of the story. There are 2.8 million businesses in the UK. For every Philip Green or Fred Goodwin there are thousands of decent people struggling to make a payroll in the face of unreliable bankers, road congestion and an idiot Brexit policy. Labour can speak to these. Ed Miliband's distinction between producers and predators was a good one.

You might think all this is hard to square with claims that Corbyn and McDonnell are Marxists. I'm not so sure they are. They are instead radcial(ish) social democrats whose priority is to improve living conditions for workers. They are Marxists insofar as they perceive - rightly - that capitalism is failing to do this. But they are willing to give a reformed capitalism a chance to deliver the goods again. There are many types of capitalism besides kleptomaniac neoliberalism - even though much of our imbecile press cannot see this.

You might also question how many votes there are in appealing to business. There are none at all if this means cosying up to elites. But this is the opposite of what Labour is doing. It is, instead, showing an awareness of the real needs of real people. And that is much more than a Brexit-addled Tory party is doing.

* If you believe the incidence of corporate taxes falls upon workers or consumers - in the form if higher prices or lower wages - then they are not anti-business, except insofar as they are bad for the general economy.

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