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Labour should back a co-operative rebuilding of finance

23/08/2011, 02:46:18 PM

by Peter Jefferys

Behind the noise of this summer’s events – the riots; phone hacking; Gadhafi’s fall – the great economic issues facing Britain have been largely muted. Of course had this not been a summer of scandal, war and looting, the huge losses and gains on the stock market and the dearth of growth worldwide would be much firmer in the public consciousness. People are already feeling this deep crisis through its ramifications: the rising costs of living and terrible jobs market. We are in a highly precarious position, with many comparisons made to the scale of the crisis in 2007/08 and we must pay close attention to the solutions being offered by the Government and our shadow team.

It is equally vital, though, for Labour to look beyond the day-to-day fluctuations of markets and even quarterly growth figures in order to form a vision for the future of the economy. The Shadow Chancellor has offered a sharp critique of the Government’s economic strategy, but Labour must also have a positive alternative for fairer financial services. A vision that would appeal to voters and reduce the risk of future crises – after all, financial services are at the heart of the current problems.

This is much more than simply advocating ‘banker bashing’ – short term measures of retribution on the city of London. We would do well to remember that financial services are integral to our economy and to the lives of citizens, access to credit and banking services are import right across the economy and our society. Rather, we need to think about long-term, sophisticated changes of emphasis in what sort of financial services we support.

Nowhere is this clearer than with the future of Northern Rock. Labour advocated an approach in the 2010 manifesto that would have seen Northern Rock depositors take back ownership within a new ‘Co-operative Building Society’. Re-mutualisation would reverse the failed Tory policy of allowing Building Societies to become risky shareholder owned banks and create a much safer organisation, unlikely to require a future taxpayer bailout. The Chancellor, however, has decided to flog-off the Rock with no consideration of its future business model. We have a petition to stop the sale here.

Beyond Northern Rock, we are campaigning for a greater emphasis on the role of financial mutuals – such as building societies and credit unions. Financial mutuals are member owned, rather than shareholder owned, meaning that business decisions are taken in the long-term interests of customers, rather than the short-term interests of capital. Labour did much in power to support financial mutuals, but more is needed to increase the diversity of financial services provides. Labour should support the creation of a ‘diversity index’ and corresponding diversity threshold for UK financial services, in order to ensure that such services are not dominated by a few, pseudo-monopolistic plcs.

We are also advocating a new international approach for the rating and regulation of financial products and services. Labour should support much needed reform to Credit Ratings Agencies (CRAs), the bodies which severely mis-rated financial products in the run up to the banking crisis and recently caused unnecessary woes through a downgrade of American sovereign debt, initially based on a $2 trillion miscalculation. The current business model of ratings agencies is a classic conflict of interest – CRAs rate the quality of financial products but are paid for by the same institutions that create and sell those products.

Just yesterday, the former head of Moody’s launched a stinging attack on CRAs, suggesting that there is a longstanding culture of intimidation and harassment within the companies from management to analysts, ensuring that ratings match the needs of clients (large financial institutions).

Given the failure of CRAs to adequately rate debt in the run up to the crisis and the current unnecessary pain caused to the American economy, the time is rife for reform of CRAs. The Co-operative Party advocates the creation of a UN backed mutual Credit Ratings Agency, to be funded by contributions from investors, member countries and debt issuing organisations. The mutual structure would ensure that no one funder has undue influence, giving far greater credibility to ratings issued. This is a great ambition for Labour to get behind, as it puts democracy at the heart of the international financial system.

These policies offer the basis of a co-operative vision for the future of financial services that Labour could get behind. Injecting democracy and other co-operative values into financial services would provide a positive Labour Co-operative alternative to the Coalition’s inaction and de-facto endorsement of the status quo.

Peter Jefferys is the policy and campaigns officer of the Co-operative party

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Blue Labour is a red herring

11/07/2011, 11:30:06 AM

by George Bevis

Maurice Glasman’s work on the increasingly popular Blue Labour concept is a feat of brilliance; it echoes even the cleverness of Keynes. I think it’s correct, but I also think it’s a distraction.

The problem with Blue Labour isn’t what it says, but what it is. It is another political philosophy based primarily on growing social capital, reminiscent of the big society, stakeholder capitalism and many other more-or-less communitarian philosophies before them.

Such social capital approaches have proved problematic in that they can be too slow to solve many major socialist concerns: building enough hospitals; paying enough teachers and bringing enough people out of poverty. Although it may seem vulgar, Labour proved in government that the only kind of capital able to achieve those things quickly is financial capital.

Labour’s defining philosophy for government must therefore start with economic growth. Growing social capital is very important, but it won’t achieve enough without a buoyant economic foundation. And in the current period of austerity we cannot expect Britons to be enthusiastic about any philosophy which doesn’t primarily promise to alleviate the squeeze they feel.

Labour should be the natural party of growth economics. Under Harold Wilson it was just that; the political champion of innovation and industry. Labour’s argument back then remains valid today: we recognise and address the externalities that our extremist free-marketeering opponents refuse to acknowledge. (more…)

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Let’s capitalise on Tory twitching on the economy

13/06/2011, 01:00:05 PM

by Jonathan Todd

Public debt, said to be the consequence of Labour largesse, is the problem for the governing parties, and aggressive cutting the medicine. Labour contends that this remedy is too tough to close the deficit. As we recover from a global shock of 1929 proportions, slower cuts are required for strong enough growth to generate the tax revenues needed to achieve deficit closure. Lack of growth, as well as the deficit, is the problem targeted by Labour.

Are these well-established positions shifting?

Not as far as Labour is concerned. Some twitching can, however, be detected on the government side.

First, John Redwood wants an improved growth strategy. This is echoed by Liberal Democrat Mark Littlewood. This doesn’t mean the Tories and Liberal Democrats are about to concede, as Labour has protested, that they have no growth strategy. Since the formation of the government they have argued that the deficit needs to be addressed to retain the favour of bond markets and so control upward pressure on interest rates. They prefer this monetary stimulus to greater fiscal support. Yet the comments of Redwood and Littlewood are not insignificant. They acknowledge that the resources of the shrunken state could better target growth.

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Why Labour is not being heard on the economy

10/06/2011, 08:21:39 AM

by Atul Hatwal

Labour did a good thing last week.

On Sunday, Ed Balls re-launched his proposals for a £2bn tax on bankers’ bonuses to fund action on youth unemployment and a new house building programme.

Politically, the policy draws exactly the right dividing lines. Greedy bankers versus young unemployed and aspiring home-owners.

In economic terms, it focuses funds just where they are needed, helping reduce the costs of economic failure and getting the housing market moving again.

And by putting down amendments to the finance bill, Balls will ensure a parliamentary vote on the plan, giving the opportunity to pressure individual Tory and Lib Dem MPs and expose whose side they are really on.

The initiative has all the elements of a policy which could cut through the white noise of political debate to resonate with the public.

But it hasn’t.

Not that there was anything wrong with the proposals. Or the media coverage. The public just don’t seem to be listening, much as when the proposals were originally launched in March.

In his Q&A session at the GMB conference on Monday, rather than being on the front foot, Balls had to explain why Labour wasn’t doing better in the polls.

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That high risk economic policy again: ours

13/04/2011, 12:00:11 PM

by Rob Marchant

Recess. Time for us all to reflect on where we’re at before the elections are upon us. And what will people be wanting to hear on the doorstep this month? That the cuts are awful, and that we’re with them. Right?

Probably.

The idea that we might be taking a risk with this line seems particularly wrong-headed, as the Tories are wrong and we are right on the pure economics of the cuts. Krugman, Stiglitz, and other luminaries agree (hmmm, which should we trust, two Nobel prize winners or George Osborne? Let’s think). The trouble is, we are taking a risk. As I have observed before, it is often not so much the economic policy itself, which is essentially right, but our positioning on that policy – the politics – which is risky.

Our approach is risky, perhaps as much as the Tories’, in its way, because it is predicated on the potential for economic disaster from cutting too far, too fast. And, of course, that disaster may not happen or worse, may happen, but not in a way which we can prove. It may be a little early to assume, as Liberal Conspiracy’s Sunny Hundal seems to, that we will be incontrovertibly proved right.

By allowing the two sides of the cuts narrative to dominate our thinking – the negative effect on people on the one hand, and on growth on the other – we miss the future impact. We forget that, while the first is undeniable, it will pass, and that the second may turn out be difficult to prove. And, when faced with the fait accompliof the policy, what then?

Two golden rules of politics, or any struggle for that matter: choose your battles carefully and play for the long-term, not the short.

One problem with opposition is that you campaign heavily against something, which later comes to pass. And, after a short while, it is as if things had always been that way, as the Tories found to their cost. They campaigned against everything: gay rights, an independent bank of England and devolution. Things that nowadays no sensible Tory would dream of trying to reverse, but for which dire consequences were nonetheless predicted. They were then faced with the gritted-teeth reality of looking on, impotent, as these policies were comfortably put in place. They were the perceived losers of the argument. And the dire consequences, of course, never materialised.

It’s not for the faint-hearted, opposition. (more…)

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Cameron reaches a crossroads

26/01/2011, 03:00:05 PM

by Kevin Meagher

David Cameron was fond of claiming that Gordon Brown “failed to fix the roof when the sun was shining”. Now his chancellor blames the economy’s 0.5% retraction on the snow.

Of course the wintry weather did growth no favours. But George Osborne’s feline political skills eluded him big time yesterday. Did the figures come as a surprise? Caught on the hop? Blaming the elements is reminiscent of the howlers Norman Lamont used to make when he was chancellor. “Je ne regrette rien“, George?
Perhaps he just realised he had nowhere to hide. After all, a government that has removed the roof tiles is to blame for yesterday’s atrocious growth figures.
This deterioration in the economy is theirs and theirs alone. Q2 and Q3 growth was reasonable; evidence of Norman Lamont’s infamous “green shoots” breaking through.

But these have been choked off by the £6 billion worth of cuts the government made last year and the endless sabre-rattling about cuts to come which has squashed consumer confidence.

George Osborne has not made the laws of economics redundant. Poleaxing tentative growth with a slew of tax rises and spending cuts as the economy crawls out of recession was always going to lead to this. Labour was right last May: the Tories cannot be trusted to secure the recovery. (more…)

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Economic slow-down: it’s not the snow, it’s confidence

25/01/2011, 04:00:02 PM

by Pat McFadden

When this government was elected they decided to cut public spending sharply and ditch Labour’s industrial strategy at the same time. The first obviously got the lion’s share of the headlines, but two events in recent days have highlighted the folly of their second decision.

First, Sir Richard Lambert chose his final speech yesterday as director general of the CBI to bemoan the lack of vision from the government on what the future UK economy might look like, or any plan for the future. He talked of politics triumphing over sensible policy on a range of issues from aviation policy to the immigration cap to the cash starved local enterprise partnerships, which are being set up in place of regional development agencies. As Sir Richard pointed out, “it’s not enough just to slam on the spending brakes. Measures that cut spending but killed demand would actually make matters worse”.

Second, this morning’s GDP figures came as a shock to markets. And George Osborne’s attempt to blame the snow will fool no one. The really worrying thing about today’s figures is that they come before the impact of the VAT rise and the spending cuts which will kick in from March. Rather than snow, I suspect the real impact has been on confidence, which is why responsibility must lie at the door of the government. (more…)

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Ruthless, brutal, heartless: our attacks are music to Tory ears

15/01/2011, 10:23:16 AM

by Dan Hodges

The trouble with politics is there’s never a ragin’ Cajun around when you need one.

Ed Miliband has begun the New Year by springing from his corner with the speed and ferocity of Jake LaMotta. Cameron and Clegg have been pinned to the ropes as the punches rain down. VAT. Banker’s bonuses. Oldham. One killer blow and they’ll be eating canvass.

But something’s holding Raging Ed back. The final hay maker feels heavy in the glove. For some reason, he can’t quite put them down.

James Carville would know the reason. Bill Clinton’s campaign manager had the answer to every political conundrum. And it was the same answer. “It’s the economy, stupid”.

Ever since the graphic, “Conservatives retain Basildon”, flashed across our television screens that cold morning in 1992, Labour strategists have held one truth to be self evident. The party that is not trusted to run the economy will not be entrusted with running the country.

Bill Clinton’s election victory later that year confirmed it. For the first time for over two decades a progressive party had taken on the right, and bested them, by selecting the economy as their battleground. As we watch Barack Obama move to heal his nation, and look back wistfully at three consecutive election wins, it’s easy to forget the significance of that victory.

But some have forgotten. To them it’s no longer “the economy stupid”. Now, it’s “the cuts stupid”. Polly Toynbee’s “red carpet of opportunity” lies enticingly before us. As the Tory led coalition scythes through our public services a terrified electorate prepares to leap gratefully into the arms of their Labour protectors.

Possibly. The Lib Dem’s are already in free fall as a result of their cynical act of appeasement. The Tories cannot indefinitely defy the laws of political gravity. Ultimately, the cuts will take a toll of the architects as well as the victims.

But a word of warning: if we have learnt anything about this Government it is that their callousness is underpinned by a low cunning. Cameron and Osborne are not fools. They have a strategy. And we are playing to it.

Ruthlessness implies competence. Brutality; strength. Heartlessness; decisiveness. (more…)

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The Tories can’t have the Irish crisis both ways

23/11/2010, 03:00:55 PM

by Pat McFadden

The UK government has been determined to paint our economic situation as a domestic one, blaming the Labour government for the deficit and thus for their response to it in terms of the spending cuts set out in the CSR. This politically-led approach to the crisis also requires them to play down or ignore the international nature of it. After all, the more they talk about common problems being faced by countries across the world, the more threadbare their case against the previous government becomes. It can’t all be Labour’s fault if a number of countries are going through the same difficulties.

You could see this approach reflected at the recent G20 summit. Instead of shaping the agenda as Britain did when Gordon Brown chaired the G20 summit in London last year, we appeared to play a marginal role, with little to say about how countries should work together, or what the response should be to the exchange rate tensions and the discussion of trade imbalances that dominated the summit. When the prime minister was asked what he had been doing at the summit, he said that he had been lobbying for England to host the 2018 world cup – a good goal to aim for but not the reason he was there.

Enter Ireland, with a flight of deposits causing a crisis of confidence in the country’s economy – and this after the country has implemented the kind of austerity programme the UK government is setting out on. Yet when government ministers talk of the Irish economy’s problems, they don’t want to talk about the Irish government’s fiscal policies. No. They insist that In Ireland the issue is all about banks, not the actions of the government.

This contradictory stance exposes their political strategy in the UK. How can it be all about banks in Ireland but all about Labour government profligacy in the UK? The truth is that the last few years has seen the unfolding of a banking crisis across the world to which governments of all stripes have had to respond. In the UK, the Labour government responded in a way that was determined not to let recession turn into depression. That’s the reason for the deficit, not government profligacy. And in the same way, it is a banking crisis that lies at the core of Ireland’s economic problems.

I hope the Irish economy recovers. It is true that as neighbours and trading partners, it is in the UK’s interests to have a healthy and stable Irish economy. But it does no one any good for our government to offer one version of events when it comes to talking about our own economy and another one entirely when talking about others.

Pat McFadden is Labour MP for Wolverhampton South East and a former BIS minister.

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Beware of Osborne’s traps on the economy, says Jonathan Todd

27/09/2010, 02:00:54 PM

Ostensibly, Manchester hasn’t greatly changed since Labour conference was last here. The buildings are all in the same place. The distinctive cool and charm remains. The corned beef hash at Sam’s Chop House still does the job.

Yet the British economy suffered a recession which shrank it by 6 percent in the intervening period. This is officially more than half way to a depression and a very big deal. Labour at the general election lost the trust of the people to steer the recovery from this. We won’t return to government unless we again become recognised as the party of economic competence.

The leadership election hasn’t flushed out a fully formed economic offer. Perhaps it was unrealistic to imagine that it could. However, some consensuses emerged. We want tax to play a bigger role in deficit reduction than does the government. But this risks the perception that we are a party of high tax, which is electorally arid terrain. And, while Danny Alexander may have suggested that this won’t happen, it would create a marked contrast between ourselves and the government if they do offer tax cuts in the second half of this parliament, upon which the Tories seem likely to insist.

Another consensus to develop during the leadership contest is that we want deficit reduction to begin later, proceed less aggressively and be more sensitive to GDP growth than does the government. But this risks the view that the party which built up the deficit in government lacks a serious plan for correcting it. That we are, in other words, reckless economic vandals. This is slightly hyperbolic, but isn’t so far removed from how many voters, whose support we need to form a government, see us. Consider, as an illustration of this, that 47 percent of voters in the south of England, according to new research by You Gov and Policy Network, thought that the last government’s spending had been “largely wasted”.

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