The British Labour Party and the ‘New Economics’

Please cite the paper as:
Lyn Eynon, (2016), The British Labour Party and the ‘New Economics’, World Economics Association (WEA) Conferences, No. 1 2016, Capital Accumulation, Production and Employment:, 15th May to 15th July 2016

This paper has been included in the publication
“Capital and Justice”

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The election in September 2015 of the socialist MP Jeremy Corbyn as leader of the Labour Party came as a profound shock to the British political establishment. Few dreamed it possible just a few months earlier. Corbyn’s campaign platform was overtly left-wing in its economic proposals, including condemnation of austerity, increased public investment, targeted public ownership, and tax justice against avoidance by corporations and rich individuals. Since his election, Corbyn and his Shadow Chancellor John McDonnell have continued to develop the ideas sketched in the campaign towards a coherent programme for the party’s next election manifesto. Central to that will be an alternative approach for managing public finances to the austerity of the Conservative government aiming at fiscal surpluses, but the discussion on the ‘New Economics’ goes well beyond macroeconomic policy into questions such as innovation, inequality and the labour market. Reviews of key institutions such as the Bank of England and Treasury are promised. This paper explains the background to Labour’s electoral defeat and Corbyn’s subsequent victory, then discusses economic policy before briefly considering what we should learn for campaigning and narratives. It investigates the underpinnings of the emerging programme and its potential to ‘bend the arc of global capital towards justice’ on issues such as investment, taxation or wages, discussing the UK in the international context of the aftermath of the financial crash. At issue here is not an exercise in criticising capitalism, but the practical problem of defining a realistic programme offering genuine progress in contemporary Britain, with sufficient credibility to attract both electoral backing and active support against hostility from global elites. There are lessons and questions here that go beyond the British Labour Party. I give an overview of the issues and during the Conference discussion will offer more detail on areas that attract interest.

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Recent comments



  • Steven Kim says:

    This is an intriguing paper which explores the knotty issues entailed in forging a wholesome suite of economic policies. For this purpose, the agenda to be designed ought be effective as well as appealing to the mass of voters while averting a backlash from the global elites.

    The author presents the arguments for and against a raft of policies such as quantitative easing, job creation, and labor mobility. All this is interesting and worthwhile as background material. Presumably, the author will take this information and use it as the fodder for a detailed set of proposals for the government. In that case, we can all look forward to a future paper by the author which digests the mound of information and presents a compelling set of recommendations for public policy.

  • Gerson P. Lima says:

    Your very interesting and very well economically backed political paper is an important contribution to this Conference, giving us some confidence on how to “bend the arc of capitalism” when you state that there is a country where “it is possible to win against the animosity of both the political establishment and media”. Creating an organization like Momentum seems to be a great idea to plan and develop actions in this direction. Congratulations for you and fellows for the initiative.
    An important question is: how will your enlightening idea be refined now that Brexit, despite your opposition, is a reality?

    • Lyn Eynon says:

      Thanks for your supportive remarks and the invitation to comment on the Brexit vote, the fallout from which is generating immense turbulence in both financial markets and British politics. It now looks certain that the Parliamentary Labour Party will force a new election for the leadership of the party. Corbyn retains wide support in the membership but the Brexit vote and accusations of lack of commitment to the Remain campaign have weakened him. Certainly the optimism of last summer has dissipated.

      How did we get here? The EU has long been a sore point in British politics, dividing the labour movement in the 1970s with the left resistant to a capitalist club, and dividing the Conservatives from the 1990s over how to gain an expanded market without losing political sovereignty. It was to resolve this internal argument and to hold back the UK Independence Party that David Cameron promised the referendum, which has now gone so spectacularly wrong. As expected, the Tory party split down the middle, in Parliament, in its membership and in its voters. Almost all UKIP voters wanted to leave while most Greens and Liberals wanted to remain. With the Scottish National Party also backing Remain, all Scottish localities voted in. In Northern Ireland a strong nationalist desire to remain prevailed over a loyalist preference to leave. London voted heavily to remain, while other major cities in England and Wales either wanted in or split. Rural and semi-rural areas were as expected mostly out, so the decision hinged on votes in historic Labour areas in Wales and the north of England. The charge against Corbyn is that he failed to deliver these for Remain.

      The data indicate a more complex pattern. Post-referendum surveys show that two-thirds of current Labour supporters voted Remain, a respectable showing in a divisive contest. From what I can see in the numbers – and heard during the campaign – former Labour voters (who had either given up voting or recently moved to UKIP) turned out to vote Leave and proved pivotal in a close result. These voters were unlikely to be swayed by uncritically pro-EU arguments, including from Labour. Their communities have endured 40 years of deindustrialisation, now compounded by austerity, and it was hard to make a case for remaining as we are. Unions pointed to workers’ rights but those count for less on the margins of the labour market. EU money has brought visible improvements to many deprived districts but not the prosperity that comes with decent jobs. Being told to be grateful was an insult to self-respect. In conversations, it seemed to me that beyond any specific issues there was a wish for assertion and a palpable empowerment from a sense that, unlike elections, politicians would not this time be able to ignore their wishes.

      ‘Remain to Reform’ as proposed by Corbyn and the Another Europe is Possible movement launched by John McDonnell, Yanis Varoufakis and the Green MP Caroline Lucas sought to acknowledge this, arguing to stay in the EU but to fight to change it. It was very much my own view but it never really took off. The material produced by the Labour apparatus did not reflect this position and the dissonance in Labour arguments caused confusion. Nor did we come up with convincing arguments on how we could actually change the EU against both political opposition and institutional inertia. No doubt there was also suspicion that, once the votes had been counted, change would be forgotten and everything would continue as before. ‘Take back control’ as touted by Leave was far more seductive.

      Migration was the most venomous issue. Boris Johnson, the Tory leader of Leave, is an unscrupulous careerist with an instrumental attitude to truth, rather than a racist (that role is left to UKIP’s Farage) but his resort to the only card that could win the referendum against evidence of the damage Brexit would cause has left a toxic residue. A Labour MP was murdered by a man with a history of far right affiliation and police forces are already recording a rise in hate crimes. Labour’s response was inadequate, preferring to talk about other matters rather than to challenge racism or to confront the real issues associated with migration at a time of intense competition for unskilled jobs and austerity pressure on services such as health, housing and education. It’s hard to convince someone with personal experience of an employer exploiting migrants to force down pay of the gains from free movement, or to expect sympathy for refugees from a parent in overcrowded accommodation who cannot get onto a housing list. More broadly, even in places with low migration, it crystallised a sense that those in power care more for others than for their own disintegrating communities.

      Where do we go from here? First it needs to be recognised that Brexit is not a done deal. Cameron has postponed invoking Chapter 50 of the EU treaty (the legal mechanism for initiating the process) until his successor is chosen; under the UK’s unwritten constitution Parliament still has the final say; a petition demanding a second referendum has gathered nearly 4 million signatures; the Scottish Parliament will object; and the EU has a history of responding to rejections by cosmetic adjustments and reruns. But I think it will go ahead. The EU seems to saying “OK, get on with it” even if Merkel is more conciliatory, and an in/out decision is not easy to fudge. I also think it is wrong to try to reverse the decision retrospectively. It might have been stupid to make such a historic choice rest on a single vote with no thresholds, but it’s done and has to be respected. A reversal of Brexit would generate bitterness and hatred. I met many angry people who will not let themselves be cheated and I worry where that might lead. There is a whiff of class contempt from some peeved Remainers towards those who dared to assert themselves by voting Leave. That was not my choice but I understand it.

      Attention should now be on managing the complex transition to a post-Brexit reality. There are several aspects to this. First, negotiations on trade and other matters with the EU. It will not be easy to reconcile the post-referendum necessity for controls on free movement of people with the desire for free circulation of goods, services and capital, when any of the 27 remaining countries could veto a deal. Transparency is essential: no TTIP-style closed doors. Then there are the practicalities of incorporating into UK law the elements of EU law that Parliament wants to retain. The constitutional status of Scotland and Northern Ireland has to be resolved. Finally, there is the task of somehow healing the divides that have opened up between generations, classes and ethnic groups, and between the cosmopolitan hub cities and the rest of the country. That cannot be left to politicians but needs grassroots dialogue and engagement.

      Although Corbyn won the leadership of the Labour Party last year against the animosity of the media and the establishment, they have never accepted that result and the Brexit vote provides a golden opportunity to reverse it. The Labour Party should be reaching out to bring disaffected communities back into the mainstream of British life, pushing back on xenophobia, demanding that promises such as extra spending on health are met, and reassuring those who voted Remain. We should also start thinking through policy options in the new context of reduced external constraints but economic costs and heightened risks. Instead we are going to tear ourselves apart in a leadership campaign, on which Momentum will have to spend its energies rather than facing outwards. The campaign will focus on Corbyn’s record, competence and electoral prospects, rather than giving opportunities for the productive discussions of recent months. That’s disappointing but we’re not finished yet.

  • Lyn Eynon says:

    On the final day of our conference, I thought it would be of interest if I offered a view on the current state of British politics, and its implications for economic policy. I have left this as late as possible as the situation changes by the day, if not the hour. It has been a turbulent month, with the murder of an MP, the shock of a Brexit vote that few thought possible when the referendum was announced, the resignation of David Cameron as prime minister, a rise in hate crime and abuse, mass protests online and on the streets by young people wanting to remain in the EU, a vote of no confidence by Labour MPs in party leader Jeremy Corbyn, the post-referendum implosion of the Leave campaign leadership through betrayal and incompetence, a new Conservative prime minister Theresa May, the departure of Chancellor George Osborne, and an imminent Labour Party leadership campaign.

    May was always the most likely candidate to become PM. She backed Cameron on Remain but at the same time denounced the European Convention on Human Rights and then remained silent, making herself acceptable to both wings of her party. She is seen as a “safe pair of hands” and a tough negotiator, and after the referendum debacle competence is at a premium. Article 50, the legal mechanism for leaving the EU, has not yet been invoked, although both Jean-Claude Junker and Martin Schulze, presidents respectively of the EU Commission and Parliament, want an early start on negotiations to reduce uncertainty. May wants to wait but this should not be seen as seeking a way to wriggle out of leaving. She has stated that “Brexit means Brexit” and backed this by appointing Leave campaigners to prominent positions, but she requires time to prepare. Apart from the Bank of England, none of the institutions or departments of state has planned for this eventuality, and the civil service needs to rebuild its capability for trade negotiations. Article 50 allows some flexibility over the timing of withdrawal but May will want it done before the next election in May 2020, having ruled one going to the polls before then. There were some illusions on the UK left about a Tory collapse after a Leave vote but it’s now clear that will not happen.

    What does all this mean for the UK economy? Economists were nearly unanimous in predicting negative consequences from Brexit, through an immediate market shock, reluctance to invest or recruit during uncertain withdrawal negotiations, and longer-term negative impacts on exports and foreign investment, depending on the outcome of those negotiations. There is no reason to revise those forecasts, although it should be noted that micro effects will vary and none of the predictions delved deeply into these. Widespread scepticism, particularly in deprived areas, over the economic warnings from “the great and the good” was less irrational than it was portrayed. Those who have suffered under 40 years of neoliberalism were entitled to wonder how much worse it could get, and the losses from leaving the EU will indeed weigh most heavily on prosperous sectors. That said, a recession or prolonged lower growth would bring yet more misery to poor communities.

    The exact outcome will depend on policy choices. The discredited ex-Chancellor had warned that leaving would worsen public finances but his threat of further austerity through a “punishment budget” was treated with contempt. Indeed, before his sacking, Osborne himself thought better of this and instead abandoned his target of fiscal surpluses by 2020. Much is being made of similarities between some remarks in May’s first prime ministerial speech and those by then Labour leader Ed Miliband prior to the 2015 general election, notably her promise of “a country that works for everyone, not just the privileged few”. Anyone who can remember Margaret Thatcher quoting St. Francis of Assisi on her first day in office is entitled to feel cynical, and the appointment as Chancellor of right-winger Philip Hammond justifies that. But there will be a different feel to this government. The Leave vote has undoubtedly been a wake-up call to both global finance and the British establishment. There was a complacent recklessness to the “Eton boy” politics of Cameron and Osborne, which ultimately went badly wrong. May and her team are, if anything, more right-wing but have a firmer grasp of the realities of life. There will be greater care over policy and presentation, with populist toughness on migration and security providing cover on economics. The essentials of neoliberalism will be maintained and sharpened, but with pragmatism over public finances and sensitivity to the public mood. Thatcher showed how this could be done.

    The Conservatives have regrouped quickly but this is not surprising. Europe has been a deep divide but ultimately this is the historic party of British capital, whose leading representatives have no doubt told the party’s senior figures in no uncertain terms to “get their act together”. By contrast, Labour is in a spiralling crisis, which it might not be able to pull out of. The Brexit vote provided a long-awaited excuse for a Westminster coup against Corbyn, blamed for the failure of the Remain campaign. Many MPs believe this but the evidence is weak. From a poll, 63% of Labour voters were Remain compared to 64% of Scottish National Party voters, but nobody blames its leader Nicola Sturgeon. The narrative that Labour could not win under Corbyn is also poorly supported by election evidence, but for many MPs it has become a self-evident truth, as are claims that he cannot lead. In the feverish atmosphere following the Brexit outcome, most of the shadow cabinet resigned and the Parliamentary Labour Party voted no confidence in Corbyn by a large majority. Corbyn refused to resign, resting on his mandate from 60% of the party membership. After hesitation, two candidates, Angela Eagle and Owen Smith, both former members of Corbyn’s shadow cabinet, have come forward but the PLP will hold a secret ballot, after which one will stand down to present a united opposition to Corbyn.

    This will be a deeply unpleasant campaign. From the time of Corbyn’s election, MPs have sullied the internal party atmosphere by continual abuse, tolerated by the PLP majority, whose attempt to bully Corbyn into retirement has failed, as has its manoeuvre to exclude Corbyn from the ballot through a mendacious reading of the party rulebook, although a wealthy donor is mounting a legal challenge. But the tricks by the pre-Corbyn party apparatus continue. 130,000 people have joined Labour since the referendum but all those with less than six months’ membership are now excluded from voting. Meetings have been banned to stop motions supporting Corbyn and some local parties are now being suspended to disenfranchise his supporters. This is justified by allegations of ‘intimidation’, often pointed, without evidence, at Momentum who have refuted these. The contempt shown by the PLP towards the membership has undeniably provoked anger but many MPs willingly confuse criticism and threat. Preserving the right of MPs to ignore party opinion is at the heart of the PLP rebellion, while Corbyn continues to enthuse large numbers of members. A party split is a real possibility.

    Where does policy come into all this? Both Eagle and Smith have declared themselves to be ‘anti-austerity’. Corbyn and his shadow Chancellor John McDonnell can take credit for redefining the party stance on this but acceptance by his challengers will make it less of a dividing line than it was last summer, although differences will emerge. Eagle will be unadventurous while Smith will be more opportunistic. Both will favour a less active role for the state than is likely to be proposed by Corbyn. Following recent publication of the Chilcot report, highly critical of Tony Blair’s decision to join the Iraq war, Corbyn apologised on behalf of the Labour Party. Burdened by her 2003 vote in favour of the war, Eagle has kept quiet on this, while Smith, not an MP at that time, has stated that the war was wrong but not yet endorsed Corbyn’s apology. Both Eagle and Smith back renewing Trident but while Corbyn has solid support from those opposing nuclear weapons this issue is unlikely to swing votes.

    Europe was marginal in 2015 but will be prominent this time and could be decisive. Smith favours a second referendum when the Brexit terms are known, which could attract some younger supporters of Corbyn who are also keen on staying in the EU. The problem is that this runs into the realities of how the EU operates. Serious negotiations cannot begin until article 50 is invoked, which sets the clock ticking with withdrawal occurring after two years, or earlier if a deal is struck. The article makes no provision for a withdrawing state to change its mind. Extending this timetable, or applying to rejoin under article 49, both require unanimous agreement of EU states. So reversing the decision once article 50 is invoked is not simply a UK choice. Smith has also stated that people want both access to the single market and controls on immigration. That may well be true but again it runs into the problem that there is no sign that such a deal will be available without compromises. Taken together, these positions suggest a willingness to say what listeners might want to hear. Eagle, on the other hand, seems to prefer to avoid saying anything controversial. Corbyn has acknowledged that article 50 will now have to be invoked but has not indicated his approach to negotiations, although I expect him to focus on protection of worker, consumer and environmental rights now at risk, plus defence of migrants and refugees.

    I shall not offer any prediction on how this will all work out. The assumptions underlying politics in the quarter century after the fall of the Berlin Wall no longer apply and we are making it up as we go along, guided I hope by some understanding of global capital and an aspiration for justice.