Left and Right can learn from Corbyn thrashing

The political economy was dominated by two big stories last week. The first, on Wednesday, was the Government’s HalfYear Economic and Fiscal Update. The good news was that Grant Robertson has heeded calls from the economic community to beef up the Government’s fiscal stimulus. The bad news was the small deficit that’s expected to open up in the Government’s books next year.

The other big news, of course, was the UK election, where the Boris Johnson-led Conservative Party delivered an absolute thumping to Labour, led by Jeremy Corbyn.

It was the fourth-straight Conservative victory, with voters’ appetite for the party seemingly undimmed by a decade of austerity.

It’s been a tough few years for the Left in the West. The electoral victories of Brexit, Donald Trump and Scott Morrison, against all odds (and polls), have rattled the Left’s confidence in what was once a winning formula.

Outside the anglosphere things are even worse. France’s Socialists secured just 6.3 per cent of the vote in the first round of the 2015 presidential election, despite having won the previous election. The story is similar in Germany.

The two events are linked. Next year’s small deficit is mainly due to pressure on ACC’s books. ACC is forecasting lower returns as interest rates around the world fall in response to a slowing economy. As returns fall, the cost of ACC’s future liabilities in today’s dollars increases, creating a deficit on the Government’s books

ACC’s problems are just a symptom of slow growth all over the world. In the US, the UK, and especially Europe, a decade of slow growth hasn’t just challenged economies, it’s upended politics, especially for traditionally left-wing parties.

They shouldn’t be in trouble. Tough economic times should help traditionally left-wing parties, giving them an economic excuse for big social and infrastructure programmes in the name of Keynesian stimulus. See the left-wing Depressionera governments of Franklin D. Roosevelt in the US or Michael Joseph Savage here.

The political truth is that left-wing parties are still grappling with the economic changes unleashed in the final decades of the 20th century, often described as neoliberalism. The changes redefined the role of the state and took the axe to aggressive tax and transfer systems which had kept a lid on inequality since the Great Depression.

They were also popular. Britain’s Conservatives spent nearly 20 years in office while the Republicans enjoyed 12 years in the White House.

The Left thought it had found the answer to its political fortunes by embracing the new economic orthodoxy. The logic was to continue to ‘‘grow the economic pie’’ without agonising too much over how equally it was divided. This was the so-called ‘‘third way’’ of Bill Clinton, Tony Blair and Helen Clark.

All three raised taxes on high earners and beefed up the transfers system, but only Clark seriously cared about inequality. She led one of the few governments of the era to narrow the gap between rich and poor as measured by the Gini Coefficient. The ethos was best summed up by Peter Mandelson, one of the men behind Blair, who said he was ‘‘intensely relaxed about people getting filthy rich as long as they pay their taxes’’.

These Left-wingers embraced the right-wing idea that the rising tide lifted all boats, they just were more muscular about using the state to make sure it actually happened. For a while it worked. Third-way governments grew their economies, lifted people’s incomes and created a measure of prosperity, in part fuelled by easy credit.

But the shape of the modern economy makes a return to this sort of economy impossible. We now live in an age of secular stagnation. Economies experience negligible growth from year to year. The pie (to return to the tired metaphor) isn’t growing, and voters are voicing frustration that their share of it seems to be decreasing.

Corbyn’s Labour manifesto was a radical challenge to this. For the first time in decades it put redistribution ahead of growth. Taxing the rich and redistributing to the working and middle classes was the first priority; demand-driven growth came second. Voters liked many of these policies, though they rejected Corbyn.

Even right-wing parties are embracing a larger state. Generous spending under Boris Johnson will see state expenditure equal 41.3 per cent of GDP (in NZ, the state is a meagre 28.6 per cent of GDP).

NZ politicians shouldn’t rush to draw lessons from Corbyn’s defeat. Brexit upended the UK’s political geography, a change only magnified by its medieval electoral system. Corbyn was a terrible spokesman, and the party’s fiscals were optimistic to say the least, but they shifted the debate.

But there are general lessons to be learned from his defeat. Residual third-wayers shouldn’t think there’s an easy way back to the glory days of Blair; long-term economic conditions don’t allow for it.

It’s not just a problem for the Left either – politicians of all colours need to find economic ways to grow the pie faster, or work out the politics of what to do when the pie simply stops growing.

The Left thought it had found the answer to its political fortunes by embracing the new economic orthodoxy.