Published on 14 Sep 2015

John McDonnell: what will Corbynomics look like?

The appointment of John McDonnell MP as shadow chancellor was the clearest signal Jeremy Corbyn could have sent. At the heart of the shadow cabinet there will be a group that buys the whole of Corbynomics. But what, exactly, is that?

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We know it involves resisting austerity: an alternative Labour path to deficit reduction that is slower, and much more heavily reliant on taxation that under Ed Balls.

Like Balls, McDonnell has the option – in the early years of the parliament – of refusing to match fiscal policies like for like with George Osborne, saying in effect: you’ll see the Labour budget strategy in detail once we’re close to power. He will likely continue and extend the push begun under Ed Miliband to get opposition budget proposals audited by the OBR.

We know from the campaign trail that the centrepiece of fiscal policy will be a massive crackdown on large corporate tax avoidance.

But beyond that? It’s clear from their campaign speeches that Corbyn and McDonnell have understood the transformed structure of capitalism over the past 25 years makes it difficult to enact the old programme of Bennism: wholesale nationalisation and state planning.

Instead they have begun to draw ideas from the “post” socialist think tanks: Prime Economics, run by debt campaigner Anne Pettifor; the New Economics Foundation, whose economist James Meadway is influential in the Corbyn camp.

Both McDonnell and Corbyn have picked up and run with the “people’s quantitative easing” strategy advocated by Richard Murphy, the tax justice campaigner.

But there are other potential sources. During the last parliament both Vince Cable and Labour’s Chi Onwurah were visibly impressed by the proposals of Sussex-based professor Mariana Mazzucato for an “entrepreneurial state”.

Mazzucato’s ideas have leverage in many countries and corporations with cash reserves they want to throw at development and innovation, and a lot of the emphasis is on “smart” state direction – via a national investment bank or sovereign wealth fund.

If you add this to Labour’s now very firm commitment to renewable energy and sustainable development, it would be logical to expect BIS under Labour to become much more like a 1960s-style “economic ministry”.

Which leaves monetary policy. To do the people’s QE you would need to redefine the remit of the Bank of England – to the point where it may no longer be seen as independent. A mark of Labour’s seriousness about doing active monetary policy would be whether it signals an “shadow” monetary policy unit.

If it did, the most obvious person to lead it would be former MPC rebel, and scourge of austerity, Danny Blanchflower. Blanchflower and Richard Murphy were to be found musing about such a prospect on Twitter yesterday.

For the critics of Corbyn’s team – which will include many Labour MPs and grandees – their nightmare is that Labour starts issuing ill-thought out, uncosted pledges according to the demands of unions, pressure groups and NGOs.

But the institutional changes implied by Corbynomics would be an even bigger departure from recent orthodoxy: a beefed up economics ministry, a Treasury whose fiscal policy would be the opposite of austerity, and a politically controlled Bank of England.

And here’s the interesting thing: it’s not far off what generations of orthodox Keynesian economists have wanted to do to the British state, including senior old-school Lib Dems.

What more do we know about McDonnell?

He is famously against the third runway in his Heathrow constituency, where certain unions are pro. He has also, famously, clashed with nearly every union leader over what he sees as their “bureaucratic” approach to democracy. So for once Labour’s critics will get somebody senior who “stands up to the unions” – though possibly not in the way they’d hoped.

And finally, unlike Corbyn, he is an administrator. He ran the GLC’s £3bn budget and after that the Association of London Authorities. At the GLC he was sacked by Ken Livingstone after Livingstone refused to adopt a strategy of defying the Conservative governent’s rate capping laws in 1984.

His critics in the Labour movement will take comfort from the fact that he is used to being sacked by iconic left-wing Labour leaders.

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12 reader comments

  1. Leon Kreitzman says:

    Invergordon should be engraved on the heart of everyone who talks blithely about national investment banks.What seemed a good idea did not look such a good one with a fall in aluminium prices which made the state funded smelter uncompetitive. But has it not been ever thus.

    This investment game is really tricky and much harder than it looks.

  2. Richard says:

    I have zero respect for the capabilities of Dannhy Blanchflower, who has got every call on the UK economy completely wrong over the past 5 years.
    As for “People’s QE” – Zimbabwe here we come!

  3. Andrew Dundas says:

    McDonnell’s macro-economic stance will be crucial. Tories swore that a zero to minus deficit was essential to avoiding calamity.
    But the reality is that Tories have maintained an unprecedented deficit of 4.6% of national income by cutting taxes for extremely wealthy people. And there’s been none of their predicted calamity. That’s because large economies like the UK can absorb deficits with comparative ease. Recall that Corporation taxes have been cut from 28% in 2010 to 20% now. That’s a cut in taxes of about 30% for shareholders during a long period of squeezed incomes for the majority of families. The UK now has a much lower tax on big businesses and wealthy people than the USA and all others in the EU. No wonder the people feel squeezed.
    What John McDonnell will be proclaiming is the interests of the people the Tories reject. And ahead of the wealthy.
    Borrowing to invest in sensible projects is far more efficient than investing in tax cuts for the wealthy as both the Tories and the SNP have done, and which both give priority to.

    1. Richard says:

      You are typically looking at tax cuts as necessitating a net loss of revenue to the Exchequer, which is simplistic to say the least.
      By cutting corporation tax, Osborne has made the UK a far more attracitve domicile for major corporations than other similar sized countries. We are attracting large corproates to list in London therefore and pay their taxes in the UK. As can be well understood, 20% of a large amount of money is much more than 30% of nothing!
      I agree that Osborne has been borrowing too much, but that has been a consequence of the glacial pace of spending cuts.

  4. Philip says:

    I’m pleased to see that C4 continues its approach of dealing in facts & assessing them fairly rather than the current gadarene rush to declare the policies unworkable & Corbyn unelectable. This is a credible alternative – exactly why the consensus establishment who gain so much from the present arrangements are bending every sinew to defeat Corbynomics

  5. Meg Howarth says:

    Do hope JC seeks advice from Tony Atkinson – see here, 3 paras up

    http://www.theguardian.com/business/economics-blog/2015/jun/21/so-much-for-trickle-down-bold-reforms-are-required-to-tackle-inequality

    TA favours a basic income (mentioned in your own book, Paul) and a progressive land tax – John McDonnell supports land-value tax (commonly referred to in media as LVT) – and TA would be a great ally.

  6. G Jones says:

    Just finished reading your ‘ Post-Capitalism’ ; which of your ideas do you think they sign up to? Do they get it about info-tech and free stuff? Are they going in the direction you hint at in your book?

  7. Neale says:

    Corbyn needs to listen to people like Bill Mitchell, here with Pettifor and Murphy in August. http://bilbo.economicoutlook.net/blog/?p=31725 Mitchell and “Modern Monetary Theorists” around the world have plenty to offer in strong opposition balanced budgets, which sadly McDonnell has immediately talked abut. The ideas chime with your post capitalism but offer a different approach to the sharing economy that rejects marginal theory and the grip that financial/economic constraints seem to hold. It explains why and why we can have full employment and decent wages and real services and attack climate change. A framework for thinking that can be a basis for a well articulated political economic alternative

  8. Chrislongs says:

    How about an elected shadow MPC ? That would highlight the fallacy of the independence of the BOE.

  9. Ramon says:

    Hello Paul,

    I have been following you since some months after reading an article you wrote on postcapitalism, I like your economic and social perspectives and I wonder if you would be interested in joining a project for a game including your post- views. If so, please pass me your email contact and we can talk more details.

    Thanks!

  10. Iain Hill says:

    The extreme left criticism is played out. Is it not more important to demonstrate that the Corbyn/MacDonnell proposals are economically literate, unlike the views of many of the MPs who criticise them. Austerity is totally a political choice. As an economic doctrine its discredited everywhere but here. Why will no reputable economist appear and say so in public? Get Piketty on the programme?

  11. Alex says:

    What exactly an “independent” central bank means? Controlled mainly by the private banks’ shareholders?

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