Both are hugely destructive industries. But it is the banks that caused the worst crisis of capitalism since the 1930s. As the FT’s Martin Wolf asked shortly after the crash, “how should the country manage the cuckoo sitting in its nest?”
That’s a good question. When Corbyn criticises “magical thinking”, as he did in his Brexit speech, he is referring to the absurd justifications for this status quo.
The big idea is that, it doesn’t matter that manufacturing has been allowed to dwindle as a sector, because Britain’s financial innovators will always bring in the dough.
This dough doesn’t come spontaneously, of course. It is conditional. For the City to thrive, the state cannot pursue an industrial policy. When states promote industries, so the argument goes, they make investment decisions inefficiently that would be more efficiently made by private capital.
Further, industrial policies tend to involve the state in all sorts of restrictions on the property rights of capital, including controls on the free movement of capital, goods and services across borders. That undermines the dynamism of the financial sector, which depends on especially ’hot’ flows of cash.
Industrial policies also tend to be linked to the macroeconomic goal of full employment. States can only pursue such goals by printing money and adding inflation to the economy, and weaken the currency. The best macroeconomic goal, for an economy geared toward perpetual City boom, is counterinflation. And that necessitates a certain level of unemployment — the ’natural’ rate of unemployment, or the ’non-accelerating inflation’ rate of unemployment.
Underlying all of this is an argument that states can’t help being inefficient. This is not because they are perverse bureaucracies so much as because they are responsive to democratic pressures. Politicians end up placating voter blocs, interest groups, client constituencies. They throw money at inefficient industries, while unfair and uncompetitive restrictions are placed on good businesses, thus causing nations to fail. Best keep Jonny Voter and Jenny Citizen out of it.
The situational ironies are hard to miss. The modern state is required not to protect or subsidise industries, but it must also defend the interests of the financial sector at all costs. The Treasury can’t save a few hundred jobs in a plant in Wales, but it will hop to in order to save the profits of the City — at a cost, as of March 2017, of over a trillion pounds.
If those once celebrated, mawkishly venerated ’innovators’ and ’wealth-creators’ are now recognisably a major cause of our woes, and a drain on public resources far bigger than any of the ’lame ducks’ of the 1970s, this is an argument for rebalancing the economy.
Before going further, a word about “the economy”. There is no “the economy”. That phrase bundles together a lot of distinct things. Not everyone benefits from the insane property market. Not everyone has savings to benefit from raising interest rates. Not everyone benefits, as the City does, from a strong pound. Manufacturing has suffered from that priority. Large parts of the country have been haemorrhaging jobs for years.
“The economy” is, in other words, not a homogenous thing experienced by everyone in exactly the same way. Just as labour and capital have opposing interests, so different bits of capital have heterogeneous and often conflicting interests. The fact, for example, that macroeconomic policy is oriented toward promoting financial capital is the result of a realignment of capitalist class interests, as the post-war settlement was no longer able to contain labour militancy. The shift to financial dominance, and everything that this entailed, helped break this militancy. And as a result of that success, it shifted the balance of national income away from labour and toward capital. It is on the basis of such successes, globally, that the filthy rich have become obscenely rich. So when we talk about “the economy” in a neutral way, we’re glossing over processes that are the subject of contention.
So now we come to the point. Is it possible, or even desirable, to shift the emphasis of policy toward the promotion of new manufacturing industries? Jonathan Portes, a fellow at the free trade think-tank, Global Future, condemns Corbyn for “missing the economic point” with his criticism of companies moving abroad to exploit “cheap labour”, and his call for government to promote manufacturing in the UK.
Portes argues that there is nothing wrong with Bangladeshis making goods which are purchased in Britain, and that attempting to control imports from lower wage economies would simply hurt those workers and drive up prices for British workers. Further, while there may be some use in public procurement policies supporting local industries, such policies have not impeded the shrinkage of manufacturing in other European countries. Finally, since most British workers are based in service industries, policy should be aimed at driving up productivity and wages in this sectors.
It would be hard to find a more elegant statement of said magical thinking — or what we might call capitalist realism — than that. It is, though, a piece of ’broken kettle’ logic. For a start, the high concentration of British workers in low-productivity service sectors is in part due to the collapse of manufacturing. That is not an argument for continuing with the same industrial non-policy.
Nor is it persuasive to say that protectionism failed to stop the shrinkage of manufacturing in France. The overt goal of the McDonnell shadow treasury is to promote new manufacturing industries. As economists from Mariana Mazzucato to Ha Joon Chang have demonstrated, such is actually standard practice in the history of capitalism, and it generally works. And the argument against import controls is question-begging at best, since it presupposes the neoliberal developmental model (for both Bangladesh and Britain) that is currently in question.
Corbyn’s difficulty will not be that his goals are impossible. They are even potentially congruent with a certain rationalisation and modernisation of British capitalism. The overweening dominance of the City, and the neoliberal growth model that it is linked to, is clearly a problem for the efficient reproduction of British capitalism.
But such changes require conditions that he has no control over. As Adam Tooze points out in his critique of Mazzucato, major socioeconomic reorganisations tend not to happen without the messy business of industrial conflict, union organisation and the inevitable capitalist class backlash.
I hear that there are some around the leadership office who hope this can be bypassed by appealing to the rational self-interest of the more forward-looking sectors of business. Alas, capitalism has never been that rational or far-sighted. That is why Wolf’s cuckoo metaphor doesn’t quite work. The cuckoo in the nest is an unwelcome intruder, but the majority of British capitalists have happily accepted the class leadership of finance, and derived a certain benefit from it. The cuckoo isn’t the banks, after all, but capitalism.
Richard Seymour
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