Towards a just economy: no return to the 1930s

In the face of massive recession, Bryn Jones argues that a narrative for a just economy must be the new direction in a post-Covid future

As in 2008, the left is brimming with new visions for an economy brought to its knees by the Covid-19 crisis. However, after the 2008 financial crash, thanks to public bail-outs, the neoliberal juggernaut was back on track. With a solid Conservative Parliamentary majority and a new, risk-averse Labour leadership, a neoliberal recasting of the economy into deeper free-market waters may be launched. The possibility of a no-deal Brexit trade relationship with the EU could well precipitate this scenario.

Two factors will set the politico-economic parameters for policy shifts. 1) The most severe economic impacts of the Covid-19 emergency on the state and specific business sectors. 2) The alternative policies that will appear most relevant both for mitigating these negative impacts and also social an environmental injustice exposed by the crisis. 

Countries are accruing enormous amounts of public sector debt that could restrict financing of conventional social programmes. Governments’ revenue bases are contracting as profits fall in the business sector and the tax take drops as a result. Last but not least, many workers’ incomes and their tax contributions will shrink as unemployment rises. Latest Office of Budget Responsibility figures estimate the current Budget deficit at 15% of GDP: almost three times the levels of the allegedly spendthrift Labour governments of the 1970s (though nowhere near the 22% of 1945).

What is sustainable is of course as much a political issue as it is of national accounting. Neoliberal hawks will campaign to reduce the deficit – not by increasing taxes but through a growth-fuelled recovery of fiscal debt. Yet this strategy would conflict with the UK’s lopsided dependence on service sectors. Tourism and travel make up about 11% of UK economic activity (GDP). This bias towards personal mass services such as entertainment, tourism and hospitality (on average UK households spend around a third of their outgoings on restaurants, hotels, recreation and culture) – much of this spending is unlikely to recover from Covid restrictions and shrunken incomes.

Thus a growth-based source of recovery and government revenues is unlikely. By contrast, tax campaigners and even the Financial Times advocate a wealth tax on the rich. According to campaigner Richard Murphy, such rises could amass £174 billion in tax revenue per annum: enough to recoup the compensation paid to employers for furloughed workers three times over and help pay for the dysfunctional social care services.

The public debt problem could be staunched but what about workers incomes? There is a real danger that the recession will generate unemployment and poverty levels redolent of the 1930s. The most affected business are already making swingeing redundancies and, as with British Airways, trying to put retained employees on insecure contracts. An epidemic of casualisation and gig economy employment looms.  Johnson’s government is unlikely to challenge these trends. Conservatives will probably back such injustices as a painful necessity to get the economy ‘going again’. To counter mass unemployment and casualisation, and promote equitable and socially progressive crisis management, requires three medium-term policy planks. Firstly, state financial support for afflicted companies needs to be conditional on more public and social accountability. Secondly, a comprehensive labour market agency is needed to ensure redundant workers are retrained and re-allocated to socially and environmentally useful sectors. Thirdly, most of the present dysfunctional and degrading benefits system needs replacing with a universal basic income.

The airline and tourism industry usefully illustrates such policies. Airlines and airports demand government subsidies to keep them solvent. Their arguments that they contribute billions to the economy and government taxes can be countered. They were operating an unsustainable and planet-trashing industry that turned Covid from local outbreaks into a global pandemic. On both environmental and pandemic grounds mass air travel should be cut back. 

However, state support will then be essential to avoid even more redundancies. So governments should take financial stakes and directorships in the companies in order to oversee their rationalisation. To ensure equitable decision-making, workers and unions should also have a boardroom presence to help supervise a state-controlled labour market programme that retrains and relocates airline and airport staff to sectors in need of extra, appropriately skilled workers. There is, for example, some overlap in the skills set of air crews with care home workers, aviation engineers with green energy technology. 

​In the short-to-medium term millions of sacked and underpaid workers will need public support. The Institute for Fiscal Studies predicts that low earners are seven times as likely to work in the sectors most affected by lockdown and Covid restrictions. The quickest, most effective and equitable method would be a universal basic income which already has cross-party political support. UBI guarantees a non-means-tested payment to every adult citizen. It reflects recognition of both the inadequacy of the government’s Universal Credit (and the patchwork of the current government’s Covid income support) and the need for more economic security amidst the growing recession. A UBI could reach all the low-income groups losing out from the current mish-mash of benefits and unemployment compensation by providing a modest but decisive income for millions of – often female – carers and voluntary workers. 

Basic tax allowances primarily benefit middle and high earners. Abolition of these would pay for UBI and would therefore be redistributive. In Stewart Lansley’s illustrative model [pdf], £200 per week for a family of four (£60 for adults) would cost around £20bn net: “less than the aggregate cuts to benefits (of nearly £40bn) since 2010” and three months of the “cost of the government’s wage subsidy scheme”. 

Further savings would come from cutting the administrative cost of punitive and ineffective means-tested benefits, like Universal Credit. Feeble right-wing arguments that UBI would disincentivise paid employment will seem pointless in the coming scenario of mass unemployment and a drought of vacancies. UBI would also inject spending power to help a general economic recovery.

​At the moment Labour is focussing on short-term measures to fill the gaps in the Tories’ emergency relief for businesses, the self-employed and employees. Labour’s longer-term aims seem to address more conventional macro-economic concerns: “the weakness that made the economy so vulnerable to the coronavirus shock, such as low productivity, stagnant living standards, an eroded manufacturing base, inequality and climate change” (National Policy Forum). 

However, the impending disarray will make more direct targets feasible. All the above policies – more progressive taxation on the richest; making support for stricken companies conditional on public and stakeholder accountability; targeted training to reallocate redundant workers to socially and environmentally vital jobs in other sectors; a universal guaranteed income for basic security – may seem tame to those dreaming of a radical socialist alternative. Yet, the marginalisation of the Corbyn surge, a more pragmatic, reformist Labour leadership and a solid, if fractious, Tory majority in Parliament, mean progressive but hard-headed measures will seem more attractive by contrast, as recessionary forces intensify and the public mood demands improvements. Labour urgently needs a new narrative to give hope in the long, looming winters of hardship and discontent. Interventionist policies tackling basic incomes, corporate control and the redistribution of jobs should be at the heart of that campaign.

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