The party repeated the word endlessly during the election campaign. Here Marxist economist Rob Hoveman points out the flaws in Labour’s theory
By Yuri Prasad
Thursday 25 July 2024
SOCIALIST WORKER
Issue 2915
Keir Starmer hosted a CEO business reception at Downing street this week. He’s hinged his strategy on boosting economic growth (Picture: Number 10 Flickr)
Why is the new Labour government fixated with economic growth?
Two words run like a mantra through everything Labour says, “stability” and “growth”.
Stability, it says, will come from two sources. First, Labour’s big parliamentary majority and the prospect of just one prime minister and one chancellor for at least the next five years.
And second, by the government abiding by the judgements of an independent panel of experts, the Office of Budget Responsibility, on how much it can borrow and spend.
This “stability” is supposed to be the basis on which the government can then secure higher economic growth. Rachel Reeves, the new chancellor and the first woman to be in the job, is haunted by the Liz Truss debacle.
As Tory prime minister Truss made uncosted tax cuts and spending commitments that spooked the financial markets and almost led to the collapse of big pension funds.
The markets humiliated Truss and effectively forced her out of government.
But what is this ‘growth’ that all main political parties fetishise?
Economists measure growth by tracking a country’s Gross Domestic Product (GDP). GDP is defined as the total value of goods produced and sold, investments made, government spending and exports minus imports.
Almost all mainstream commentators accept GDP as an indicator of the economic health of an economy—and its ability to attract investment which can further boost growth.
China has seen phenomenal economic growth over the last 25 years or so. The transformation has helped lift many millions of people out of poverty and put China into the position of a rising imperialist challenger to the United States.
The Keir Starmer government hopes that economic growth will improve the incomes and living standards of the majority of people in Britain—without it having to redistribute wealth and income through higher taxes on the rich.
Starmer and Reeves think that rising economic growth, if they can achieve it, will be led by housebuilding.
With the right incentives, they believe developers will build some 1.5 million new homes over the next five years and provide the tax revenues to begin to fix our broken NHS, schools, universities and local government.
Why has growth been so low for so long?
Economic growth across the world’s major economies, with the exception of China, has been slow at best since the financial crisis of 2008. And it took a further big hit during the years of the Covid lockdowns.
Marxists argue the underlying problem is the low profit rates resulting from an over-investment in technology relative to the employment of workers.
That’s because bosses exploiting workers—paying them much less than the value of the goods and services they produce—is the basis of profit across the capitalist system.
Is Britain in particularly poor shape?
This country has been a consistently poor performer in terms of growth because of low productivity.
Low productivity means that the value of goods and services produced per worker in Britain has been lower than in other major economies.
And that low productivity has been the consequence of relatively low levels of investment in the real economy over many years.
Britain’s economic growth, such as it has been, has been largely the product of an increase in the number of productive workers through immigration, a fact that politicians on all sides have chosen to ignore.
What is Labour’s growth plan?
Turning round Britain’s chronically low economic growth would be a formidable challenge for any government. But one way to do it would be by increasing government spending, both by borrowing more and raising taxation.
Labour insists it is not going to raise tax. But despite its claim, taxation is going to rise nevertheless. That’s because the government is committed to not raising tax bands till 2028.
Therefore, millions of people will be pulled into a higher tax band or see a greater proportion of their salaries taxed, particularly those who have secured wage increases.
Despite increased state revenue, the total tax take will barely cover essential government spending if at all. It will not account for new spending to boost the economy.
Starmer and Reeves have set their faces against increased spending that cannot be financed out of economic growth.
Their plan to boost growth focuses on persuading the private sector and the rich that Britain is a place where, with government support, business can make good profits they couldn’t make elsewhere.
That’s why the government talks endlessly about a partnership with business.
Can this growth plan work?
Labour’s basic assumption is that there is a wealth of money out there just waiting to be invested. The task, it believes, is to give the rich the confidence that they will make big profits from their investments.
This explains why they place so much emphasis on planning reform and why Starmer wants to encourage housebuilding.
He holds on to that notion despite there being no evidence that such an ambitious housebuilding programme—especially for affordable, social housing—can be achieved without major government funding.
Even the International Monetary Fund forecasts continuing low economic growth internationally.
Right wing newspapers boasted recently that Britain was top of the league for growth among the G7 group of the world’s biggest economies.
But this inflated claim was based on a projected rise from just 0.5 percent to 0.7 percent. These figures are tiny compared to earlier periods.
Will higher growth benefit workers and public services?
Economic growth will not necessarily benefit either—and there is little prospect of it doing so any time soon, especially given Starmer’s plans.
His commitment to keep taxes on the rich low, and to abide by spending rules laid down by conventional economists, means the government will starve itself of cash.
There will not be money to grant pay claims to stem the recruitment crisis in the health service, schools and in local government. And there’ll be precious little for key services either.
And there’s a more fundamental problem with the concept of “economic growth”. That’s because it takes no account of what it is we are actually producing and how useful to us it is.
Producing more weapons of mass destruction, for example, is one way to generate an increase in GDP. The one area where Starmer is committed to increase public spending is on “defence” or rather, arms.
And the government can choose to use any increased revenues it has by giving tax cuts to the rich—in the hope bosses will reinvest their money. That’s one of the ways in which partnership with business works.
Is higher growth a socialist aim, or is it intrinsically a capitalist aspiration?
Growth as it is conventionally defined is an intrinsically capitalist concept. It takes no account of the happiness and well-being of the workers being driven to create economic growth.
It takes no account of the use of the goods and services being produced and whether they are meeting the needs of the majority.
And it takes no account of the environmental damage caused by that growth, often pursued by ignoring the environmental consequences.
In this respect, it is a disaster that Reeves had Labour abandon its plans to spend £28 billion seeking to save the environment by “greening” the economy.
How should the left respond to Labour’s plans?
The first thing is to recognise that Labour could have made different choices.
All the opinion polls show that a majority of people would welcome higher taxation if the revenues were used to fund the NHS and many of the other services on which our well‑being depends.
Our public services across the board need a big boost to their spending, including paying decent wages to their overworked staff. And higher public spending and wages will in turn boost the economy.
We need to challenge Starmer’s agenda across the board, on the two-child benefit cap, on public sector pay, on the building of social affordable housing, on the destruction of the planet and on immigration and refugees.
Starmer has offered crumbs to the left and to the working class. The people that actually create the wealth of society deserve much better.
Keir Starmer hosted a CEO business reception at Downing street this week. He’s hinged his strategy on boosting economic growth (Picture: Number 10 Flickr)
Why is the new Labour government fixated with economic growth?
Two words run like a mantra through everything Labour says, “stability” and “growth”.
Stability, it says, will come from two sources. First, Labour’s big parliamentary majority and the prospect of just one prime minister and one chancellor for at least the next five years.
And second, by the government abiding by the judgements of an independent panel of experts, the Office of Budget Responsibility, on how much it can borrow and spend.
This “stability” is supposed to be the basis on which the government can then secure higher economic growth. Rachel Reeves, the new chancellor and the first woman to be in the job, is haunted by the Liz Truss debacle.
As Tory prime minister Truss made uncosted tax cuts and spending commitments that spooked the financial markets and almost led to the collapse of big pension funds.
The markets humiliated Truss and effectively forced her out of government.
But what is this ‘growth’ that all main political parties fetishise?
Economists measure growth by tracking a country’s Gross Domestic Product (GDP). GDP is defined as the total value of goods produced and sold, investments made, government spending and exports minus imports.
Almost all mainstream commentators accept GDP as an indicator of the economic health of an economy—and its ability to attract investment which can further boost growth.
China has seen phenomenal economic growth over the last 25 years or so. The transformation has helped lift many millions of people out of poverty and put China into the position of a rising imperialist challenger to the United States.
The Keir Starmer government hopes that economic growth will improve the incomes and living standards of the majority of people in Britain—without it having to redistribute wealth and income through higher taxes on the rich.
Starmer and Reeves think that rising economic growth, if they can achieve it, will be led by housebuilding.
With the right incentives, they believe developers will build some 1.5 million new homes over the next five years and provide the tax revenues to begin to fix our broken NHS, schools, universities and local government.
Why has growth been so low for so long?
Economic growth across the world’s major economies, with the exception of China, has been slow at best since the financial crisis of 2008. And it took a further big hit during the years of the Covid lockdowns.
Marxists argue the underlying problem is the low profit rates resulting from an over-investment in technology relative to the employment of workers.
That’s because bosses exploiting workers—paying them much less than the value of the goods and services they produce—is the basis of profit across the capitalist system.
Is Britain in particularly poor shape?
This country has been a consistently poor performer in terms of growth because of low productivity.
Low productivity means that the value of goods and services produced per worker in Britain has been lower than in other major economies.
And that low productivity has been the consequence of relatively low levels of investment in the real economy over many years.
Britain’s economic growth, such as it has been, has been largely the product of an increase in the number of productive workers through immigration, a fact that politicians on all sides have chosen to ignore.
What is Labour’s growth plan?
Turning round Britain’s chronically low economic growth would be a formidable challenge for any government. But one way to do it would be by increasing government spending, both by borrowing more and raising taxation.
Labour insists it is not going to raise tax. But despite its claim, taxation is going to rise nevertheless. That’s because the government is committed to not raising tax bands till 2028.
Therefore, millions of people will be pulled into a higher tax band or see a greater proportion of their salaries taxed, particularly those who have secured wage increases.
Despite increased state revenue, the total tax take will barely cover essential government spending if at all. It will not account for new spending to boost the economy.
Starmer and Reeves have set their faces against increased spending that cannot be financed out of economic growth.
Their plan to boost growth focuses on persuading the private sector and the rich that Britain is a place where, with government support, business can make good profits they couldn’t make elsewhere.
That’s why the government talks endlessly about a partnership with business.
Can this growth plan work?
Labour’s basic assumption is that there is a wealth of money out there just waiting to be invested. The task, it believes, is to give the rich the confidence that they will make big profits from their investments.
This explains why they place so much emphasis on planning reform and why Starmer wants to encourage housebuilding.
He holds on to that notion despite there being no evidence that such an ambitious housebuilding programme—especially for affordable, social housing—can be achieved without major government funding.
Even the International Monetary Fund forecasts continuing low economic growth internationally.
Right wing newspapers boasted recently that Britain was top of the league for growth among the G7 group of the world’s biggest economies.
But this inflated claim was based on a projected rise from just 0.5 percent to 0.7 percent. These figures are tiny compared to earlier periods.
Will higher growth benefit workers and public services?
Economic growth will not necessarily benefit either—and there is little prospect of it doing so any time soon, especially given Starmer’s plans.
His commitment to keep taxes on the rich low, and to abide by spending rules laid down by conventional economists, means the government will starve itself of cash.
There will not be money to grant pay claims to stem the recruitment crisis in the health service, schools and in local government. And there’ll be precious little for key services either.
And there’s a more fundamental problem with the concept of “economic growth”. That’s because it takes no account of what it is we are actually producing and how useful to us it is.
Producing more weapons of mass destruction, for example, is one way to generate an increase in GDP. The one area where Starmer is committed to increase public spending is on “defence” or rather, arms.
And the government can choose to use any increased revenues it has by giving tax cuts to the rich—in the hope bosses will reinvest their money. That’s one of the ways in which partnership with business works.
Is higher growth a socialist aim, or is it intrinsically a capitalist aspiration?
Growth as it is conventionally defined is an intrinsically capitalist concept. It takes no account of the happiness and well-being of the workers being driven to create economic growth.
It takes no account of the use of the goods and services being produced and whether they are meeting the needs of the majority.
And it takes no account of the environmental damage caused by that growth, often pursued by ignoring the environmental consequences.
In this respect, it is a disaster that Reeves had Labour abandon its plans to spend £28 billion seeking to save the environment by “greening” the economy.
How should the left respond to Labour’s plans?
The first thing is to recognise that Labour could have made different choices.
All the opinion polls show that a majority of people would welcome higher taxation if the revenues were used to fund the NHS and many of the other services on which our well‑being depends.
Our public services across the board need a big boost to their spending, including paying decent wages to their overworked staff. And higher public spending and wages will in turn boost the economy.
We need to challenge Starmer’s agenda across the board, on the two-child benefit cap, on public sector pay, on the building of social affordable housing, on the destruction of the planet and on immigration and refugees.
Starmer has offered crumbs to the left and to the working class. The people that actually create the wealth of society deserve much better.
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