Whoever emerges as Labour’s leader after the dust has settled will be dealing with a country riven by deep inequalities and divisions, and crying out for leadership and a bold vision of how to move on from here. McDonnell’s evolving economic plan has much that Labour should develop, whatever its future leadership, just as McDonnell and his team can themselves be seen as offering not so much a hard break from the Miliband era, but a further development of some of the best ideas, of using forms of predistribution to tackle the root causes of inequality, on which Miliband’s team had worked.
McDonnell has realized that, in the post-crash era of quantitative easing, in which macroeconomic policy is made as much by central banks as by finance ministries, parties of the left can no longer leave monetary policy to the technocrats. His commission examining the workings of the Monetary Policy Committee, chaired by former MPC member Professor David Blanchflower, should be central to Labour’s future economic thinking, and should not be ignored by any post-Corbyn leader. Similarly, McDonnell has asked Professor Prem Sikka to report on the future functioning of HMRC, and Lord Kerslake, a former head of the UK civil service, to report on the functioning of the Treasury, and to investigate the case for its future division into separate ministries of finance and economic development. This fundamental work will allow Labour to think more seriously about the future of a progressive macroeconomic policy.
As well as needing to reach out to the 48% of the population who voted ‘Remain’ and the millions, especially among younger people, who wished they had done so, Labour needs to speak to those who voted for Leave out of a sense of economic desperation. The sense of economic hopelessness that drove voters into the arms of the ‘Leave’ campaign in the northeast, south Wales, parts of Yorkshire and the East of England, and in many coastal towns, can be addressed only by an ambitious return to forms of industrial policy that direct investment towards areas that need to retool their economies. Plans for regional development banks under Miliband have been further developed under McDonnell, with the thinking of his team being much informed by the work of Professor Mariana Mazzucato, and her book on the Entrepreneurial State. Any future Labour strategy for regional economic development must also follow McDonnell in supporting innovative Labour councils, such as Preston City Council, which has looked for ways to develop the local economy through growing the cooperative sector, and using the power of procurement spending by the local authority and other local ‘anchor institutions’ in order to encourage an ecosystem of local enterprises to grow and thrive.
Corbyn was the strongest candidate for the Labour leadership last year, because only his campaign of the four seemed prepared to think at the right scale about the challenges of inequality and economic marginalisation. Throwing out the best and most popular features of Corbyn’s programme now would be self-defeating in the extreme, whoever is to be Labour’s leader into the next election.
Labour After the Earthquake