June 20, 2023

Last month, shadow chancellor Rachel Reeves travelled to the United States to present Labour’s new economic policy strategy, dubbed “securonomics”. If you think it’s strange for a party to unveil its economic manifesto in front of a foreign audience rather than its actual electorate, that’s because it is. The opposite scenario — an American leader travelling to Britain to present their campaign platform — would be inconceivable. Indeed, it is hard to imagine a more revealing example of what Perry Anderson called the British political class’s “hyper-subalternity to the US”. If there is anything special about UK-US relations, it is the former’s inability to overcome its inferiority complex in the face of America’s global decline.

It soon transpired, however, that there was another reason for Reeves’s trip to the US: she was there to stress that securonomics is simply the British equivalent of “Bidenomics” — America’s new economic paradigm, which was recently outlined in a speech by National Security Adviser Jake Sullivan. On that occasion, Sullivan acknowledged that the old Washington Consensus — founded upon the embrace of privatisation, deregulation and hyper-globalisation — has failed. It has, he intimated, laid waste to America’s working and middle classes, hollowed out its industrial base and infrastructure, and made the country overdependent on imports for the supply of everything from energy to food to basic medical supplies. The same, of course, can be said for most Western nations.

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In place of this failed programme, Sullivan proposed a “new” Washington Consensus, based on a more protectionist state promoting techno-industrial resilience and self-sufficiency, as well as winding down far-flung supply chains. To this end, the Biden administration has passed several bills, including the Infrastructure Investment and Jobs Act, the Chips & Science Act, and, most notably, the Inflation Reduction Act, which, together, have introduced around $2 trillion in new federal spending over the next 10 years.

Clearly, there is a strong geopolitical dimension to America’s embrace of deglobalisation. It is not just about making America stronger; it is also, and perhaps even more importantly, about weakening China. At its heart, this strategy may even be seen as a way of reinforcing the American economy in anticipation of a future conflict with Beijing. In this context, as much as US leaders might deny it, America has little need for resourceless trading partners such as the UK, if not as purchasers of its goods.

If anything, they are increasingly seen as competitors and rivals, or at best as military allies (with the UK in a subordinate position to the US, of course). Indeed, Reeves herself noted the conspicuous absence of Britain from Sullivan’s speech: “In his recent remarks, the US National Security Advisor mentioned a number of international partners… One country — to me at least — was notable by its absence: Britain.” So much for the “special relationship”.

This makes Reeves’s attempt to win over the US administration by parroting Bidenomics all the more pitiful. It doesn’t just reflect a profound lack of imagination — though this is nothing new; the UK has always fashioned its economic policy based on whatever happened to be the dominant paradigm on the other side of the Atlantic — but also a delusional misunderstanding of the changing nature of UK-US relations. At least the current Tory Government seems to understand that Joe Biden is engaged in a “distortive global subsidy race” aimed at encouraging companies to shift investments from Europe to the US and incentivising customers to “Buy American”. Moreover, to the extent that European nations are able to secure some of Biden’s federal subsidies for their own industries — as Sunak hopes to do with the signing of the recent “Atlantic declaration” with the US — this entails full adherence to America’s confrontational national security strategy vis-à-vis China, despite Europe’s economically interdependent relationship with the country.

This is not to say that Labour’s economic strategy is completely misguided. If anything, many of the points Reeves raised in her speech have become so obvious in recent years as to be clichés: of course Britain, like other Western nations, has allowed deindustrialisation to go too far. As a matter of fact, the UK is in an even worse shape than most countries in this respect: since the early Eighties, as a result of the Thatcher government’s radical programme of privatisation and deregulation, it has seen the most significant decline in manufacturing as a share of GDP of all the G7 economies.

So yes, Britain needs reindustrialising; aside from some die-hard Thatcherites, few people would deny this. The real question is how to go about it. Answering this involves two important considerations. First, can a small open economy such as the UK’s afford to sever ties with China, the world’s second-largest consumer market, and antagonise the BRICS grouping, which is giving rise to the world’s largest and most dynamic trading bloc? And second, can the UK muster the resources needed for this shift?

As Sullivan noted in his speech, this can only be achieved by mobilising huge amounts of public investment, which is precisely what America is doing. Back in 2021, Starmer put forward an equally ambitious spending plan, which involved borrowing £28 billion a year until 2030 to spend on green transition policies, such as subsidising wind farms, insulating homes, building battery factories and accelerating Britain’s nuclear programme. One may disagree on the specifics of Labour’s plan, but at least it reflected an acknowledgment that achieving greater economic resilience — “green” or not — requires big spending commitments.

However, as several commentators pointed out at the time, Labour’s spending plan would be almost impossible to reconcile with its obsession with fiscal discipline and “sound money”. Under the Corbyn leadership, the party adopted a set of stringent “fiscal rules” aimed at cutting government debt, which it promised to abide by once in government, which were then further strengthened by the new leadership — and no one is more rigidly committed to those rules than Rachel Reeves. When the editor of the New Statesman recently asked her if she would like to be known as “the Iron Chancellor”, she replied: “You can call me that if you want! There’s iron discipline in our fiscal rules, and my colleagues know that, and I think they respect me for it.”

It was with a delightful sense of inevitability, then, that, shortly after returning from her trip, Reeves announced she was abandoning the party’s policy of big borrowing, and that a future Labour government would only aim to meet its £28 billion green investment target in the second half of its first parliament. She also ruled out universal childcare for young children. “No plan can be built that’s not on a rock of economic and fiscal responsibility,” she explained. “Because if you try to do things that then crash markets, you end up in the position that the Conservatives were and I will never be reckless with the public finances…” Such a position would be more credible if, during the pandemic, Labour hadn’t approved of the government borrowing more than £300 billion to pay people to stay at home doing nothing. Yet Reeves is now blaming the Government for the U-turn, saying: “I did not foresee what the Tories would do to the economy, maybe that was foolish of me.”

On paper, this shift may seem like a smart move — and indeed may be necessary to appease centrist voters and the financial establishment in the run-up to the election. But, ultimately, it reveals how Labour, by embracing the orthodox narrative about fiscal deficits, and about Truss and Kwarteng being punished for attempting to push through a “fiscally irresponsible” budget, have set themselves up to fail.

For Truss wasn’t ousted by the markets, but by Britain’s own technocratic establishment, first and foremost the Bank of England. At the time, I cautioned those on the Left to reflect on the wisdom of revelling in the Kwarteng-bashing, as this would only reinforce the established wisdom that democracy has to conform to what the markets say. Yet this is exactly how Labour justified its backpedalling on its spending plan. Reeves, it seems, is the living embodiment of a party paralysed by fear: fear of the markets, fear of the orthodoxy, fear of Washington.

But those on the Right rejoicing at the U-turn because they oppose Labour’s “green policies” are equally at fault; they are committing the same mistake as those on the Left following Truss’s downfall. Regardless of what one believes should be the focus of Britain’s economic resilience strategy — be it better infrastructure, energy self-sufficiency, increased manufacturing, safer supply chains or more defence spending — it will require the mobilisation of massive fiscal resources. And at a time when the world economy has been turned upside down, the return of this cross-party deficit-phobia amounts to nothing more than giving up on any hope of economic transformation. Once again, the implication is that “there is no alternative”. The future is the failing status quo.