Figures released by the OBR this week have shattered any illusions that an early easing of lockdown would deliver a ‘V-shaped recovery’. As some have noted on Twitter, if you observe the graph very closely, you can just about see a tiny ‘v’ at the very bottom – not exactly the bounceback the government was hoping for.
The report notes that GDP fell by a quarter between February and April 2020 and that output is likely to have fallen by around 12% by the end of the year. The OBR also anticipates that unemployment will reach 12% by the fourth quarter of 2020, driven up by firms opting to lay off furloughed workers when the scheme ends.
The long-term ‘scarring’ effect that tends to impact the employment and wage prospects of those who suffer unemployment during a recession means that unemployment is likely to remain at between 5-6% by 2025.
This makes for grim reading. Coronavirus looks set to exacerbate many of the pre-existing weaknesses of the British economy, leading to long-term – perhaps irreversible – damage. In this context, Rishi Sunak’s much-touted giveaways look like a drop in the ocean.
How, then, should the government be responding to this monumental economic, political and health challenge?
A shock as profound as the one we are currently experiencing requires significant intervention by the state. Rather than throwing money at corporations in a desperate attempt to encourage them to retain workers, the state should be picking up the slack in the labour market by employing people to undertake much-needed investment in decarbonisation.
Doing so would kill three birds with one stone. First, it would reduce unemployment and increase demand in the economy today, lessening the immediate impact of the recession on living standards. Second, it would alleviate the ‘scarring’ effect of long-term unemployment, facilitating a swifter recovery. Third, it would increase the long-term productivity and carbon-efficiency of the British economy for many decades to come.
It’s a no-brainer. Many economists from across the political spectrum will be arguing for some sort of Keynesian Green New Deal, because they are aware that doing so is the best way to support private investment and consumption. While the Tories might be more comfortable throwing money at the private sector today than they would be employing workers directly for the foreseeable future, businesses would ultimately be helped more by the latter.
This is where the Left version of the Green New Deal should diverge significantly with the liberal version. State spending to support big business and big finance has become the norm in today’s new economic normal of stagnation and crisis.
Capital is becoming used to massive bailouts – whether that means the state temporarily taking an equity stake in their business, providing them with cheap loans, or simply loosening monetary policy to such an extend that borrowing effectively becomes free for many large businesses.
The problem is very obvious: capitalism can no longer survive without extensive state support. In fact, it has never been able to survive without it. It is hard to imagine modern capitalism functioning without central banks, financial and corporate regulation and legal tools like limited liability and intellectual property rights.
A typical Keynesian Green New Deal to boost private investment and consumption is the natural extension of such a model. Businesses need demand to increase so they can go back to selling their goods and services – especially given the dramatic contraction in export demand that is likely to set in over the coming months.
Ultimately, the Tories are likely to give in to some version of this strategy – though their version will be far smaller than Roosevelt’s New Deal and will probably be very light on the ‘green’ side.
As well as arguing for a much more expansive Green New Deal that provides good jobs in the health, care and education sectors while completely transforming our transport, energy and agricultural systems, the Left needs to be arguing for a democratic recovery.
Rather than simply creating money or issuing debt to channel into the private sector, the state should seek to socialise and democratise ownership in the economy. Many businesses are likely to go under over the course of the next several years – the state should stand ready to nationalise those worth nationalising and directly employ those laid off in other sectors.
These new state-owned industries should then be subject to democratic popular control – whether that means giving them elected boards or turning them into worker-owned enterprises. These enterprises should then be used to undertake the investment needed as part of the Green New Deal.
A similar model should also be encouraged at the local level. Local authorities can learn from the likes of Preston by bringing service provision back in house, encouraging the growth of the local cooperative sector and starting new local organisations like community banks.
At the international level, the first and most pressing priority must be a debt write off for the global South. After this, deep-seated reform to international trade and investment law is required to tackle tax avoidance, promote innovation and prevent imperial extraction from the Global South.
In the meantime, states must commit to undertaking direct resource and technology transfers to states in the global South.
Of course, we can’t expect any such interventions from the Tories. Nor are we likely to see such bold thinking from Keir Starmer. But, when the sputtering recovery fails even to deliver a return to the normal stagnation of the last 12 years, the Left must be prepared to demonstrate that there is an alternative.