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Why Jeremy Corbyn is right on state aid

Those who disagree with Corbyn and think we can achieve a progressive industrial policy inside the EU are suffering from conservative delusions and a poverty of vision, writes JONATHAN WHITE

READING George Peretz’s recent article in the Guardian (Four reasons Jeremy Corbyn is dead wrong about EU state aid, Guardian December 27 2018), I felt the existential weariness of Phil Connors, waking to find that yet again it’s Groundhog Day.

Peretz was writing in response to Jeremy Corbyn’s Guardian interview on December 21, in which the Labour leader said: ‘If you want to regenerate an economy, as we would want to do in government, then I don’t want to be told by somebody else that we can’t use state aid in order to be able to develop industry in this country.’ 

Peretz is very exercised about this quote as he believes it “makes no sense.” There has been an extensive and quite illuminating debate about state aid and government policy. You wouldn’t know it from Peretz’s article, which amounts to little more than the incantation of a litany of ageing straw men about the Lexit case.

For example, Peretz claims that the existence of state aid in Scandinavia and Germany proves that there is no problem with having an industrial strategy in the EU.

But what kind of industrial strategy? As Costas Lapavitsas has pointed out, the single market rules do allow state aid for industry but only on the basis that it does not distort competition within the EU.

We can see how this works in practice in looking at how state aid rules tightly delimited the remit of the British Business Bank, set up by the Conservatives in 2014.

The bank was approved on the condition that its remit would be to “address market failures that hamper SME [small and medium-sized enterprises] access to finance in an appropriate and proportionate way, without unduly distorting competition in the single market.”

So bank aid to any firm with more than 249 employees would be ruled out as competition distortion. State aid definitely wasn’t available to the British steel industry during its crisis in 2016 and if the defence of a strategically important industry was ruled out, it’s hard to see how it would be possible to use it to develop national, export-oriented industrial champions or to limit the market in entire industries.

In summary, no-one has said that you can’t have an industrial strategy within the EU. Of course you can.

You could even have an industrial strategy that was better than that of almost any recent Westminster government.

But it would still have to bend itself to a competitive framework that places severe constraints on what you can do. Tackling the crippling deindustrialisation and financialisation of the British economy will require something a little more ambitious than small-scale subsidies operating within a competitive market.

Peretz grumbles that Lexiters never get beyond “abstractions” about the “neoliberal” nature of the single market’s rules to spell out what exactly Labour would try to do that would be impeded.

But this is precisely what Alex Gordon and myself attempted to do in our article in this paper back in August 2017 when we examined how the treaties of the EU and the single market would place practical obstacles in the way of railway renationalisation and the creation of a national investment bank (The EU single market is incompatible with Labour’s manifesto, Morning Star, August 6 2017).

Perhaps we shouldn’t be surprised that he hasn’t read a Morning Star article (though it also appeared on OpenDemocracy) but he might have read the Institute for Public Policy Research report from 2012 which made the same point about the national investment bank.

And he might also have listened to those renowned Lexiters in the EU Commission who have expressed concern over Corbyn’s plans to renationalise key industries and give British industries a competitive advantage, or to the reports in the Guardian that the plans for a national investment bank and for state-owned regional energy suppliers would fall foul of the rules on state aid (Daniel Boffey, UK Brexit team seeks to exploit EU concern over Corbyn state aid plans Guardian, August 2 2018).

The perception that there’s a problem clearly isn’t confined to the Lexit left.

Finally Peretz goes on to say that the fixation on single market state aid rules is all irrelevant anyway as the Lexiters have forgotten the rules of the World Trade Organisation, which would still apply after exiting the EU.

But unlike the single market, the rules of the WTO say nothing about the existence of nationalised industries and, as many people, including Lapavitsas, have pointed out, are more permissive in general and easier to breach than the Commission-policed EU treaties.

All this is actually just so much retreading old ground. But it’s also noteworthy that nowhere in Peretz’s article is there any recognition of the way power is deployed, using the treaties and their rules, by big business and by the more powerful national economies against the weak.

Just as free trade and free markets practically function to entrench the power of a few monopolies, so big businesses in the EU will use the treaties to hamper a government attempting to grow what they see as competitors, accusing them of creating unfair competitive advantage.

Similarly, strong economies in the EU breach spending rules (France), while the Commission and the Central Bank hammer weaker ones into grovelling submission (Greece, Italy etc). The evidence is in plain sight across Europe for any who care to look.

From the point of view of the people struggling to make ends meet in our islands, Britain’s economy is broken. Its industrial base has been pulverised, its financial sector is a vast, bloated, parasitical excrescence, its workers are trapped in low-paid, low-skilled jobs, where they’re hired and fired at will.

Beginning to remedy this will require radical intervention in the economy to restrain and limit the role of finance capital, to build publicly owned industries, to take back public control of infrastructure, using the potential power of the state to a degree we haven’t seen since 1945. The EU’s rules on state aid will constitute an obstacle to this project.

If people like Peretz do not agree it’s not because their arguments “don’t make sense,” it’s because of the poverty of their vision and the conservatism of their ideology.

They may be content to tinker round the edges of a failed market model, but the evidence is growing that neither the peoples of Britain or of Europe will stand this much longer. Britain does not need ducking and diving to avoid distortions of competition, it needs radical change. Britain needs socialism and that’s going to mean a head-on crash with the single market sooner or later.

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