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ECONOMICS John McDonnell and Labour’s New Deal

McDonnell’s plan is not about filling in potholes. It is the wholesale transformation of how we live, work and protect, writes ALAN SIMPSON

WHEN former US president Franklyn Roosevelt launched his 1930s New Deal into the United State’s depression-era politics, wealthy elites in the American Liberty League were incandescent. Their denunciations focused on a claim that Roosevelt had “betrayed his own class.”

For fairly obvious reasons, Labour’s shadow chancellor John McDonnell will not face the same denunciations. But be in no doubt, the neoliberal right are already after him.

The Tory Party HQ has unleashed a pack of house-trained journalists and back-bench MPs, hounding the shadow chancellor with “Trivial Pursuit” questions about the annual cost of servicing government borrowing.

Why class this as Trivial Pursuit? Well, because even the Tory government hasn’t a clue about the cost of future borrowing.

McDonnell repeatedly makes the point that government borrowing costs can range from 0.4 per cent to 1.8 per cent, far lower rates than anyone else can borrow at.

But his real point is that wherever else you look, governments adopting this approach for infrastructure investment get economic returns in excess of 10 per cent. That is the way the domestic “money-go-round” works. It is the way Germany uses its state-owned KfW bank and how Denmark uses its municipal banks. It is also the way you rebuild a broken economy.

The real problem McDonnell faces is convincing people that Labour is not proposing to rerun the debacle of the 2008 “rescue plan.”

Britain’s post-2008 austerity years were never created by the poor. Nor were they the consequence of irresponsible government spending.

The 2008 crisis was driven by a deregulated banking sector, chasing waves of unsecured lending, in reshuffled debt bundles, and always pretending that ever rising asset prices would cover piecemeal losses.

Britain had been living in a giant Ponzi scheme. When it (inevitably) crashed, Labour’s mistake was to bail out the bankers rather than the real economy.

Today’s debt overhang is the mountain of casino debts not the failure of public investment programmes. Labour never required the casino to pick up the tab.

When Sweden went through its own banking crisis in 1992, it allowed banks to fail. Before taking them into national ownership Sweden extracted pounds of flesh from bank shareholders; requiring the banks to write down losses and issue warrants to the government.

When distressed assets were sold, the profits too flowed to taxpayers. And eventually, when banks went back into the private sector, the Swedish government recouped more money by selling its shares in the companies at a profit.

How unlike Britain, where the current government Budget proposes to sell RBS shares at further public losses of over £20 billion. Where Sweden made a profit from its bank sales, Britain’s Tories will not even guarantee to break even.

Saddling the public with gamblers’ debts or polluters’ debts doesn’t worry the Tories at all. The whole point of their strategy is to foster a belief that only “rebuilding society” should count as irresponsible borrowing. This is the antithesis of truth, but if it works what do the Tories care?

The government’s Industrial Strategy, launched on the back of the Budget, falls into the same trap.

Praised for the analysis of the problem and damned for the paucity of plans to tackle it, the government looks tied to a belief that deregulatory obsessions, that lay behind the last crisis, will somehow rescue us from the next. Bunkum.

Thankfully, McDonnell starts from somewhere else — much closer to the outlines floated elsewhere under the banner of the Green New Deal. Rebuilding, not just to boost the economy but to avoid ecological disaster, is McDonnell’s starting point.

His problems will not be rooted in convincing the public. His challenge will not just be to get past neoliberal opposition, but also past those parts of his own party (and the trade union movement) that want the future to look just like the past.

Walk around Midlands or Northern towns and you soon see why heartland Labour votes went for Brexit. Scratch the surface. It isn’t racism or xenophobia you find beneath but pessimism, disconnection and contempt — for Westminster as much as Brussels. It stalks the lives of people for whom GDP growth is an illusion, job security a memory and pay rises a thing only Grandad recalls.

This is McDonnell’s starting point; and where Roosevelt too pitched the second phase of his New Deal. It begins with jobs.

The Republican right hated Roosevelt for putting trade union rights and decent pay at the heart of his infrastructure and employment programmes.

But Roosevelt knew that if you wanted to build for a reskilled, inclusive tomorrow, you couldn’t do it on Deliveroo’s terms and conditions.

McDonnell recognises this, but he also knows something even more challenging, that the jobs that get us out of today’s mess will have to be “climate” jobs; repairing the climate more urgently than the roads, leaving carbon in the ground and fertility in the soil, and replacing unsustainable, polluting energy sources with clean, sustainable ones. The most glaring challenges will be in a skills programme to deliver it.

The good news is that today’s young people are probably the first generation with access to technologies and skills that might actually avoid climate breakdown and transform the future. They may also be the last generation with the chance to do so.

So McDonnell’s plan is not about filling in potholes. It is the wholesale transformation of how we live, work and protect. Public borrowing will not be the problem. It can easily be supplemented by municipal (green) bonds, similar to those used to provide Britain’s towns and cities with energy security 200 years ago.

A Labour chancellor could also copy Britain’s international neighbours, using a national infrastructure bank to de-risk the public investment programmes that transformation will require.

The key, however, is the courage to face the predictable onslaught. McDonnell’s “crime” will be in seeking to defend his class, not betray it. His own resolve is clear. He just needs the movement to be pulling with him — into a different future — rather than clinging to an unsustainable past.

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