SECOND QUARTER 2013 VOLUME 8 ISSUE 1 TAX JUSTICE FOCUS MYTHICAL THINKING IN feature THE POLITICAL CLASS Robin Ramsay Why do myths about the economy survive so long? In part it is I remember [Gordon] Brown addressing the Parliamentary Labour Party on the great because the politicians lack the knowledge and condence to advantages of joining the ERM [Exchange challenge them. Rate Mechanism], using arguments I knew to be erroneous. He suggested that by x- ing the parity within the ERM, we would be s we contemplate Britain’s recent uncompetitive. (From Mrs Thatcher’s applying socialist planning to the economy, history with its succession of eco- point of view, this had the added appeal of rather than leaving an important issue to Anomic crises and scandals, a question punishing the non-metropolitan working market forces. The party responded warmly suggests itself: do the country’s politicians class for having the temerity to vote Labour to the notion that speculators would be understand how its economy works? Of in the previous twenty years.) disarmed. They all seemed unaware that course, on the Conservative side there have the only thing which gave speculators their always been MPs who come into politics Until 1987 the Labour Party as an chance was a government foolish enough to defend a parity seen to be out of line with after working in the City and so are familiar institution understood that industry and a currency’s real value … John Smith and with the City’s version of the story. But the manufacturing had different interests from Gordon Brown truly believed that the ERM nance and Labour governments sought City’s perspective provides, to put it mildly, a was a new, magical device which would to limit the power of the City to shape partial view. insulate their decisions about the currency economic policy. After the election defeat against reality.’2 In the UK economic policies which of 1987 the Party’s leadership abandoned benet the international money men may this approach and Labour began the long, British politician, Vince Cable, the only man in the I e-mailed Mr Gould: was he suggesting that not – generally don’t – benet that rest excruciating process of wooing the City. current government who understands the City- his colleagues didn’t understand economics? of the economy. Long before the current This reached its climax when Chancellor industry clash? He replied thus: crisis this was demonstrated by the 1980 of the Exchequer Gordon Brown delivered a Conservative budget which began the great speech to a City audience in 2006 in Even before Labour adopted the City I found that most of my colleagues had ‘liberalisation’ of the economy: it abolished which he boasted about the benets perspective outright, its misunderstanding no knowledge of economics and either exchange controls, raised interest rates Labour policies had brought to the of key aspects of economics were leading steered well clear of economic policy – pre- (ofcially to reduce ination but in reality nancial sector.1 it to adopt policies that favoured nance ferring to concentrate on more general top- to make holding sterling assets attractive) over industry. The former Shadow Cabinet ics such as foreign or social policy – or else and thus pushed up the sterling exchange 1 http://webarchive.nationalarchives.gov.uk/+/http:// member Bryan Gould wrote in 1994 this they swallowed whole the current orthodoxy www.hm-treasury.gov.uk/ speech_chex_210606. since they had no capacity to take an inde- rate with other currencies, making a large htm about the debate over exchange rate policy slice of British exporting manufacturing in the mid 1980s: 2 The Guardian, 19 August 1995 9 SECOND QUARTER 2013 VOLUME 8 ISSUE 1 TAX JUSTICE FOCUS “I found that most of my colleagues had no knowledge of economic history suggests that at a minimum such a ‘rebalancing’ will require economics and either steered well clear of economic policy signicant intervention by the state in – preferring to concentrate on more general topics such the economy, including in the direction as foreign or social policy – or else they swallowed whole of investment – both of which are deeply unfashionable ideas that the City will the current orthodoxy since they had no capacity to take an oppose. For even though the nancial sector independent view.” now contributes only around 6% of UK 5 Bryan Gould, former Labour MP and Shadow Cabinet Minister GDP (of which the international sector is about half) as yet none of the major political parties are willing to contemplate policies opposed by the City. pendent view. Gordon Brown fell into this But he has no power and his resistance latter category – Tony Blair the former. John to the City’s agenda represented by the Smith had only a rudimentary knowledge of Conservative members of the Cabinet is economics, but was a little more condent conned to the occasional comment and Robin Ramsay is the editor of Lobster, on the nuts and bolts of tax and account- 3 described by Paul Foot as ‘one of the most ing. I don’t think these failings are unique to article. In the current Labour Shadow the Labour Party. I think one of the reasons Cabinet no one seems to understand important magazines to be launched in the post for all of this is that economists have made Britain’s political economy – though it may Second World War period in Britain’. His books economics such an arcane science that be that there are individuals who do but include The Rise of New Labour, Smear: most people are frightened off it. feel unable to speak or feel paralysed by the Harold Wilson and the Secret State and, errors of the Party’s years in ofce. most recently, Well, How Did We Get Here? This is very striking. If you’ve been a A Brief History of the British Economy, literate, intelligent human and you have The leaders of both the Coalition and Minus the Wishful Thinking. been interested in politics for years (if Labour have spoken since the crash of not decades) how do you avoid acquiring 2008/9 of the need to ‘rebalance’ the some economic understanding? And if you economy away from the City towards want to be a member of a government – manufacturing; but no one has suggested the ambition of most MPs – how can you 4 consider doing so without understanding policies that could do this. And no wonder: the British economy? Even if you aspire 3 See for example www.newstatesman.com/politics/ no higher than representing the interests politics/2013/03/when-facts-change-should-i-change- of a constituency (to put an MP’s role at my-mind its simplest) if you don’t understand the 4 For example Chuka Umunna MP, Labour’s Shadow economy, how can you do this? Secretary of State for Business, had a piece in the Telegraph, ‘If we want the UK to grow, we should take lessons from Germany’ (23 February 2012). The In the present coalition government the German lessons for Umunna are: more medium- City-versus-industry clash is apparently sized rms, better education and a state bank – and an ‘active government approach for business and 5 That 6% gure is from the Bank of England. See the understood only by Vince Cable, Secretary industry’, though quite what this last would look like rst table in www.bankofengland.co.uk/publications/ of State for Business, Innovation and Skills. was not spelled out. Documents/quarterlybulletin/ qb110304.pdf 10.