Sam O’Brien discusses whether the economic ideas put forward by Jeremy Corbyn when he was campaigning for the Labour leadership could work
The election of Jeremy Corbyn has continues to generate a tide of foaming comment from Telegraph columnists, Blairite hacks and Tories alike. As if his views on Palestine, Trident and tuition fees were not dangerous enough to top it all he wants to talk about planning the economy and taxing the rich.
Matthew Lynn, writing for the Telegraph before Corbyn’s victory was very concerned;
The trouble is, to describe “Corbyn-omics” – to coin a phrase that we may unfortunately have to get used to – as loony Left would be unfair to the mentally unstable. From abolishing tuition fees, to raising taxes, to printing money to pay for infrastructure, Mr Corbyn is pushing an agenda that is not so much from a different political tradition as from a different planet. Even a few of his ideas would wreck the economy.
How should the left answer these criticisms? How do we defend ourselves against what is intended as an assault not only on Corbyn but also anyone who wants a socialist response to the current phase of capitalist crisis? What should we make of Corbynomics?
What does Corbyn say?
The broad direction of Corbyn’s economic policy is set out in a series of documents written as part of his campaign for the Labour leadership.
The Economy in 2020 contains his main ideas. Essentially he is calling for a radical Keynesian approach to “wealth creation” most of which will be familiar to trade unionists and anti austerity campaigners.
He wants not only to reverse the austerity policies of the present Government but also to invest in new infrastructure and education.
He makes the case that austerity is about political choices not economic necessities. Giving as examples Osborne’s decision to change inheritance tax laws a measure that costs £2.5 billion (but only benefits the richest 4%) and cutting corporation tax a further £2.5 billion giveaway to the rich.
The alternative Corbyn wants to see involves investing in modern infrastructure that the free market is failing to provide:
You cannot cut your way to prosperity. We need to invest in our future.
A strategic state cannot leave our infrastructure to deregulated privatised markets.
They are failing people and holding back our economy.
Modern housing, transport, digital and energy networks are the foundation stone of a modern economy and we need to ensure they are among the best in the world. 
He also argues for the need to invest in adult education to create a “high skill high pay high productivity workforce”. These plans are spelt out in more detail in an article he wrote for Labour List: Education is a Collective Good- Its Time for a National Education Service.
In it he explains his plan to create a National Education Service similar to the NHS to provide free education for all from cradle to grave. He wants not only to abolish tuition fees and provide universal free childcare, but also to reverse the 40% cut in adult education implemented by the Tories. Instead of cutbacks, he wants to see working age people given the right to access education and to retrain throughout their adult life.
In Protecting Our Planet Corbyn also supports the idea of the Government creating a million climate jobs in renewable electricity generation, home insulation and transport.
This a policy that has long been argued for by the Campaign Against Climate Change as a way of tackling both carbon emissions and the high level of unemployment in Britain. This is an important example of how the voice of the movements Corbyn has been involved in is now being boosted by his victory in the leadership election.
The question of how these proposals will be paid for has generated possibly the most controversy and in particular the right wing have focussed on Corbyn’s advocacy for People’s Quantitative Easing.
This idea, supported by the radical tax campaigner Richard Murphy, involves the Bank of England creating money and then buying bonds in a state owned investment bank. The bank then invests the money in infrastructure and council housing.
The reasons for pursuing this route rather than direct state investment are not clear. It may be motivated by the political need to avoid being seen to increase government borrowing (Richard Murphy argues that QE does not increase government debt).
Whatever the reason, People’s QE is perfectly feasible and would at least insure that infrastructure and housing get built. Whereas orthodox QE appears to have primarily boosted speculation as banks gamble the new money on the stock market instead of lending it for productive investment.
People’s QE has attracted a lot of attention from the right wing press probably because it is difficult to understand and can be made to sound like a trick. It is, however, only one of a series of options Corbyn considers.
He devotes far more attention to the issue of tax justice. Drawing on the research of Richard Murphy he argues that £93 billion a year could be diverted from tax relief and subsidies for the corporations. A further £120 billion in tax is either avoided (£20 bn), evaded (£80 bn) or not collected (£20 bn) every year. This is equivalent to double the NHS budget or £2000 for every person in Britain. In order to recover this money he proposes a number of changes to tax law but also to reverse the cuts in HMRC.
Corbyn’s proposal for a National Education Service would be paid for by a 2% rise in Corporation Tax.
Could it work?
Corbyn’s policies would make a massive and immediate difference to the lives of millions currently living in poverty and despair. Reversing the benefit and welfare cuts that have caused so much misery for people on low incomes. Real job and education opportunities for 700,000 young people currently stuck on the dole. Council housing for the 1.8 million people on the waiting list for social housing. Making the rich pay their taxes and ending corporate welfare.
Of course as Marxists we should welcome this, and work together to achieve these reforms. But I think it is also legitimate to ask whether following Corbyn’s economic strategy will be enough to achieve the socialist society we want to see. Can Keynesian solutions overcome the crisis in capitalism?
To answer that question we have to look at what is causing the crisis. For Keynesian economists the free market is incapable of regulating itself and state intervention is needed to prevent repeated cycles of boom and slump. During a period of economic recession they argue for state investment to make up for the lack of private sector spending.
For them the cause of the slump is a lack of consumption. Capitalists are cutting workers wages and making them unemployed. Workers in turn do not have enough money to spend on consumer goods. So less goods are sold leading to companies going bust, more unemployment and less consumer demand. This causes economies to spiral downwards.
To counteract this the state has to intervene and pump money back into the economy to restore normal levels of consumption.
Marxists see the crisis differently. For Marxists the economic crisis is not caused primarily by a lack of consumption but by a fall in the rate of profit.
Marx’s theory of the tendency of the rate of profit to fall is set out in volume 3 of Capital. The theory is basically as follows:
- Workers are the source of what Marx calls surplus value or in other words the basis of profits.
- Competition forces capitalists to invest in labour saving machinery to get ahead of their rivals.
- But by using labour saving machinery they reduce the amount of worker hours going into each product (what Marx called the necessary labour time). The labour hours are the source of the capitalists’ profits. So by reducing the necessary labour time to produce a given commodity the capitalists are also reducing the amount of profit per unit they can expect to receive.
- Therefore as capitalists accumulate more and more labour saving machinery there is a tendency for the return on capital invested (the rate of profit) to fall.
The rate of profit is the basis of the whole capitalist system. It determines whether or not a capitalist will invest in employing workers, buying machinery, offices, factories, etc. Nation states depend on taxing profits and wages for their existence. So when the rate of profit is low the system is in crisis.
Capitalists are unlikely to risk fresh investment when the average return on investment is low and that is the problem that lies at the heart of the current crisis.
According to Michael Roberts, in 2013 the top US firms were hoarding over $2 trillion in cash piles. British companies were holding on to £166 billion. They are unlikely to commit to large scale fresh investment in the near future while the rate of profit remains low.
This means that while Government spending can have positive benefits for the lives of ordinary people it cannot solve the capitalist crisis in the way that Keynesians hope.
Corbyn faces massive political obstacles on his path to power both internally from the Labour party and externally from the media, the state and big business. But even if he wins the election in 2020 and his policies are implemented in full resulting in lower unemployment and higher wages for workers, the cycle of slumps and low growth would persist.
Keynesian economists assume that boosting workers spending power will result in more consumption which will in turn encourage capitalists to begin investing again. But as Guglielmo Carchedi correctly argued in his article Behind and beyond the crisis:
Greater sales at decreasing profitability are not the way for capital to exit the crisis.
It is the rate of profit not simply the amount of goods sold that is the key to capitalist investment decisions.
Unite against austerity
How do we respond to Corbynomics then, given this fundamental difference in opinion about capitalist crisis? In my opinion as I have indicated above we need to work together to campaign for the policies Corbyn is arguing for.
It helps to have a Labour leader who is in favour of scrapping tuition fees. We should work together for free education.
It helps to have a Labour leader who wants an end to the assault on the poor. We should protest together to stop the cut in working family tax credit, against benefit sanctions, against the benefits cap, for the reinstatement of the independent living fund, etc.
It helps to have thousands of Corbyn supporters who want to see the rail and post renationalised. We want to march together and have all sorts of imaginative local campaigns on all these issues and much else besides.
And while we are doing all this together we need to have space for debates and friendly conversations about the true nature of capitalism.
 Pg 5. Ibid
 Pg 6 Ibid
 The Economy in 2020- Jeremy Corbyn 2015 p.6
 Ibid p.7
 Education is a collective good- Jeremy Corbyn 2015
 The theory of the tendency of the rate of profit to fall, criticisms of the theory and the counter arguments to those criticisms can be found in Explaining the Crisis- Chris Harman, Michael Roberts , Guglielmo Carchedi