Last week, in a Red Alert comments thread discussing Rob Salmond’s recent Policy Progress guest-post on “Why the progressive movement should talk more about economics”, prominent progressive commentator Chris Trotter set out an opposing view:

The important lesson to be drawn is that “economics” is a language used by the powerful to justify their behaviour towards the powerless. Like politics itself, it can be reduced to that crucial, two word question Lenin posed to his followers: “Who? Whom?”

. . . Labour people don’t really need to learn the language of economics. All they really need to know is: Who cornered the lion’s share of society’s resources? How and from whom they were taken? And, the best means of returning them to their rightful owners.

Rob responded with a strong counter-argument :

@Chris Trotter: I think your statement here betrays exactly the kind of stylised thinking that hamstrings the left. You say that you believe economics to be inherently right-leaning and therefore it should be rejected wholesale. Your premise is entirely false, as the catalogue of prominent, progressive economists cited by me and others shows. You also claim that “all Labour people need to know” is four things, none of which is “where do society’s resources come from, and how can we ensure that they keep on coming.” Any political philosophy that fails to even seek an answer to that question, as yours does not, is in big trouble.

Perhaps unsurprisingly, I support Rob in this debate. I think that it would be dangerous for a movement that aspires to govern not to have a clear analysis of the ‘political economy’ of the country — which includes Chris’s four things but also Rob’s additional two.

And, building on recent posts on Theoretical Foundations, I’d like to illustrate that point with reference to the British Labour Party in the late 1920s and early 1930s. In doing so, I’ll once again draw upon Donald Sassoon’s magisterial history of the West European left, One Hundred Years of Socialism.

First, a bit of context: by the late 1920s parties like Labour had followed Eduard Bernstein’s doctrine and abandoned revolution in favour of acquiring power through parliamentary means (splitting the West European left between social democrats and communists), but in general they still saw their end-goal as the move from a capitalist economy to one where the means of production was in common ownership.

As a result, they had given very little thought to how to manage a capitalist economy in a progressive way.

This failure came home to roost in 1929 when Labour found itself in a coalition government with the Liberals at the onset of a worldwide depression. Labour had a number of policies about nationalising key industries but neither economic conditions nor their coalition arrangement would allow these to occur; they had no theoretical framework that would help them decide what to do about a depression.

Two alternative course of action were put to them. One was advocated by the Cambridge economist John Maynard Keynes and the Trade Unions Congress and called for the government to undertake public works and stimulate the economy. The other was what has become known in the history of economic thought as “the Treasury view”. The Treasury and others held that fiscal stimulus would be ineffective and the government should maintain a balanced budget.

With no analytical tools of their own to deconstruct the Treasury view and distrustful of Keynes as a Liberal, Labour opted for the former. The coalition government ran a balanced budget while the economy rapidly got worse. Finally, faced with a suggestion to cut the unemployment benefit, the Cabinet split. Labour was thrown out of office at the next election (where it remained for the next decade); and its leaders Ramsay MacDonald and Philip Snowden were denounced as traitors to the movement. (Sassoon, pp. 56-58)

Another strand of this story is also worth following. One of the few senior Labour MPs who advocated for the public works approach was a man named Oswald Mosley, who is now remembered with disdain for his rather unsuccessful attempt to create a British fascist movement. It was quite probably the defeat of his ideas for taking action against the Depression that drove Moseley to leave the Labour Party and drift towards the fascist approach. (The career of leading “neo-socialist” planner Hendrik de Man of Belgium had a somewhat similar trajectory.)

British Labour’s failure of analysis and nerve was echoed elsewhere in Europe. Léon Blum’s Socialists in France were described as equally “ill-prepared to provide an alternative to the orthodoxy of Finance Ministry officials”, and Blum was reduced to later claiming that “he had wanted to be the ‘loyal manager of capitalism’” (Sassoon, p. 55).

In Germany, the Social Democrats under Rudolf Hilferding blocked the stimulatory WTB Plan put forward by the trade unionists Woytinski, Tarnow and Baade because they were already committed to the deflationary policies of the coalition government that they were part of. Hilferding condemned the plan as “unMarxist”. In a tragic parallel with Mosley, the plan was picked up in part by the Nazis as part of their public works programme (Sassoon, p. 61). Some writers believe that a German ‘New Deal’ based on the WTB Plan might have forestalled the rise of Nazism.

The analytical rout was not uniform, however. In Sweden, Finance Minister Ernst Wigforss had independently come to the same analysis as Keynes, and his work and that of the Stockholm School formed the basis for a distinctly Scandinavian approach to social democracy based on a somewhat managed economy and a ‘class compromise’ between business and unions. In many ways this set the pattern for postwar social democracy.

This typifies for me the importance of a coherent framework for analysing the political economic situation existing within the progressive movement, rather than dismissing economic reasoning as the purview of organisations like the Treasury or even than relying on sympathetic outsiders like Keynes. It may seem counter-intuitive, but when difficult choices need to be made, the lack of a confident understanding can lead you to be more conservative.

(The 1930s was a complex period and I have inevitably simplified. For instance, unlike MacDonald, Hilferding in Germany did have a guiding analytical framework in ‘organised capitalism’, which saw monopoly capitalism as an important step toward socialism. Unfortunately, this gave him no guidance as to how to cope with a crisis of underconsumption.)

Donald Sassoon is scathing about Labour’s inability to recognise even in hindsight how much its analytical weakness had cost it:

At no stage in the Labour Party’s rethinking during the 1930s was there a serious attempt to understand why such a programme of economic reorganization and development [as was put forward in 1934] had not even been attempted in 1929-31. The only explanatory category which was used was that of ‘betrayal’: Labour failed to advance towards socialism because it was betrayed by its leaders — MacDonald and Snowden. This explanation, by ascribing the sole responsibility for the Labour rout of 1929-31 to its leaders, prevented further thought. All that was necessary was for the Labour Party to be led by good and consistent socialists. (p. 63)

As it turns out, a rather similar critique of the ‘betrayal thesis’ has been made in the context of the First Labour Government in New Zealand, by none other than Chris Trotter in his book No Left Turn:

But here’s the question that neither [John A] Lee nor [Bill] Sutch ever satisfactorily answered: why did Savage, Fraser and Nash demur? . . . For Lee and Sutch the answer could only be couched in terms of individual inadequacy: Savage was vindictive: Nash was timid, Fraser was ambitious. But is this explanation sufficient? . . . Or did Lee and Sutch prosecute their old comrades for historical crimes of which they were entirely innocent? Did they become the scapegoats of a left-wing that never fully understood the power and tenacity of the forces arrayed against the first Labour government? (pp. 148-9)

In fact, all of Chapter Six of No Left Turn is a valuable account of Labour’s early years of power during the 1930s. This includes a very realistic appraisal of the constraints that the Depression placed upon its leaders (although Trotter is consistent in that the focus is on power relations rather than impersonal economic logics).

I’d encourage progressives to take their cue from Chris Trotter’s considered analysis in No Left Turn rather than that off-the-cuff exhortation on Red Alert.

Links

• Chris Trotter and Rob Salmond’s comments at Red Alert.
• Rob’s guest-post at Policy Progress.
• An earlier Theoretical Foundations post discussing Eduard Bernstein.
• Wikipedia entry on “the Treasury view”.
• Economist Brad DeLong on Socialism with German Nationalist Characteristics.
• Another take on the need to understand economics from Darien Fenton at Red Alert.

Further Reading

• Donald Sassoon, One Hundred Years of Socialism. The West European Left in the Twentieth Century (1997), Chapters 2 and 3.
• Chris Trotter, No Left Turn. The distortion of New Zealand’s history by greed, bigotry and right-wing politics (2007), Chapter 6.

The next long-form post, or ‘column’, will appear on Tuesday 6th July. A number of shorter posts will appear between this post and that one.