What might be the economic consequences of Jeremy Corbyn? His ascent to power looks quite plausible. We must start to consider the implications.
The leader of the UK Labour party has already had a disastrous economic impact, by making the Brexit referendum result far more likely. He cannot just say, as he did in his speech to the party conference last week, that, “As democratic socialists, we accept and respect the referendum result”, as if he had nothing to do with it.
The Labour party disappeared during the referendum campaign, with calamitous results for the young people who flock to his side. Even now it is impossible to determine what Mr Corbyn thinks the UK’s future relationship with the EU - arguably, the most important question facing the country - should actually be. This is not leadership. It is grossly irresponsible.
The Conservatives are doing such a good job of tearing themselves to pieces that a Corbyn government is possible. This is not even surprising. Public dismay has long been growing over the post-crisis stagnation in living standards, prolonged fiscal austerity, high house prices, relatively high inequality and generational and regional divides. Nor can one possibly forget the shock of the financial crisis or the stagnation in productivity that followed it.
It is little wonder then that many are looking for a radical alternative. The question is whether Labour can actually deliver. On that one must be sceptical.
Socialism is not a new idea, but one that has been tried and tried again. It has come in three main varieties: autocratic, populist and social democratic. Autocratic socialism was that of the Soviet Union and Mao Zedong. It was a catastrophe. The social democracy of the Nordics or the Netherlands has, in contrast, been a triumph. These are among the most successful societies on the planet: wealthy, dynamic and stable.
Finally, the populist socialism so characteristic of Latin America has never worked economically. But it has at least not had the cataclysmic human results of Soviet or Maoist communism (though the outcome of Hugo Chávez’s Venezuelan experiment, much lauded by Mr Corbyn, is clearly ghastly).
Why has European social democracy been such a success? The answer is that it understands the fundamental constraints that have to shape any successful programme, particularly for a party that believes in active government. First, it must avoid the lure of magical thinking on budget constraints, at all levels of government. Resources are always limited. Second, it must recognise the crucial role of incentives in shaping human behaviour. Third, it must fully internalise the importance of a stable institutional framework in guiding these incentives. Last, it must understand that the private sector, foreign as well as domestic, must play a leading role in the economy.
The economy can function with very high levels of tax: ratios of close to, or over, 50 per cent of gross domestic product are common in the advanced social democracies. Governments can also play a big role in supporting the economy. But private initiative is essential. And that does not come because the government commands it. It comes because the government motivates it.
Why, then, has populist socialism failed? It is because it does not respect these constraints. It is undisciplined on public finances, unconcerned about incentives, contemptuous of property rights, hostile to the private sector and antagonistic to the constraining institutions. The last point is crucial. As Princeton’s Jan-Werner Müller has written, the one thing leftwing and rightwing populists share is the belief they alone represent the people against the elites. Anything that limits their ability to act as they see fit is seen as illegitimate.
So what sort of socialist is Mr Corbyn? In his speech he said “the next Labour government will transform Britain by genuinely putting power in the hands of the people”. This is astonishingly close to Donald Trump’s claim, at his inauguration, that “we are transferring power from Washington, DC, and giving it back to you, the American people”. He was doing no such thing, just as Mr Corbyn would not be. Power would lie in his hands and those of his colleagues.
The question is what they would do with it in dealing with the challenges confronting a country irretrievably embedded in the global market economy. The proposals for rent controls and the abolition of university tuition fees do not bode well: these are classic populist gestures. Nor does the confusion over Brexit. It is time to ask whether Mr Corbyn’s Labour will turn dreams into reality or nightmares.
