Some of the latest economic analyses appearing in the market suggest how intense the social and political strains of the current crisis may be on the unity of the United Kingdom and New Labour's hold on power.

It seems that it is industrial output that is suffering (and so the employment situation in the Labour heartlands of the West Midlands, the North and Wales) whilst the financial services industry in the South East is staying surprisingly resilient.

Analysts [Oxford Economics] advised yesterday the loss of a million jobs over the next two years. Both the Labour heartlands and London itself could take a decade to recover.

Rethinking National Economics

Such reports are unnerving both industrialists and regional business communities. Their working assumption until now had been that the recession would see a rebalancing of the economy from the overheated South East to the 'regions'.

A great deal of Britain still depends to a startling degree on government ‘nudging’ (including public sector employment) to keep it going.

As it is, output change in the second half of 2008 fell everywhere except in government services (which actually rose slightly) but there is a limit to the baksheesh that central government can offer to the North and the West as both demand for services and resentment of tax increases grows in the south

Closer analysis of second half of 2008 output figures shows that ‘politically conservative’ sectors (agriculture, business services and finance) were least badly hit.

This helps to underpin anecdotal evidence that, outside property and retail, banks and analysts are surprised at the failure of businesses to fail.

The agricultural sector is certainly carrying on as if nothing has happened (although this sector subsists a great deal on the subsidy racket called the Common Agricultural Policy). However, those figures were then - now we are now.

The fact that Autumn 2008 forecasts show London dragging down an economy that was otherwise mildly growing, whereas current forecasts see minus growth of fairly equal proportions across the country, should give pause for thought on the degree to which forecasters are reliable.

Other analysts consider that the decline in output in London is worse than in the North-East and the West Midlands but the bottom line suggests a major urban crisis of jobs, with particular strains on the strong and relatively isolated New Labour outpost of the North East.

Whether this is all proved true or not, we do not think the analysis takes account of one systemic risk – that the relative resilience of the financial services sector depends on the continued maintenance of London as a global services centre in a viable international trading economy.

We can now see some of the reason for the desperation that underpins British management of the G20 Summit. An impending collapse of global trade (which seems increasingly possible) really will hit the core British economy very badly.

‘Producers’ England’ and ‘Consumers’ England’

All analysts now see a potential crisis ahead in global trade. There is no doubt that the zone of greatest threat lies in the exposure of banks to sovereign risk. There are economies far more vulnerable to a specific sovereign debt crisis than the UK – notably Austria - but London is very concerned.

A major slowdown of general trade that is not matched by an increase in the trading of new financial instruments and regulatory services (where the City excels) might well create a second wave of pain where it really hurts, in Middle England.

We have to bear in mind that J.A.Hobson’s distinction between a ‘producer’s England’ (which includes its Celtic fringe) and a ‘consumer’s England’, outlined as a hypothesis about political struggle in the UK as early as 1910, still stands today.

Scott Newton [in Lobster 56] recently used this hypothesis to look at the struggle between the two Englands during the sterling crises of the Wilson Government where Labour definitely represented the interests of the first against the Conservative’s representation of the second.

The last gasp of Labour commitment to ‘production’ took place in the late 1970s and early 1980s with the so-called Alternative Economic Strategy.

We have in our Library the 1982 document, ‘The City: A Socialist Approach: A Report of the Labour Party Financial Institutions Study Group’. It makes highly instructive reading in the light of the current crisis although the Report rejected bank nationalisation because the trades unions would have none of it!

Nevertheless,its whole ethos was based on the mobilisation of the City of London to build industrial capacity, on granting the public sector a major role in the provision of credit (for directive purposes) and towards an increase in pension fund democracy and checks and controls on overseas investment.

A Bit of Relevant History

Constant and repeated failure by New Labour to achieve office on such a programme, even when moderated and adapted to political realities, was the failure to win over sufficient voters in ‘consumer’ Britain to a national strategy that, in fact, was not a million miles from the French system.

It is amusing that a 'soft' version of French national dirigisme is now openly admired by Business Secretary Mandelson but Thatcher managed to attach British conservative national identity to freedom and to free markets. Moderated Anglo-Gaullism was not on the agenda.

The victory of John Smith over Bryan Gould in the Labour Leadership election in 1994 was a decisive vote for pragmatic accommodation with the City, long prepared by a previous leader, Neil Kinnock, who was driven not by policy but by frustration over lack of power of any kind.

The defeat was so decisive that Gould felt he had to leave British politics. What might be termed ‘left nationalism’, with its eurosceptic tendencies and preference for production over consumption, went underground for well over a decade.

The arrival of Blair and Brown, on the death of Smith, transformed the British centre-left radically to the point where it would not be recognisable to a leading socialist or social democrat in any previous decade.

The Party shifted from a pragmatic accommodation with the City towards a total embrace of its perspective, especially on the value of an international free market in capital and labour.

New Labour went further – the real embrace now was of Hobson’s ‘consumer Britain’ with its individualism and easy access to credit as a means of providing full employment.

Critics of New Labour sometimes go too far in attributing malignity. Gould had made full employment his primary economic goal. For all his failures in terms of means, New Labour picked up on this aim as central to their Government.

New Labour was able to create what they thought would be a perfect alliance to meet the mass of the population’s primary concerns (jobs and the good life) and so create the basis for its secondary platform of social reform – and, incidentally, for Blair’s peculiarly messianic and destructive foreign policy.

Why This Recession Could Be Decisive

Now, we can start to see why this recession is of such political significance to the future of the UK. It suggests that New Labour strategy was built on sand and Brown needs to turn around the economy very quickly indeed in order to disprove this contention.

First, the New Labour commitment to full employment is falling apart. Worse, the increase in unemployment is linked to a massive diminution of middle class wealth and to the prospect of tax rises and spending cuts that might take the next decade to work through.

Spending cuts will undermine the reform programme of the liberals within the centre-left coalition and undercut working-class allegiance in ‘producers England’. The economic experiment of New Labour now appears as mere consumerism but without sound Thatcherite discipline.

Second, ‘consumers’ England’ is very angry and frustrated but is not yet in the same serious plight as the rest of the country. It is asking whether the good times can come back and who is to deliver them. It pines for Thatcherism rather than socialism.

Yet there are limits to how far New Labour can go on tax and ‘savings’ without unraveling its own coalition. So, in addition to breaking its pact with the unions, New Labour is losing the ability to renew its parallel pact with the English middle classes.

Finally, ‘producers’ England’ is shell-shocked. It cannot ‘export or die’ because the whole global trading system is near collapse. Previous crises were national so that a politician could reasonably propose radical policies of the Right or the Left that could make a difference in that context.

This is no longer the case. The re-balancing between the two Englands, which many industrialists thought would take place, is not happening. The politics of the two are in danger of diverging and splitting New Labour down the middle.

On top of this is a moral dimension. The injustice of it all is that the ‘consumers’, whose greed and depravity (as your Northern engineer might see it) caused the crisis, are less harmed by it than the saver, the producer and the exporter.

This moral dimension affects both socialist and Thatcherite, giving a general sense that bad people are continuing to thrive and that a weak government is pandering to the causes of the crash.

Uncertainty Rather Than Pessimism

The situation is unclear rather than a cause for pessimism but the political strains within the UK could be considerable. Government will not have the funds to alleviate pressures through regional redistribution without creating the very sterling crisis that would hurt City interests.

We certainly cannot predict the next stage. History tends to show that the British polity is run from the centre on its ‘consumer’ base but that it has been losing control over its periphery fairly steadily since the late nineteenth century.

This is not a matter of a withdrawal from empire that ends with the British Isles. Northern Ireland, Wales and Scotland can all have alternative political strategies that involve jettisoning rule from London.

English regionalism is fairly moribund but the effective withdrawal from national politics of large sections of the decayed Northern cities bodes ill for the country if the same sectarian divisions that plagued Belfast and Londonderry are repeated on the mainland.

The Southern and Eastern regions and the middle classes may be arbiters of national politics but this presumes that the strategy of making the City of London into a global services centre and the South East into a centre of major and innovative global corporations remains viable.

As Robert Peston points out in his “Who Run’s Britain?’, the tax and regulatory policies required to stop freebooting capital from moving overseas also place an increased and unfair tax burden on Middle England.

A low tax, low service economy for the South increases centrifugel tendencies elsewhere but a high tax, low service economy (the probable result of the current crisis) drives the region into its own form of revolt against national government.

Finally, growth through international free markets, designed to create surpluses that are to be redistributed to an increasingly defunct ‘producers’ England’, also pulls in labour alongside capital.

This labour is competing for jobs and driving down wage rates while indigenous Britons are facing a major surge in unemployment.

Worse for the new establishment, the rules behind the Single Market mean that a worker displaced by a migrant Pole or Italian, has no legal redress and little political redress except to move to the radical nationalist Right or the euro-sceptic Left.

All in all, things look politically bad for New Labour and the unity of the country, much less so for the Conservative Party.

www.tppr.co.uk

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