In a piece published on 28 September in the weekly New Statesman magazine, YouGov president and former journalist Peter Kellner said the Labour Party is at a historic turning point due to the election of Jeremy Corbyn as its leader.
“He thinks the best way to build a good society is for workers and elected politicians, not company shareholders, to take the big decisions in the business world,” Kellner wrote. “However, that is not remotely what most of Labour’s other leading MPs want. They believe in capitalism…They have no wish to replace it, even as a long-term objective.”
Kellner’s point is that there is now an irreconcilable divide between those that support capitalism and those that don’t. It’s all about economics.
But capitalism, like socialism, is not an economic concept. It’s a political one that its proponents like Kellner seek to validate by referring to the rationally and empirically-sound concepts developed by economics. Its champions are in reality arguing the market is usually or invariably both technically and social efficient and superior to government intervention and ownership. They don’t have anything much to say about the role of capital.
Even within its own terms, therefore, Kellner’s point founders. What is capitalism? What is socialism? Are they opposites or reconcilable?
And there is nothing in Corbyn’s victory last month that suggests, as Kellner argues, that a final choice between the two is all that’s left for Labour Party MPs, members, supporters and voters or, for that matter, anyone else.
Economists seeking to help political parties should start first with the facts about the economic system. Today, more than 80 per cent of the British labour force work in services. The overwhelming majority of companies produce intangibles.
The contrast with the British economy a century ago is radical. Then, the majority of wage-earners worked in factories, mines or farms producing tangibles. The shift in the economy from making goods to creating services is the single most important development in that time and one of the prime causes of unemployment and associated social ills that Labour has always sought to address.
This structural shift has also radically changed the way value is created. In factories, it was done by combining labour, inputs, capital and technology in a linear value-added process that started with raw materials and finished with sales of investment and consumer goods. The shift of this tangible good supply chain from the UK — first to Europe and then to what are wrongly termed developing countries — is the essential feature of globalisation.
In services, in contrast, value is exclusively created by constructive interaction between and among people at an individual level. This is an iterative process, rather than a linear one. And the value created is intangible and only subjectively perceptible, unlike the form value takes in tangible production.
This revolution in the mode of production is reflected in the shift in the economic infrastructure away from production in centralised locations where thousands work in a single place to one where communications technology allows the value-creating interaction required by services to involve people not even on the same continent. The rise of cities, where more than half of humanity live, is largely due to the rise of services at the expense of tangibles produced in farms and mines and in factories close to energy sources.
But perhaps the most profound change is in the capital structure of production. Tangible production requires huge amounts of tangible capital: machinery, factories, warehouses and trucks. Services in contrast require little. Some of the world’s most creative people need only a laptop and a cell phone to be productive.
To call this system of value-creation and distribution capitalism is consequently conceptually and semantically wrong.
In services, as Economics2030 argues, markets don’t only don’t work (as they sometimes don’t in tangibles), they don’t actually exist. There are only people interacting with other people to create and share value in unstable communities that can encompass the globe.
Kellner argues that hard-core socialists like Corbyn are completely different to moderate social democrats that have always recognised the merits of capitalism, but sought to manage it efficiently and ameliorate its adverse effects: market failure, inequality and pollution.
This again is false.
Every socialist from Lenin to the present Labour leader was managerialist. Their arguments are about the extent to which the market should be allowed, not its existence. Lenin abolished private ownership of farms, factories and housing but Soviet citizens could own most other things (if they could find them). Corbyn is only arguing for the ending of private finance concessions in transport, more investment in infrastructure, higher taxation on corporations and the wealthy and greater investment in clean energy. The difference between him and UK Prime Minister David Cameron is, in fact, a matter of degree.
Kellner’s argument, therefore, is both wrong and outdated.
This is no historic turning point for Labour, an organisation set up to win elections and reform the status quo. It will continue to try and do that.
And his identification of the capitalism/non-capitalism divide as the most important one in contemporary British politics fails to recognise how much the economy has changed and the impact on it of the rise of services.
There is a far larger issue which all parties should address. Why — when the need for capital is precipitately declining in value-creating activities — does capital still play so dominant a role in Britain’s largest companies, the thinking of government policymakers and, even, the ruminations of Mr Kellner?