unnamed-440x330

In the run-up to the election, senior business leaders have launched an attack on Labour’s policies. No-one should be surprised at this criticism. Labour presumably hopes to get its votes primarily from people who are not exceedingly wealthy. If Labour offers policies to attract the votes of the non-wealthy, the wealthy are not likely to be favourably impressed. That’s just how partisan politics works.

Nonetheless, criticisms from business do make voters uncomfortable when they associate the moniker of ‘business leader’ with entrepreneurship and job creation. If people with deep knowledge of economic affairs have reservations about Labour’s policies, those who feel that they lack that knowledge are likely to pick up the cue. The difficulty for voters is that meaningful messages from business about the impact of policies are overlaid with self-interested babble. Much of the critical comment has been about Labour’s tax plans. Claims that these will be a dampener on ‘business’ are the  self-interested objections of wealthy people.

The difficult reality for Labour is that the era in which it could comfortably bridge class divides and occupy a middle ground that combined business-friendliness and redistributive ambitions has ended. In its New Labour variant, business-friendliness meant at least a partial embrace of ‘trickle-down’ economics: what was good for business was good for the country. It was a comfortable position for its proponents, who could engage in great deal of glad-handing and prawn cocktail consumption, and save themselves from some of the more vitriolic attacks that might otherwise come from the right-wing media. But now that we live in the era of ‘trickle up’, where the wealth of the few grows at the expense of the many, this stance is no longer tenable.

Nothing has happened since the financial crisis to reverse the well-documented picture of rising inequality in the UK. Each year since 2009, growth in average weekly earnings has not kept pace with inflation; only in 2015 is this expected to change. The median hourly wage in 2014, a princely £11.85, was 12% below its 2009 peak in real terms.[1] While incomes have stagnated, wealth has soared, thanks in no small part to monetary policy.

The political implications of the rise in inequality are worrying. In the US, the political power of wealth has been evident in innumerable policy changes, often too small to be noticed by the general public, but adding up to substantial gains, particularly in reducing the tax paid by the most well-off. At least the wealthy in the UK do pay taxes, although this creates its own paradoxical pressures. Stuart Adam and Barra Roantree at the Institute for Fiscal Studies have drawn attention to the very high concentration of income tax receipts: half of revenue comes from just 3% of adults. The IFS has expressed concern that this leaves the public finances vulnerable: the ominous subtext being that governments have to handle the wealthy with kid gloves, or they will exit for Monaco. The less reactionary implication is that governments have to tackle these concentrations of income and wealth at their source if they are not to be held hostage by the top 1%.

In any case, the primary difficulty for Labour in formulating policies that reflect strong public preferences for combatting inequality is not the threatened mobility of the tax base. It is the belief that the party must demonstrate ‘economic competence’ to win elections. Since the court for judging economic competence is rigged by powerful economic actors, policies that challenge their interests are quickly condemned for failing to accept economic realities.

There is a lot of slippage between the idea of the ‘business leader’ who might be engaged in innovation and entrepreneurship, and the person who is merely rich. The distinction emerges rather strongly in recent research on the United States by Martin Gilens and Ben Page. They found that the preferences of the wealthy are not well-correlated with those of business interest groups. The wealthy tend to have stronger ideological objections to state intervention, and ‘prefer lower levels of government spending on practically everything’ while business groups often lobby for regulation or spending in specific sectors.[2] These differences, while rarely identified so clearly, are not surprising. Businesses need public goods to function; the wealthy can exit to their private domains.

If Labour is serious about tackling inequality, it is in for an uncomfortable time. It has to destroy the pleasant illusion cultivated by New Labour, that there are no fundamental conflicts of interest in a successful capitalist economy. Not only will this bring political opprobium from the rich down on the heads of the party’s leadership, but also it is a message resisted by many people who will never be rich. Nonetheless, it is the message that has to be conveyed, especially now that Labour can be undermined by voices from further left, at least in Scotland. Weathering the storms that can be whipped up by the rich and powerful is tough. Even the Financial Times, loved on the centre-left for its acerbic criticisms of the City, has shown its family loyalties by criticising Miliband. But there is no way of avoiding a bad press from business if Labour is to offer an alternative to the Tories. The easy times of the prawn cocktail circuit have gone for good.

This is an edited version of Deborah Mabbett’s ‘Commentary’ for the journal Political Quarterly. Read the full version at http://www.politicalquarterly.org.uk/p/editors-blog.html

 



[1] Low Pay Commission (2015) National Minimum Wage Report, Figure 1.10.

[2] Gilens, M and B Page (2014) ‘Testing theories of American politics: Elites, interest groups and average citizens’ Perspectives on Politics Vol 12 No 3 at p.571.