It was only a matter of time that in a globalised society like ours radical socialism would meet a dead-end.
Millions of young socialists across the UK were disheartened, baffled and frustrated at December’s election result. Boris Johnson won the hearts of 43.6 per cent of the electorate.
It would be easy to attribute the Conservatives’ sweeping victory to Brexit, which sliced through traditional allegiances and divisions, and dominated every party’s campaign. But could the lack of faith in Corbyn be at least in part due to the spread of realism and the realisation that in a globalised world, radical socialism is not sustainable?
The Tories took northern constituencies which had been Labour strongholds for decades: Blyth Valley in Northumberland, Workington, Wrexham, and Leigh in Greater Manchester, the latter for the first time in nearly a century. Overall, Labour had their worst return of seats since 1935. Labour’s politics have slid further to the left and become more utopian than ever before. The loss of key constituencies in their heartland at least in part represents a reaction to this, one which is certainly not unfounded.
Corbyn proposed in his manifesto ‘to rewrite the rules of the economy so it works for everyone — not just the billionaires’. This ‘rewriting of the rules’ would involve a dramatic redistribution of income, assets and ownership to shift power from capital to labour.
Labour planned to borrow far more than the Conservatives, hoping to increase public sector investment to £106bn in 2022-3, just over 4 per cent of GDP. The scale of their investment harks back to the 1970s.
The absence of a panic in the UK Government bonds market after Labour laid out their plans to borrow to invest in areas such as infrastructure, suggests that few thought the party’s proposals would be hard to finance — probably in light of historically low interest rates. But although it would have been possible to fund these extravagant proposals, economists remained concerned about where the money would be invested. For example, spending public money to connect rural locations to a full-fibre network would not have delivered high returns for the UK economy.
Julian Jessop, economics fellow at the Institute of Economic Affairs think-tank has said Labour’s borrowing plans are viable ‘without necessarily causing major problems’, but that ‘when you look at Labour, it’s driven by ideology and so I have little confidence [the money borrowed] will be well-spent’.
Borrowing is only legitimate if the money is invested where it will deliver returns for the UK economy. And more importantly, policies such as nationalising utilities or BT’s Openreach network will likely put off overseas investors, which, as John Wraith, head of UK rates strategy at UBS, has said, ‘could have bigger ramifications than the volume of borrowing itself’.
Because of globalisation, the bulk of investment in public services and private enterprise comes from overseas. Before, investment mostly came from domestic financiers, and so it was less of a gamble to make drastic changes such as nationalisation or radical redistribution measures. Now, in a fully-globalised economy, investors can take their money anywhere in the world, and will do so at the drop of a hat if there is an opportunity elsewhere to make more profit.
Similarly, in an age of globalisation, the central banks can base themselves wherever they wish. As soon as they get a whiff of encroaching nationalisation or high corporate tax, they will pack up shop and move elsewhere to chase profit. We live in a free market, after all. That’s why Brexit prompted Goldman Sachs, Citigroup and Deutsche Bank to move parts of their business out of the UK — uncertainty and risk in the economy drives away investment.
Fund manager at Allianz Global Investors, Mike Riddell, said: ‘What is far more important for the gilt market’s prospects is what happens to the global economy, and how the major central banks react’. The city is at the heart of the UK economy and it is easy to forget that when it so often portrayed as epitomising corruption, greed and evil.
All of this makes an extreme socialist economic policy far riskier than it was in say, the 1970s. So what does the future hold for the Labour party? Will the new leader, whoever that may be, re-evaluate their radical, redistribution-based economic plan and realise that the reality of globalised capitalism hankers such an approach? Or will they continue ploughing ahead with their far-left socialist agenda, losing more and more votes every election? Time will tell.