In 1995, the Labour party voted to amend Clause IV of its constitution, ditching its historic commitment to mass public ownership. A significant victory for Tony Blair, it sparked a modernisation process that saw New Labour win three successive elections.
On Monday John McDonnell drew wild cheers from Labour delegates in Liverpool when he directly rebuked Blair, insisting Clause IV is 'as relevant today' as a century ago.
The Shadow Chancellor certainly rolled back the years during his conference speech, unveiling the most radical Labour prospectus of modern times – an unashamedly socialist pitch, calling for aggressive re-nationalisation and sweeping trade union powers.
Listed UK companies will be forced to transfer 10pc of their equity to 'Inclusive Ownership Funds', said McDonnell, from which their workers, but mostly the government, would take dividends. A third of board seats are to be reserved for employees. The 'commanding heights' of the economy will be 'taken back into the hands of local councils, workers and customers', with senior executives getting 'dramatically reduced salaries, capped by our 20:1 wage ratio policy'.
No matter that Blair gained votes by shifting decisively to the centre. McDonnell thinks the public is so cheesed-off, and discontent with 'the system' so widespread, that Labour can now win from the other direction, capturing Downing Street from the hard-left.
Those wanting an idea of how the world’s fifth biggest economy might look under Prime Minister Jeremy Corbyn should take a look at McDonnell’s speech. For more detail, you can read the book he edited – Economics for the Many – published just before the conference. 'These are the ideas into which Corbynism has sunk its intellectual roots,' declares McDonnell, in his introduction to this volume of chapters by left-wing thinkers.
'Calls for the nationalisation of water, electricity and gas, the Royal Mail and trains, greeted with howls of outrage and press derision, are very popular with the public,' McDonnell writes. To some extent, that’s true. A recent YouGov poll suggested around 60pc of voters think the railways and Royal Mail should be back in public hands, with half wanting water and energy companies re-nationalised.
Many will reject McDonnell’s book as an incoherent ragbag of disconnected contributions that avoid the big issues. There is little mention, for instance, of how the UK should deal with its housing crisis, fast-ageing population or improve vital public services such as health and education.
Having said that, this volume does pose some relevant and pressing questions – with McDonnell asking, for instance, if government should 'deal with Big Data' by creating 'new digital rights'. A chapter by technology researcher Francesca Bria on 'surveillance capitalism' raises similar key issues, ranging from 'the monopoly power of the tech giants' to 'a new tax on digital platforms'.
In his chapter, Prem Sikka, the respected accountancy academic, argues that 'tax revenues are under relentless attack from wealthy elites' and 'tackling tax avoidance and evasion is one of the major social and political issues of our time'. He’s not wrong.
And economist Ann Pettifor calls for investment into jobs relating to renewable energy – a policy we’re hearing much more of, after 28-year old Alexandria Ocasio-Cortez won the New York Democrat primary this summer, on a 'Green New Deal' ticket. Almost certain to enter Congress in November, her agenda will be catapulted into the political mainstream.
I agree with some of what J. Christopher Proctor writes about the need for academic economics to get beyond its 'theoretical strait-jacket', to become 'more open, diverse and relevant to the real world'. McDonnell himself is also right when he calls for 'a real devolution of powers and resources out from the centre' of the UK. It is, indeed, disturbing Britain is 'the most geographically unequal country in Europe' – with 'the richest single area – central London – but also nine of Northern Europe’s ten most deprived areas'.
Where this volume falls down, and where many – myself included – have grave reservations is on the question of the Corbynite’s macroeconomic management. The book has a reasonably sensible chapter by Oxford economist Simon Wren-Lewis on establishing a new Fiscal Credibility rule. But another authors dismiss such fiscal restraints as 'disastrous', while spouting that old canard that 'an economy is not like a household' because governments can 'issue bonds, raise taxes or print money to help alleviate problems'.
Yes, but there are definite limits. And with UK national debt well over 90pc of GDP on international definitions, and the Bank of England’s balance sheet growing four-fold over ten years, such limits are closing to binding.
Yet McDonnell still denied, with a budget deficit approaching 11pc of GDP back in 2008, any need for corrective measures. 'Austerity was a political choice, not an economic necessity,' he writes. 'To argue differently is to turn economic history and rationality on its head'.
The truth is that, straight after the financial crisis, the UK was shipping cash and bond markets were close to revolt. Had fiscal restraint not been shown, this country faced a re-run of 1976 – when Jim Callaghan’s Labour government only staved off bankruptcy by going 'cap in hand' to the International Monetary Fund. McDonnell's refusal to admit that isn’t only worrying, it poses a grave danger to the UK’s economic stability should he take charge of the Treasury.
Labour’s 2017 manifesto promised a corporation tax rise from 19pc to 26pc (the Tories plan a cut to 17pc by 2021). The party wants public spending to increase by around £75bn, a 10pc uplift, over the next three years. Such measures could well result in a much weaker currency, higher interest rates and slower growth. Similarly, Labour’s share transfer plans may provoke capital flight, curtail investment and, in the words of The Confederation of British Industry, 'crack the foundations' of prosperity.
But to scoff would be wrong – and deeply complacent. Amid corporate scandals, a massive housing shortfall and polarising wealth inequality, UK capitalism does face a crisis of confidence. Senior Tories, if they fail adequately to respond, are fools. For, as McDonnell writes in this somewhat alarming publication, his 'better world is in sight'.
Liam Halligan writes the weekly Economic Agenda column in The Sunday Telegraph