22 BriefingCorbyn’s Labour Party The EconomistNovember 2nd 2019
2 would present less of a problem. Many
worry that wealth and income inequality in
Britain are too high, and are pleased that
someone at last seems to have the courage
to do something about it.
Relying on the mps of other parties is
more likely to gum up the process. The Lib-
eral Democrats would be the trickier
partner. Its leader, Jo Swinson, has refused
any official partnership with the Labour
Party. “We’re going to constrain Corbyn,”
says Sir Ed Davey, the party’s finance
spokesman. Any support for a Labour gov-
ernment would be both grudging and on a
case-by-case basis, particularly as the Lib-
eral Democrat ranks have been bolstered by
former Labour mps such as Chuka
Umunna, who partly left the party because
they feared Mr Corbyn in Downing Street.
With a big financial sector in Edin-
burgh, and a large oil-and-gas industry in
the North Sea, the snp might blanch at any
plans to curb banker bonuses or to make
life more difficult for carbon-intensive
firms. Yet the party has drifted left in recent
years, shedding their reputation as “Tartan
Tories”. The snp is hoping to start its own
version of a national investment bank
north of the border; it has also raised in-
come-tax rates and its water supply is al-
ready in public hands. Its real prize is hold-
ing another referendum on Scottish
independence, something for which Mr
Corbyn has recently voiced support. Back-
ing the manifesto of a Labour government
is a small price to pay.Meltdown expected
The legal system and the markets would
present further obstacles. In a series of lec-
tures earlier this year Jonathan Sumption,
a former Supreme Court justice, com-
plained that the law has come to play an
overbearing role in political life. Govern-
ments may decide they want to do some-
thing, but all sorts of legal institutions,
from the Supreme Court to the European
Court of Human Rights, constrain what is
possible. “There’s always someone judi-
cially reviewing you,” huffs one former
Conservative chancellor, who, needless to
say, did not attempt to nationalise Britain’s
utilities during his time in office.
Legal questions dog Labour’s plans, par-
ticularly over policies such as nationalisa-
tion. The party insists that Parliament will
decide the appropriate price to pay share-
holders in Royal Mail, the water compa-
nies, and electricity and gas networks. La-
bour also plays down the significance of
forcibly transferring 10% of the value of
large companies to their workers. “That’s
not a levy,” Mr McDonnell told The Econo-
mist, with a grin. “That’s a sharing of the re-
wards of that particular company.”
Investors are unlikely to be so relaxed.
“The employee-ownership programme
proposed by Labour is nationalisation bythe front door, back door and side door,” ar-
gues one chief executive of a ftse250 firm.
His company would move to Ireland, and
would return only if the Conservatives got
into office, he claims.
If Labour tried to nationalise a company
without paying what would reasonably be
considered as fair market price, a court
challenge would follow. Britain has around
100 bilateral investment treaties (bits)
with other countries, designed with the ex-
press purpose of preventing expropriation.
Already, firms are shifting the holding
companies of their British assets to coun-
tries where a bit exists.
But the legal system would place only so
much of a constraint on Labour’s plans.
Though it would be expensive, and there-
fore win less public support, the party
could ward off legal challenges by offering
a market price for the companies it wanted
to nationalise. Experts disagree over how
much that would cost—though the state
would be taking on extra debt, it would also
be acquiring an asset with a yield. A Labour
government could reduce its bill by talking
down the companies’ share prices (though
this might also face legal challenges). Al-
ready, the share prices of firms that Labour
has said it will acquire are underperform-
ing the British stockmarket as a whole, ac-
cording to analysis by The Economist.
Financial markets might present fur-
ther problems. Most forecasters believe
that a Corbyn government would lead to a
depreciation of sterling of around 10%, as
well as higher borrowing costs for the gov-
ernment. Though the party promises a sec-
ond referendum on Brexit, there is little
guarantee that it would campaign for Re-
main with much vigour (Mr Corbyn is a
lifelong Eurosceptic). It is even less certain
that, in a second referendum, the country
would vote the way that the markets want.
Many in the party would welcome a de-preciation of sterling, on the grounds that
it would help Britain’s exporters. The effect
of rising gilt yields would be felt over a
number of years, since the higher borrow-
ing costs apply only to newly issued gov-
ernment debt. In any case, points out one
adviser to the Labour leadership, after
three years of the Brexit process Britons
have got used to the pound gyrating all over
the place. If market turmoil has not proved
to be the undoing of the government’s
Brexit strategy, then why should it prove to
be Labour’s downfall?
At some point, ructions in financial
markets would force a change—a weak
pound makes imports more expensive,
trimming living standards. But that point
may be further away than many assume.
Older Corbynites shudder at the story of the
government of François Mitterrand,
France’s president from 1981 to 1995. It em-
barked on a solidly socialist programme
but embraced monetarism and budget cuts
as it sought to quell the markets and keep
the franc pegged to the Deutschmark.
Younger ones look with alarm at Syriza, the
far-left Greek party which capitulated to
the eu after coming to office in 2015.
Would something similar happen with
Labour? Some insiders think that policies
such as the employee-ownership fund will
be watered down. One Labour politician
has been heard to complain that Mr Mc-
Donnell has “become like a bloody bank
manager these days”.
But those in the inner circle claim to be
steely. Seumas Milne, an adviser to Mr Cor-
byn, co-wrote an academic article in 1994
which excoriated Mitterrand for selling
out. In “People Get Ready: Preparing for a
Corbyn Government”, a book published
earlier this year, Christine Berry and Joe
Guinan, two researchers who are close to
Labour, implore the leadership to resist the
power of international financiers, even if
they accept that what they call a “siege
economy” is “not particularly desirable as a
long-term solution”.
Another possibility exists. Even as a La-
bour government appears to compromise,
it could remain radical. It is promising so
many things to its potential voters that it
does not much matter if it has to bargain
some of them away. At the end of five years,
Britain’s fiscal and monetary policy could
be turned upside down. Investors may
have reassessed their view of the country.
Nor is Labour’s leftward turn likely to be
a passing phase. At 70 years old, Mr Corbyn
is likely to step down after the election
should he fail to win. Those around him are
already jostling to take over. Few are lurch-
ing to the right in anticipation—the party
members, who elect the leader, are Corbyn-
ites through and through. Another world
has already arrived for Labour. Mr Corbyn
and Mr McDonnell will hope another world
is still possible for Britain. 7