Labour’s capitalist wealth fund
The Labour Party used to believe that if the government controlled the ‘commanding heights of the economy’ — such as the central bank, coal, electricity, steel, railways — it would be able to control the way the capitalist economy worked as it would make state capital investment rather than private capital investment the driving force. If private capital investment faltered then the state could step in and invest instead.
The 1945 Labour government did implement widespread nationalisation but things didn’t work out as planned. The theory was premised on the state industries making sufficient profits. In practice, while they did make a profit most of time, it wasn’t enough and they themselves had to borrow money. As they were providing a monopoly service to the private sector there were pressures not to charge too much so as not to undermine the competitiveness of private capitalist firms on export markets. They were also burdened by having to pay interest on the compensation bonds paid to the former owners. Then, after Labour was voted out of office in 1951, oil — in private hands — began to outcompete coal as a means of generating power for industry and the transport of goods, undermining any ‘commanding’ position the government was supposed to have.
In opposition, as Patrick Maguire pointed out in an article before the election in the Times (21 June), some Labour strategists began to question the commanding heights theory and to suggest that there were other ways of controlling the economy such as monetary and tax policy without needing to take industry out of private hands. This view was put forward by Labour politician Anthony Crosland in 1956 in his book The Future of Socialism. According to Maguire:
‘Crosland said something heretical. Profits were not only a precondition of rapid growth but something that socialists must “logically applaud” as a driver of industrial expansion and investment’.
The view of the current Labour leadership, Maguire went on, is basically the same:
‘That a Labour government that wishes to transform public services needs to encourage private investment and, yes, profit’.
Something, of course, that the Conservatives and Liberals had always accepted.
Actually, Crosland questioned whether capitalism was still capitalism and whether what had evolved in its place was still dominated by the profit motive, but it is revealing that, when his book was republished on its fiftieth anniversary in 2006, he was perceived by Labour leaders as saying that the economy was driven by private capitalist firms seeking to make a profit and that this must be applauded and encouraged. But this was a lesson the Labour Party had learned in the meantime from its experience in office in the 1960s and 70s.
Maguire’s article was entitled ‘Reeves’s plan for growth is built on private cash’. What she is setting up is a ‘National Wealth Fund’ to mobilise private capital to invest in the transition to a low-carbon economy in the expectation that this will stimulate growth in the rest of the capitalist economy (‘boost growth and unlock investment’ as the government press release put it – tinyurl.com/59ckdkdv).
The idea is that, for a particular project, the state will put up a quarter of the amount needed as long as private investors put up the rest, with any profits to be shared pro rata. To work, the project will need to be profitable; otherwise no private capitalist firm will be interested. As one of those involved in the scheme told the Times (15 July):
‘This is going to sink or swim based on its return generation. If this loses money it’ll be in trouble. It’s absolutely critical that it makes money’.
For the private capitalist investors of course, not just the government.
The government is banking that putting up a quarter of the money will attract private capital that otherwise wouldn’t be interested as the risk of not generating enough profit was too high. This might indeed attract some private capital. But, as Mehreen Kahn, the Economics Editor of the Times has pointed out:
‘Labour has made a virtue of “derisking” private sector investment. The danger is a state that will end up underwriting corporate profits while nationalising losses in the rush to fix a longstanding investment gap by throwing money at private finance’ (16 July).
In any event, the commanding heights of the economy remain occupied by private capitalist enterprises and so the economy will be driven by how much these decide to invest, which in turn will depend on how much profit they judge they can make. That means that whether or not there is the growth that the Labour government wants (to pay for promised improvements in public services) will be up to those deciding on private capital investment. To have any chance of succeeding, the government will have to pander to private capitalist industry and serve its interests.
This they already pledged to do when they proclaimed themselves the Party of Business. During — and for — the elections they added that they were pro-worker too. But it is not possible to be both pro-business and pro-worker as there is an irreconcilable conflict of interests between the capitalists and the workers arising from the fact that profits originate from the difference between what workers produce and what they get paid. Any party that takes office under capitalism is forced to give priority to profit-making as this is what drives the capitalist economy and so has to be pro-business, even if it might want to be pro-worker and even if initially it brings in some pro-worker measures. This is the experience not just of all previous Labour governments but of similar governments everywhere. The newly-elected Starmer Labour government won’t be — can’t be — any different. As will become evident.
As we said, capitalism was the problem, not the Tories. It still is.
ADAM BUICK