John McDonnell, the Shadow Chancellor, has declared that a Labour government would force all employers with 250 or more workers to introduce worker-ownership schemes in order to “restore the balance of power in the workplace”, a move that would amount to the most radical overhaul of industrial relations since the Thatcher revolution.
Power. The fact that Jeremy Corbyn’s chief economic spokesman uses this word in that way is in itself telling – and alarming. It reinforces the old socialist lie that economics represents an unfair contest of power between capital and labour, in which the odds are artificially stacked in favour of the bosses. It indicates an antiquated and simplistic mindset that sees the economy as zero-sum, and in which some profiting from the capitalist system more than others represents a direct confiscation by the wealthy of what should rightly belong to the less well-off, as though my gain causes your loss.
In reality, economic relationships in a free society represent a consensual, contractual arrangement between legally independent agents. As the famous economic philosopher Milton Friedman argued in the 1980s, parties do not enter into contracts unless they benefit both sides – unless there is willful misrepresentation.
The idea that “capitalism” is some giant, monolithic social force that oppresses the poor, rather than shorthand for trillions of individual free exchanges, just won’t go away. With the rise of Corbyn and Momentum the idea that capitalism is nefarious and in need of a benevolent state to put right its wrongs is back in fashion.
McDonnell’s plans – nationalisation, large tax rises – would be disastrous for the British economy, and they’d come at exactly the wrong time. In the midst of the turbulence caused by Brexit – in terms of economic uncertainty a blow upon a bruise as Britain still recovers from the fallout of the 2008 crisis – Britain has done remarkably well precisely because of its pro-business fiscal policies and its labour market flexibility.
This means the unemployment rate is at rock-bottom at 4% (half that to be found in other parts of Europe). Accusations that this has not been matched with wage growth were fair. Now, wages are rising at the fastest rate in three years, outstripping inflation. The public finances are in remarkably rude health, with the Treasury in July running a surplus for the first time since the crisis in July.
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Abandoning fiscal restraint and emboldening trade unions in a way that could deter investors and alarm currency markets would have the opposite of the desired effect. McDonnell is a Marxist and his policies would damage prosperity, wages and employment.