Four reasons Corbyn and McDonnell will be good for business
Jeremy Corbyn and John McDonnell are a disaster for the Labour party, says Matthew Lynn. But as far as business is concerned, it works out rather well.
Jeremy Corbyn and John McDonnell are a dream ticket for business
(Image credit: 2015 Getty Images)
Just when business thought Labour could not get more hostile towards the people who employ staff, make money, and pay taxes, along comes John McDonnell. In the wake of his appointment as the new official leader of the opposition, Jeremy Corbyn lost no time in installing his long-time ally as shadow chancellor.
A post once held by the likes of Alan Johnson and Gordon Brown, and going further back in time, by such substantial figures as Geoffrey Howe, Denis Healey and Roy Jenkins, is now held by a man who even Leon Trotsky might have regarded as too battily left-wing.
In short, anyone who had rashly expected Corbyn to compromise and start moving towards the centre ground has misjudged him badly. McDonnell has been pushing a left-wing agenda for years. He fully endorses Corbyn's most extreme policy positions, and can add a few of his own for good measure.
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In the past, he has campaigned for extensive nationalisation, argued for breaking up the financial system, for forcing companies to give up on serving shareholders, for creating more co-operatives, and for every smartphone to come with the Red Flag already installed on its music player (I made that last one up but you get the idea). It is hard to imagine a worse nightmare for business and for investors.
But hold on. It might not be nearly as bad as everyone thinks. Here are four reasons why business should raise a glass of Khvanchkara Stalin's favourite Georgian red wine to the elevation of the two veteran socialists to control of the opposition.
1. It will keep the Tories in power for a generation. There is absolutely no evidence to suggest that any of these polices will have any appeal outside of a small group of left-wing activists. Countries very rarely vote for revolutionaries, and stable nations, with reasonable levels of prosperity, and virtually full employment, never do.
In the wake of a major crisis, they might get a hearing but in Britain in 2015 there is no chance. True, that might be bad for the political process.
But the evidence suggests that an economy benefits from the stability that is the inevitable result of effective one-party rule. The Liberal Democrats held power in Japan from 1955 to 1993 and over that time they oversaw one of the great expansions in economic history.
The Christian Democrats held power in Italy from 1946 until 1994 and that also was the most successful period in that country's economic history. The Christian Democrats held power in West Germany from 1949 to 1969 and presided over one of the greatest economic miracles in history. One party rule didn't do them any harm.
2. The markets will like the stability. There are not going to be any wobbles in the sterling market, and no companies are going to be pulling their investments from the UK on this news. The left has simply taken itself out of the game and surrendered any hope of winning power. The result? The pound will be higher and so will the stockmarket. That will reduce the costs of capital for business and help business to invest.
3. The space for radical Conservative reform has opened up. When Labourlast swung to the left in the 1980s, Margaret Thatcher was able to make some far-reaching reforms because the opposition was so split and extreme it didn't pose much of a threat to her rule. Privatisation and breaking the trade unions might not have been possible otherwise. The same could be true this decade.
If the 2020 election is already in the bag, why not get started on serious reform of the bloated welfare state and use the savings to finance tax cuts so that people can support themselves rather than rely on the state? It might take time to pay off but by the time the opposition is a serious force again, it will already have worked.
4. It's the end for Labour. The party may well be replaced as the main left-of-centre opposition. Whatever occupies the moderate left ground is likely to be a lot more market and business-friendly. Labour has always had its roots in the trade union movement and in top-down statist policies. Even under Tony Blair, its most centrist leader, its instincts were to get big government to do everything. It has tax-and-spend in its DNA.
Other countries have left-wing parties that are far more innovative and creative, while still committing themselves to greater equality the Democrats in America, for example. The UK might get a similar party which would be a big improvement.
The reality is that Corbyn and McDonnell will be a disaster for the Labour party. The only real issue is whether the damage will prove terminal or not. But paradoxically, that might well turn out to be good news for business.
The pair are not going to get into power, and they may well create the space for some far-reaching reforms and lead to the creation of a far more market-oriented left-of-centre opposition while consigning their own outdated views to the political wilderness.
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Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.
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