The election of a new leader to the UK Labour Party signals a potentially important milestone. Many see this development in extremely negative terms while others see it as a welcome break in thinking and policy not only in the UK but across Europe. Whatever readers may think of Corbyneconomics or Cobynpolitics at home or abroad the force of the ideas behind Corbyn needs to be understood and taken seriously. The UK is undergoing a major shift in thinking and relationship with Europe (and therefore all of Ireland). This is much larger than what is happening in one political party. The ‘Shifts and the Shocks’ described by Martin Wolfe in his book last year apply not just in the financial world but in the world of political economy, ideas and allegiances.
What implications might the election of Jeremy Corbyn have for the economy and society of Northern Ireland? Too early to say might be a sensible answer for now! (and indeed some would see the latest development as sealing the fate of Labour in terms of ever again winning an election in our time). Economists should be slow to predict the future – still less the political configuration of the UK in 5 years time. The unexpected happens – nearly always. This is the one lesson of the rise of ‘Corbyneconomics’.
What is Corbyneconomics?
This is not a primer. But, I had the privilege of accompanying Richard Murphy while travelling to a meeting in Belfast last Thursday. I was the beneficiary of Corbyneconomics 101 (for those who may not know, Richard Murphy is an economist with a professional background in accountancy who has advised Jeremy Corbyn. See a recent article in New Statesman here 
).
[Richard Murphy is unlikely to emerge as an advisor to any Irish political party any time soon given that he is working a new book to be entitled The Joy of Tax. The basis of universal Irish political thought is ever lower taxes, ever better public services and ever greater compliance with the EU fiscal rules. Its called the Great Irish Paradox.]
Here are just two key ideas among others (yes I will return to the main topic of this article which is Northern Ireland):
A national UK investment bank to be capitalised by cancelling private sector tax reliefs and subsidies; and
‘people’s quantitative easing’ – which means printing money but in a way that directs new money into economic and social projects that add value.
The first of these ideas – considered against the background of many decades – hardly seems extremely radical. State investment banks are common in Europe. The NERI has published a series of research papers since 2012 which have examined the options for a state development bank in the Republic of Ireland. In Northern Ireland, we published a research paper, in 2013, advocating a public strategic investment in renewables and other infrastructure.
The second idea – that of quantitative easing – is hardly revolutionary considering that both the Bank of England (BOE) and the European Central Bank are doing this already. The main difference is that in the case of BOE and ECB the new money created (via purchase of bonds by these central banks) is increasing asset prices and benefiting investors and, ultimately, rich households without finding its way, necessarily, into new social and economic projects. Corporations are still holding on to 100s of billions in cash despite low interest rates for reasons to do with uncertainty, timescale and institutional factors. It is not incorrect to say that Quantitative Easing – as we know it in the EU and in the UK involves ‘printing of money’ – Central Banks buy up government bonds on the secondary markets and this money finds its way into the banks in the first instance. While technically a loan and repayable the bonds purchased are, in practice, rolled over and replaced by new debt. All money created is a liability of the Central Bank (using the ‘I promise to pay the bearer the sum of …’ principle). But, much more than other banks, Central Banks can print and technically destroy money as a tool of monetary policy to influence price inflation or the state of lending and economic activity in a country.
There is a unique and pressing crisis of ‘infrastructure’ in Europe precipitated by a collapse and extremely slow recovery in private investment as well as a huge under-investment by public authorities given the demands of fiscal austerity and the continuing application of nonsensical EU fiscal rules (which, for example, fail to distinguish between current and capital public spending for the purposes of deficit reduction and debt brakes).
Consider the current humanitarian refugee crisis in Europe. Integrating, housing and enabling refugees to find work and contribute to the economies of member states will require sustained investment including provision of appropriate distributed accommodation and not large refugee camps or the notorious ‘direct provision’ type facilities found in the Republic of Ireland.
A people’s quantitative easing would channel ‘new money’ into housing, education, health, renewable energy and public transport – areas where significant under-investment is a problem due to wrong market signals and security of return on investment. Borrowing money at super low interest rates is no longer the problem. The problem is channelling the excess savings of households and corporations into socially productive uses. A key aspect of people’s quantitative easing is that it would not entail additional taxation to pay repay loans from the Central Bank. These loans are not repaid. However, the economic growth generated does lift consumer spending and government revenues. Price inflation is very unlikely to take off in current circumstances given the problem of deflation or near-deflation and over-capacity in many countries. A state-led investment bank could be a channel for directing investment to relatively disadvantaged areas of the UK. This is where Northern Ireland comes in.
Instead of borrowing money to pursue redundancies in the Northern Ireland public sector, a state investment bank located in Northern Ireland could lend funds to local district councils to undertake vital investment projects including renewal of public transport and IT connectivity. It is clear that in the continuing political crisis impacting on Northern Ireland and the disappointing performance of the economy, there, over a long period of time we need a ‘game changer’ and a big new idea. Could people’s quantitative easing across the UK be such a game changer? It is clear that, in common with other regions of the UK, Northern Ireland has severe infrastructural deficits exacerbated by cut backs in public capital spending as well as under-investment in productive assets by the private sector.
Local authorities, in Northern Ireland, have legal power to borrow money commercially for projects that meet commercial criteria. Likewise, agencies such as the Housing Executive could be developed to undertake or commission additional house building to meet social need.
Time will tell how quickly common sense will break into economic and political thinking in the UK and across Europe.
The paradox of all this is that Corbyn – and his ideas – might yet save the European Union .....