Section 5 of the European Communities (Amendment) Act 1993

Debate between Alec Shelbrooke and Kelvin Hopkins

Wednesday 27th April 2011 Commons Chamber

[Kelvin Hopkins]

The role of the state is much larger than it was even in Keynes’s day; therefore, the state has to generate more demand. The state has a bigger role in the economy—I think that is a good thing—but we cannot withdraw from the idea of managing economies in the way that we did after the second world war. Between 1945 and the 1970s, we had a world that actually worked. We had rising living standards and the highest rate of growth in our history. We had full employment, we developed a welfare state and the national health service, and we had free tuition at universities. Since then, the neo-liberals and the monetarists have got hold of economic policy again and we have gone back to something like the early 1930s, albeit with higher living standards, at the moment, but that could so easily be destroyed if the current mistakes continue to be made.

[Alec Shelbrooke]

I really do not understand the hon. Gentleman’s rose-tinted view of the 1960s and 1970s. In the 1960s we had to devalue, and by the 1970s inflation and wage inflation were huge, to the point where teachers were given a 25% pay rise in the mid-1970s that was worthless the following year. As for the Keynesian arguments, the new deal in 1930s America failed until the second world war came along and the country could manufacture and lend money to support the war effort. That is what created the recovery. Surely the hon. Gentleman is not suggesting that we need another war to sort out the economy.

[Kelvin Hopkins]

I would advise the hon. Gentleman to read an excellent book by J. K. Galbraith called “The World Economy Since the Wars”. He said that wartime investment in American manufacturing transformed the economy, which emerged as the strongest economy in the world.

We could go into those matters at great length; the point is that it is nonsense to try to deflate our way to growth, as has been said by a number of leading economists. Okay, so they happen to be Keynesians rather than monetarists, but do we want to go back to a world of high unemployment and greater inequality, or do we want to go forward to a world of full employment and greater equality? That is the choice. The Government’s proposed strategy, as set out in the document under discussion, will have a devastating effect on our economy and—they may not be prepared for this—will make them detested and massively unpopular. I remind them that, after the second world war, Labour took office with a massive majority as a result of the working people of Britain rejecting what had happened in the 1930s: the recession and the war. We are in danger of going in that direction again, and the end result would be the election of a Labour Government who would have to pick up the pieces of an economy that had been destroyed.

Even PricewaterhouseCoopers—not a noted left-wing organisation—has suggested that, for every job lost in the public sector, one would also be lost in the private sector, as opposed to the private sector picking up where the public sector left off. Much of the demand in the private sector comes from public sector spending and public investment. We have already seen construction levels falling, with the cancellation of many school building programmes. That will create unemployment in the private sector as well as the public sector, and it is conceivable that unemployment could rise by 1 million. If we had 1 million unemployed, in addition to the 2.5 million that we already have, we would be in very serious economic waters. It would be a terrible time, not just for young people but for the whole economy. We would see falling living standards, mass unemployment and a mass political reaction to what was happening.

I had a different view on this matter from those on my own Front Bench, particularly before the election, when I and a number of Labour comrades rejected the idea of cuts altogether. We believe that dealing with the deficit has to be done by generating growth. After the banking crisis, the Labour Government did exactly the right thing. They pushed demand into the economy by printing money, reducing interest rates almost to zero and recapitalising the banks, all of which had to be done. In fact, the Conservative Government, in their first six months, were living on the growth generated by Labour’s policies—[Interruption.] That is the reality. Now, Conservative policies are kicking in and we are starting to see the economy go down.

I could go on about this at greater length, but others want to speak and this is a short debate. I am happy to come back and talk about these issues time and again if hon. Members wish me to. Indeed, I am happy to discuss them in private as well as in public. I am convinced that the Government have got this wrong, and that Keynesian economists such as Krugman and Stiglitz have got it right. We need to generate growth through public spending and public investment; we do not need to cut.