In the Financial Times, let the reader understand, Wolfgang Münchau writes:
Political pundits told us that Brexit could not happen, and
that Donald Trump could not win the Republican nomination.
Some of them have
been telling us another story: that parties of the centre-left can only win elections
from the centre; in particular, that Jeremy Corbyn, the UK Labour
party leader, cannot become prime minister.
Is this assertion
true?
Many pundits, myself included, had their formative years from the 1980s
onwards.
Successful centre-left parties defined their role during that period
not as providing an alternative to transaction-based global capitalism, but to
redistribute the spoils.
Their leaders — Bill Clinton in the US, Tony Blair in
the UK, Gerhard Schröder in Germany among others — were mostly centrists.
What worked in that
period, however, is not universally true.
For example, government by moderate
pro-establishment Social Democrats in Germany in the 1920s and 1930s failed
horribly.
The main parallel between today and the 1930s is the way democracies
react to prolonged periods of austerity.
Extremist parties gain if mainstream
parties fail to offer alternatives.
In a story that
should be a warning to centre-left parties, the SPD in the Weimar Republic saw
its vote share decline from 37.9 per cent in 1919 to 18.3 per cent in March
1933, the last free elections.
Over that period the party became ever more
centrist, ultimately supporting deflationary economic policies.
It was a
catastrophic decision because it drove voters to the Nazis and the Communists.
Several social
democratic and socialist parties in the EU have supported austerity policies
since the financial crisis and are now paying the political price.
The
Democrats in the US, New Labour in the UK, and Germany’s SPD were among those
most enthusiastic about deregulating financial markets.
The SPD in addition
endorsed the eurozone’s stability pact in the 1990s, and the constitutional
balanced budget rule in Germany, which has been effective since 2011.
The
party’s failure to learn from its own history is breathtaking.
While the SPD
pays lip service to higher infrastructure investment, it cannot deliver any of
this because of its commitment to a balanced budget.
I
am not surprised the centre-left in Germany and in the UK are struggling to win elections.
We do
not know whether Mr Corbyn can succeed.
What we do know is that his more
moderate predecessors could not, at least not since the onset of the financial
crisis.
That was one of the biggest economic events of our time. It has also
redefined politics.
Where does this lead us?
From an economic point of view there is
nothing extreme in the argument for large investment programmes, especially
after years of fiscal consolidation.
Yet the only established political party
that offers this choice in Europe is Mr Corbyn’s, which is promising £500bn.
In
Germany, only the Left party, successors to East Germany’s communists, supports
big increases in investment.
On the continent you have to go the outer extremes
of the political spectrum to find someone to endorse an investment stimulus.
So when an established party, like Labour, offers a shift in
macroeconomic policies that have a chance of ending our post-crisis malaise, it
should be taken seriously.
If the ruling Conservatives mess up Brexit, which
they just might, the scheduled 2020 elections could become an open race.
In the eurozone, the choices are even more extreme. Eurozone
citizens only have two paths towards more investment.
The first is exit from
the euro, the only legal way for a country to escape the fiscal rules that
constrain investment at national level.
It is the choice offered by extremist
parties.
The second option would be a eurozone-wide investment programme,
centrally administered, funded by the issue of common debt securities or, more
crudely, by printing money.
The issues of eurobonds and debt monetisation are
deemed politically unrealistic, given Germany’s opposition.
So unless you opt
for extremist parties, there is no real-world choice.
What about the European Commission’s own investment programme?
On closer inspection it has turned into a smoke and mirrors exercise, an
underfunded macroeconomic irrelevance.
My expectation is that politics will adjust to economic needs,
as it did in the 1980s, this time in the other direction.
There is a chance
that it may end up like the 1930s. This is hard to foretell.
What I am certain
of is that the overwhelming consensus in favour of centrist libertarian
economic polities is breaking down, and that will have an impact on how we come
to regard leaders like Mr Corbyn.
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