The Bear’s Lair: The meaning of Jeremy Corbyn

Jeremy Corbyn, the far-left MP for Islington North, appears set to become the next leader of Britain’s Labour party. Various commentators have predicted economic and political doom for Britain, citing his radical ideas as evidence. Yet in reality the British electoral system, the openness of the economy and the lack of support for Corbyn himself beyond the party’s activists make him unlikely to succeed in making fundamental changes. Britain has many protections against becoming Venezuela.

The consensus has made much of the process by which Corbyn (probably) is being selected, by a vote of activists that has clearly been “gamed” to some extent by the far left – the entry fee to qualify to vote was set at only 3 pounds ($5). The likelihood of vote rigging certainly doesn’t help the election’s credibility, but the reality is that Corbyn has enormous support among the party’s members, who as is often the case are far more extremist than its voters in general. If you have a process by which party members alone are given the vote, as Ed Miliband created after his own election in 2010 was tainted by association with the trades union block vote, then from time to time you will get extremists succeeding in imposing their preferred choice.

It is not obvious that this is a bad thing, provided both major parties use election by members. However currently the Conservatives allow members only a small say in the proceedings, giving the party nomenklatura much more say – thus Conservative leaders since this election method was instituted in 1998 have tended to come from the left of the party.

It is much healthier for democracy if the electorate is given a clear choice between two main parties, with a wide ideological divide between them. In this case, the country’s governance lurches from side to side depending on which party is in power, but the electorate knows what it will get when it makes the choice, and indeterminate results, with no clear majority and third parties burgeoning, are rare. Furthermore, since extreme-right (ultra-capitalist) economic policies work infinitely better than extreme-left (fully socialist) ones, the right-wing party will tend to dominate as the electorate rewards its economic management.

The alternative consensus politics, with both parties’ leadership agreeing on the main issues, tends to disfranchise the wider electorate and ensure that political elite “consensus” wishes are enacted almost without opposition, even though they may be opposed by a majority of the electorate. The EU itself was an example of this; in 1961, when the first application was made, 55% of the population wanted to be closer to the United States and only 22% closer to Europe.

In this case also, economic policies will drift permanently to the left, as centrist social democrat policies full of compromise produce mediocre results, which then bring calls for more government intervention. It’s even worse when you have a proportional representation system of election. In that case the electorate has almost no voice in the choice of government, which is arrived at by an (often corrupt) stitch-up between the bigwigs of the various parties with significant representation in parliament, with those with strong convictions firmly eliminated from all governments.

When one party is seen as extremist and the other isn’t, as to some extent was the case in the 2015 election and was certainly the case for most of Tony Blair’s tenure of office in 1997-2007, the electorate generally rewards the more moderate party, although with decreasing enthusiasm as its tenure of office wears on. Blair, if he had continued, would almost certainly have lost in 2010, just as the wishy-washy John Major lost by a landslide in 1997. There is thus no assurance that a Labour party led by Jeremy Corbin cannot win in 2020; it must be 90% likely that it would lose, but it certainly not 100%. A recession or a war could intervene, for example.

Rather than Corbyn winning the 2020 election outright, a more likely result if the Tories are then unpopular is for the vote to split among several opposition parties, probably not the UK Independence Party (which by that time, three years after the 2017 referendum, will be irrelevant one way or another) but towards the Green Party and the Liberal Democrats, with the Scottish Nationalists maintaining their current substantial representation. That would then lead to a coalition government like that of 2010 between some combination of Labour, the Lib Dems, the Greens and the Scottish National Party, possibly with Corbyn being vetoed as prime minister by Labour’s coalition partners. That would undoubtedly produce a lousy government, but not a uniformly hard-left one.

However Corbyn does not need to win in 2020 in order to have a substantial effect on British politics. For one thing, the fate of the EU Referendum in 2017 will be heavily influenced by the attitude of the Labour party. David Cameron’s Conservatives will campaign for Britain to stay in the EU, although there may be some senior Conservative figures on the other side (if Cameron invokes collective responsibility on the issue, he may find himself without a third of his Cabinet.)

Under Blair and, less emphatically, Gordon Brown, Labour was a pro-EU party, finding the EU bureaucracy highly simpatico and its mixture of heavy-handed government with just a teensy whiff of highly regulated private sector activity very much to its taste. In general, Blair and Brown were paid up members of the Establishment, which runs the country under any kind of centrist government, and the Establishment is fanatically, die-in-the-last-ditch committed to EU membership — for one thing, there are lots of highly paid jobs dependent on it.

Corbyn is neither a centrist nor a member of the Establishment, and he has refused to rule out campaigning for a “no” vote in the EU referendum. A large segment of the electorate, those most impervious to arguments from Cameron, will be highly influenced by Corbyn. If he does indeed campaign for a “no” vote, even while leaving it open to the Shadow Cabinet to go the other way (as he would have to do) then Britain is likely to vote to leave the EU – an historic and momentous decision, with massive implications for Britain’s future. Fortunately, even if that happens, Cameron should have more than two years to arrange an amicable exit, without Corbyn’s eccentric economic ideas being allowed to determine anything important. In any case, there is a sporting chance Labour will have second thoughts before 2020, as the Conservatives did in 2003, and replace Corbyn before the election as the Tories replaced Iain Duncan Smith.

However, suppose Corbyn does win a majority in 2020, or is able to govern with the help of Scottish Nationalists or Greens sufficiently loony to enter enthusiastically into a coalition with his economic policies. The short-term effect of this would undoubtedly be damaging. For example Corbyn, attacking the rich in general, would intensify the growing attack on the “non-dom” foreigners who live in the U.K. tax-free. They have already been hit hard by July’s Budget, which abolished permanent “non-dom” status.

However Corbyn’s general attacks on rich, probably to include a wealth tax and a 75% income tax like France’s, together with a further restrictions on non-dom tax benefits would cause a massive exodus from London of two types of people: the ultra-rich, “Russian mafia” and otherwise, who would need to find a new haven and foreign bankers, who would ensure that their departments were reorganized to Head Office, leaving only junior British-domiciled staff in London.

In the short term, these effects would be very painful. They would cause an almighty crash in the London housing market and a move of the less specialized sectors of finance to Frankfurt, Hong Kong and New York. Well-stuffed baby boomers would find themselves attacked from two directions at once: they would suffer higher taxes on their income while their capital would be wiped out by the property crash.

In the long run, the effect might not be so bad. A 75% (say) decline in London property prices would vastly reduce the additional costs of living and working in the city, making it finally affordable for Millennials, who would be able to buy their bankrupt ancestors’ London properties at knock-down prices (though they might have trouble getting a mortgage – all the mortgage companies would be bust.)

Even the loss of the commoditized sectors of finance could be an advantage in the very long run; without the overpaid trading jobs at Goldman Sachs or Deutsche Bank in London, the best and brightest might find themselves drawn to smaller boutique houses specializing in higher-IQ bits of finance – in other words, replacements for the old merchant banks. These would not flourish while Corbyn remained in power (for one thing, they would need a bonfire of the overbearing and excessively expensive City regulatory system), but his tenure in office is likely to be short.

Britain is not Venezuela. Hugo Chavez, with politics similar to Corbyn, was able to cement himself in power by seizing control of Venezuela’s oil company PdVSA and distributing some of the revenues as handouts to voters. With oil prices rising off the $10 level they had reached in the year he came to power, he was able to perpetuate his regime. Dumb luck beats you every time, and it is a mystery to me how electorates in commodity-dependent states ever figure out which economic policies work, since commodity prices dominate their economies.

Britain however is not in such a position today (it was, to a certain extent, in the late 1970s and early 1980s, with North Sea Oil.) Corbyn’s policies, especially his resort to high taxes on the wealthy, will cause an economic downturn as similar policies did in the 1970s. The fisc will also run out of money owing to the inevitable orgy of wasteful spending. Hence within at most the standard 5-year term the electorate will have got thoroughly fed up with Corbyn and will replace him. Most likely, there will be a midterm crisis, as in 1976, which keeps the Labour government in place but replaces Corbyn with one of the remaining moderates.

Britain’s economy is a much more finely tuned instrument than Venezuela’s, with no massive source of cabbage readily available to marauding governments. Even if Corbyn is elected, therefore, he will fail to change much in the long run.

(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)