Balls’s speech gives Labour a solid economic foundation

Cormac Hollingsworth reviews Ed Balls’s Labour party conference speech, and analyses what it means for Labour’s economic policy over the next four years.

The UK has suffered 12 months of stagnation that Ed Balls warned us was a serious risk if the coalition policies were unchanged. Being right, however, doesn’t ensure that you win. Following through correctly is the right thing to do. This speech was a skillful move forward in the debate by Balls.

It creates the space for a credible alternative to coalition policies, while showing that he’s a shadow chancellor who feels the pain of every person unnecessarily unemployed and a business unnecessarily bankrupt because of low growth.

The contrast with other countries couldn’t be starker. We didn’t get a Tea Party “the worse it is the better” speech. Rather we had another plea for sense from the Tories and also, while the short term confidence in the economy is now low, a strong speech that will contribute to significantly lifting confidence in the long term future of UK plc.

There are many places for global investment to go in this competitive world, and those investments are for longer than the life of this parliament.

But right now, business and consumer confidence has never recovered from the coalition government’s “shock and awe” politics ahead of last November’s CSR, and neither the chancellor nor prime minister have shown any leadership within the G20 over the last year to address the collapse of the fast growth of 2010, into the stagnation of 2011

And we’re now in the middle of a collapse in world markets. Last week, stock markets had their worst week since October 2008, Sterling dropped 4% versus the dollar, and Gold is down 20%.

With the share prices of banks halving over the course of August and September, all that’s needed to make the parallels with 2008 complete is the collapse in Asian trade. (PIMCO now believes that European GDP will shrink by 1-2%).

So the news on Thursday from Fedex downgraded their profit expectation because of a slowdown in Asian trade is unwelcome. Over the weekend Balls must have been gritting his teeth as he watched a leaderless G20 fiddle and make proclamations while doing nothing to stop the rot in the European bank balance sheets. And then this morning, confirming the FedEx news, we hear rumours that Apple has cut by 25% its orders from its Asian suppliers.

The challenge Ed Balls faced in this speech was: how do you make a speech as a Shadow Chancellor that maintains confidence in the long-term of the UK economy? Because confidence is so important now, how do you reassure the country on the deficit, when you know that a “lost decade” will leave persistent deficits and the coalition’s deficit goal unmet?  How do you reassure the country that, while this coalition lasts things will be bad, there is a credible alternative?

His answer is emphatic and right.

In this important speech Balls telescoped through the pain of the next 4 years to the election in 2015. By then the cuts in spending will have happened and he knows that the cuts will have gone to the bone. But with no growth the deficit will still be stubbornly high, the economy will be stagnant and people will be looking for an alternative.

By the time Labour gets back in, confidence in the economy will be so low after four years stagnation that we will need much smarter ways of lifting confidence. He answered this challenge in his commitment on spending.

At the next election, the source of the recovery will be in the large corporate savings (globally $2 trn), and we’ll need the smart activist policies that John Denham, Angela Eagle, and Liam Byrne are developing to deploy these savings in investment and create the growth engine.  What is so clever about Balls’ commitment is that it creates the space for his colleagues to start pushing these smart ideas to the fore.

This speech will have an important legacy. Balls is right to be confident that at some stage in the next 4 years it will be recognized that growth is necessary to cut the deficit.

At that time, the consistency of the Darling’s spending plans, Balls’s warnings, and now Balls’ current commitment on spending will dovetail together with Labour’s new policies to reignite growth to give the electorate the confidence that Labour will return the public accounts to surplus through creating jobs and growth.

See also:

Balls calls for growth now, and cuts laterAlex Hern, September 26th 2011

Growth cut the 2010-11 deficit as fast as cutsCormac Hollingsworth, September 22nd 2011

Balls: Slower growth could cost British families £3,300Will Straw, June 16th 2011

Labour suffers from economic “Stockholm Syndrome”Ann Pettifor, June 4th 2011

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14 Responses to “Balls’s speech gives Labour a solid economic foundation”

  1. Brit Lefit

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  11. Dr. Ben Wright

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  12. Robert the crip

    It creates the space for a credible alternative to coalition policies, while showing that he’s a shadow chancellor who feels the pain of every person unnecessarily unemployed and a business unnecessarily bankrupt because of low growth.

    If Bull shit make jobs then the UK would have no unemployment. Labour had it’s own problems with unemployment from 2004 once the sham of full employment was kicked into touch, unemployment started to grow, in 2005 we could all see problems with housing bubble, and we could see the countries banking crises was looming with Banking spending money buying up each other like no tomorrow. 2008 bang we are in a Banking crises unemployment started to grow, and labour looked around to ask what went wrong, has our little London bubble bust, then out came expenses scandals and we all know even Brown who paid £6000 to paint a bloody shed in his garden had to repay money no courts for him it was a mistake.

    But unemployment went up and Labour told us they are worried but then stated we have to cut and they started to cut public service jobs.

    Labours going to say this afternoon council houses will be given to people who do something within the community, Ms Flint idea of course, because we have not got enough council houses do to New labour of which Miliband was a part of , we will be told Newer Labour would make jobs, well of course in opposition to can spout lies and think they are facts we all now know different. Labour is a mini Tory Party chasing the so called Middle class swing voters, tell you what it’s a long time in opposition.

    I spent 46 years in this party 46 years of total waste of time and money.

  13. Just who WILL Osborne listen to? | Left Foot Forward

    […] also: • Balls’s speech gives Labour a solid economic foundation – Cormac Hollingsworth, September 26th […]

  14. Balls repeats his conference message – but the circumstances have changed | Left Foot Forward

    […] Balls repeats his conference message – but the circumstances have changed While acknowledging that, at this moment of economic high uncertainty, he’s not getting the economic credibility that sticking to his guns and being proved right might have deserved, Ed Balls today repeats for those who weren’t listening, the spending commitments he made at the Labour party conference. […]

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