Jeremy Corbyn’s Labour Party has a radical vision for the UK economy. Tax rises for the rich, increases to the minimum wage and state benefits, large scale public investment, abolition of private schools, a four day work week, increased parental leave, abolition of tuition fees, a Green New Deal, a state investment bank and much more. The thoroughly unaffordable programme could rack up an unprecedented £600 billion or more of borrowing over the 5-year parliament on top of a national debt currently standing at £1.8 trillion.
But by far the most radical and dangerous part of their programme is their nationalisation and expropriation agenda. Passenger rail services, the Royal Mail and utilities such as water and electricity are to be brought into state ownership with the current owners receiving government bonds in return, at a below-market price ‘decided by Parliament’. Under a private ‘right to buy’ scheme, private tenants will be given the right to buy their homes as a discounted rate from their private landlords. The abolition of private schools include a sketchy plan to expropriate their assets which would be ‘redistributed democratically and fairly’ to state education institutions. Labour also plans to compel any company in Britain with more than 250 employees to hand over 10% of their shares to workers. Hidden in the detail is a tax increase as any dividends in excess of £500 per worker would be handed over to the Treasury. Latest on the list is Openreach, the digital network business owned by BT, which is to form the basis of a state monopoly on broadband services.
Some of the immediate impacts of these policies are predictable: large scale borrowing, lack of investment in the private rental sector, increased pressure on struggling state schools, breakup or expatriation of large companies, a break on growth of successful SMEs, a halt to private investment in the telecoms sector, etc. But the real disaster will be the undermining of property rights, a fundamental building block of English jurisprudence since the Magna Carta and the single most essential foundation of functioning capitalism.
This should not be taken lightly. Of course property rights are compromised everywhere and under any government, by virtue of taxation if nothing else. The Heritage Foundation’s Index of Economic Freedom includes a score reflecting the degree to which a country’s laws protect private property rights and to which its government enforces those laws. Even Singapore, the top scorer for property rights, scores less than the perfect 100. But disregarding the moral case against taxation and the utilitarian argument of economic deadweight loss, this conventional violation of private property rights enjoys widespread legitimacy which is essential to the ‘social contract’ – it is clear that an economy can still function and enjoy some of the fruits of capitalism even without absolute property rights. Denmark, another country at the right end of the table – with a score of 86.2 – is an example of how well functioning capitalism manages to support a large welfare state (though the long-term sustainability is questionable). But as we go down the rankings, economic success stories evaporate. At the bottom, with a score of 7.6, is Venezuela, which has collapsed into economic mayhem as capitalism and property rights have been systematically undermined. This is the extreme template for what happens when investors lose confidence and flee and private, market based capital allocation is replaced by the stale hand of politicians. The UK admittedly has a long way to go before reaching such depths, with a current score of 92.3, the 4th highest. But once the sanctity of property rights is compromised in the way Labour proposes, it may represent a ‘crossing the Rubicon’ moment and the loss of confidence could have dramatic, accelerating effects. It is not hard to imagine the spark of panic among those who fear they are next in line.
This is the clear and present danger of a Corbyn government, which fails to recognise that what characterizes every successful economy on the planet is well functioning capitalism. The extreme socialists in the leadership have an ideological aversion towards private ownership of capital stock. Their announced policies will not only have devastating effects on those who are singled out for expropriation, it will establish a dangerous precedence. The genie may be very hard to put back in the bottle.