John McDonnell: what will Corbynomics look like?

The appointment of John McDonnell MP as shadow chancellor was the clearest signal Jeremy Corbyn could have sent. At the heart of the shadow cabinet there will be a group that buys the whole of Corbynomics. But what, exactly, is that?

We know it involves resisting austerity: an alternative Labour path to deficit reduction that is slower, and much more heavily reliant on taxation that under Ed Balls.

Like Balls, McDonnell has the option – in the early years of the parliament – of refusing to match fiscal policies like for like with George Osborne, saying in effect: you’ll see the Labour budget strategy in detail once we’re close to power. He will likely continue and extend the push begun under Ed Miliband to get opposition budget proposals audited by the OBR.

We know from the campaign trail that the centrepiece of fiscal policy will be a massive crackdown on large corporate tax avoidance.

But beyond that? It’s clear from their campaign speeches that Corbyn and McDonnell have understood the transformed structure of capitalism over the past 25 years makes it difficult to enact the old programme of Bennism: wholesale nationalisation and state planning.

Instead they have begun to draw ideas from the “post” socialist think tanks: Prime Economics, run by debt campaigner Anne Pettifor; the New Economics Foundation, whose economist James Meadway is influential in the Corbyn camp.

Both McDonnell and Corbyn have picked up and run with the “people’s quantitative easing” strategy advocated by Richard Murphy, the tax justice campaigner.

But there are other potential sources. During the last parliament both Vince Cable and Labour’s Chi Onwurah were visibly impressed by the proposals of Sussex-based professor Mariana Mazzucato for an “entrepreneurial state”.

Mazzucato’s ideas have leverage in many countries and corporations with cash reserves they want to throw at development and innovation, and a lot of the emphasis is on “smart” state direction – via a national investment bank or sovereign wealth fund.

If you add this to Labour’s now very firm commitment to renewable energy and sustainable development, it would be logical to expect BIS under Labour to become much more like a 1960s-style “economic ministry”.

Which leaves monetary policy. To do the people’s QE you would need to redefine the remit of the Bank of England – to the point where it may no longer be seen as independent. A mark of Labour’s seriousness about doing active monetary policy would be whether it signals an “shadow” monetary policy unit.

If it did, the most obvious person to lead it would be former MPC rebel, and scourge of austerity, Danny Blanchflower. Blanchflower and Richard Murphy were to be found musing about such a prospect on Twitter yesterday.

For the critics of Corbyn’s team – which will include many Labour MPs and grandees – their nightmare is that Labour starts issuing ill-thought out, uncosted pledges according to the demands of unions, pressure groups and NGOs.

But the institutional changes implied by Corbynomics would be an even bigger departure from recent orthodoxy: a beefed up economics ministry, a Treasury whose fiscal policy would be the opposite of austerity, and a politically controlled Bank of England.

And here’s the interesting thing: it’s not far off what generations of orthodox Keynesian economists have wanted to do to the British state, including senior old-school Lib Dems.

What more do we know about McDonnell?

He is famously against the third runway in his Heathrow constituency, where certain unions are pro. He has also, famously, clashed with nearly every union leader over what he sees as their “bureaucratic” approach to democracy. So for once Labour’s critics will get somebody senior who “stands up to the unions” – though possibly not in the way they’d hoped.

And finally, unlike Corbyn, he is an administrator. He ran the GLC’s £3bn budget and after that the Association of London Authorities. At the GLC he was sacked by Ken Livingstone after Livingstone refused to adopt a strategy of defying the Conservative governent’s rate capping laws in 1984.

His critics in the Labour movement will take comfort from the fact that he is used to being sacked by iconic left-wing Labour leaders.

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