Will a Labour Government Boost the Pound?
Today, the last day of the Labour conference, was sealed with Jeremy Corbyn’s speech among delegates chanting “Oh, Jeremy Corbyn.” The annual conference was infused with positive energy, which as Corbyn said, was infectious: “Let’s make sure the whole country is infected with the same thing.”
As he stated in his keynote speech in Brighton, Labour is ready to meet the challenges of technology, the law and foreign politics, as well as build a new relationship with Europe: “Labour is ready. The Tories are not.”
According to Labour’s Shadow Chancellor John McDonnell, Labour is ready for a run on the pound and capital flight if it enters government. Talking to party activists during the Labour conference, McDonnell said that there are extensive plans in which a Labour victory will trigger a fall in the value of Sterling. He stated the possibility: "What if there is a run on the pound? What happens if there is this concept of capital flight? I don't think there will be, but you never know, so we've got to scenario plan for that.”
He added: “People want to know we are ready and they want to know we have got a response to everything that could happen. Because if we can demonstrate that, that will calm things down."
However, the Economist in an article explained that there are several reasons why the pound will fall if a Labour government is elected.
From the increase of tax rates on corporate profits, to the nationalisation of railways, water, the Royal Mail and some energy, and Labour’s tax and spending plans “are likely to lead to a much greater deficit.” The article referred to Labour’s plans that would affect investment such as raising the minimum wage, capping executive pay in companies that bid for public contracts, and higher taxes on executives. Ironically, these are measures that would otherwise help and support the general public that is currently struggling due to the squeeze in real wages and diminishing living standards.
In addition, Labour’s anti-Americanism and “hostility towards globalisation,” it is argued, will drive away investors.
While it is recognised that there is uncertainty in general and things cannot be predicted in the current markets, it is sure that the article repeats and perpetuates many prejudices surrounding what many Conservatives have repeatedly described as Labour’s so-called “anti-economic” or “irrational” policies, very often ridiculing the left’s “belief” in a “magic money tree.”
But things aren’t this simplistic, and egalitarian and democratic policies that seek to support the everyday struggling consumer and minorities, should not be dismissed on the simple basis of being damaging to the economy. Such political and economic views fail to see the entanglement of socio-political and economic realities, and how welfare state policies might be more progressive culturally and economically than neoliberalism’s inhuman self-interested survival at the expense of the lives of communities and collectives. One should return to the 1970s and refresh their memory of how things used to be, only to return to current realities of short-term contracts and low pay. There are alternatives that can be sustainable in the long term.
The pound might react to a Labour government, as it reacted to the populist affirmation of Brexit. But myths of total devastation and economic desolation should not keep us from seeing beyond our prejudiced one-sidedness. Economic progress and financial stability go hand in hand with a democracy that works for everyone, not only the few—to use both the Left and Right’s slogans.