Capitalism Is Cozying Up to Britain’s Most Powerful Socialists
It says a lot about the turbulent state of British politics these days that one of the most sought-after invitations in business circles is tea with a man who owns a copy of Chairman Mao Zedong’s Little Red Book and lists “fomenting the overthrow of capitalism” as one of his main interests.
John McDonnell, a stalwart of Britain’s opposition Labour Party, has met with dozens of chief executives, fund managers, and bankers in the past six months, the party says. McDonnell, who serves as chancellor of the exchequer in Labour’s shadow cabinet, has also accepted an invitation to attend the World Economic Forum’s annual get-together in the Swiss ski resort of Davos, which gets under way on Jan. 23. Next on his agenda: a meeting with Goldman Sachs Group Inc. in London.
Under the leadership of Jeremy Corbyn, Labour defied detractors and the polls to grab 40 percent of the vote in last June’s national election—the party’s best showing since 2001. The next election isn’t due until 2022, but it could come a lot earlier if beleaguered Prime Minister Theresa May’s Conservative leadership gets consumed by infighting over the country’s messy divorce from the European Union.
In fact, the prospect of Labour winning power has begun to overshadow Brexit as the biggest wild card for executives and investors, according to lobbyists and advisers. “If the Conservative Party stumbles, it’s perfectly reasonable to see a Labour government,” says Anthony Wells, director of political and social research at YouGov, which gave Labour a one-percentage-point lead over the ruling Tories in a poll this month. “All those lobbyists and companies doing planning on how you prepare for a potential Labour government, it’s the obvious and sensible thing to do.”
The would-be guardians of the world’s fifth-largest economy have goals that don’t typically sit well with the corporate and financial world. Corbyn, 68, and longtime ally McDonnell, 66, are peddling populist policies that hit home with austerity-fatigued Britons. They espouse public takeovers of utilities and railways as well as stiffer taxes for companies and the rich.
In December, Corbyn lashed out at Morgan Stanley after Graham Secker, an equity strategist at the bank, warned that the possibility of a Labour government should be a bigger concern to investors than Britain’s departure from the EU, scheduled for March 2019. “When they say we’re a threat, they’re right—we’re a threat to a damaging and failing system that’s rigged for the few,” said Corbyn in a video message released on social media. “These are the same speculators and gamblers who crashed our economy in 2008, and then we had to bail them out. Their greed plunged the world into crisis, and we’re still paying the price.”
Labour has pledged to reverse cuts to corporate taxes, with a goal of gradually raising the rate to 26 percent, up from 19 percent now. Individuals would pay income tax at 45 percent on earnings over £80,000 ($89,900) a year, compared with the current threshold of £150,000. There would also be a 50 percent charge on income above £123,000. The additional revenue would fund increased spending on education, skills training, and health care, as well as back borrowing for £250 billion in infrastructure investments over 10 years.
The party also seeks to curb executive pay at companies bidding for government contracts. The Jan. 15 collapse of Carillion Plc, a U.K. construction and services company with hundreds of such contracts, has played into Corbyn’s narrative.
Lobbyists say their clients are increasingly eager to get an audience with the party’s high command, albeit over tea and biscuits in their offices rather than the shrimp cocktails that were a hallmark of New Labour’s courtship of business under Tony Blair. One strategy has been to maneuver for seats next to McDonnell at events, they say. Another, in the case of Goldman Sachs, was to approach him directly at a conference. A London spokesman for the bank says a meeting is being planned, though he declined to comment further.
One way for Labour to cozy up to business may be to capitalize on Brexit, which large corporations and banks opposed. Both Corbyn and McDonnell were against Britain joining what was then the European Economic Community in 1973 and have been critics of what the organization went on to become. Since the referendum in June 2016, however, they’ve cultivated the impression that their stance on the divorce would be more flexible than May’s Conservatives.
McDonnell describes Labour’s approach to Brexit as leaving nothing off the table, though any deal with the EU would need to overcome “some of the elements that motivated people to vote for Brexit,” he said in December. The party would consider keeping Britain in the single European market if voter concerns over unbridled immigration could be addressed.
“Labour feels it needs to mollify its harshest critics in business to help it to edge home at the next election,” says Scott Colvin, head of public affairs at Finsbury, a public-relations adviser to large U.K. companies including Lloyds Banking Group Plc. “For business, it needs confidence that Labour’s bark will be much worse than its bite should the party rise to power.”
Business leaders have been surprised to discover McDonnell isn’t the die-hard Marxist they thought, according to lobbyists who asked not to be identified because the meetings are private. While they say the higher corporate tax is a concern, they’ve found him pragmatic. McDonnell told Bloomberg TV in December that executives usually leave the encounters “feeling reassured.”
How those views go down in Davos is a different matter. McDonnell has said he’ll use the trip to point out the failures of capitalism and the distortions that have left too much of the world’s wealth in the hands of a small number of people. In private, he’ll also be building more contacts.
“If Labour doesn’t take business with it, then it will be a very short-lived government as the economy will suffer,” says Vicky Pryce, who was joint head of the U.K.’s Government Economic Service, a professional body for public-sector economists, from 2007 to 2010. “It needs to get this cooperation in place since it has promised a lot of things it won’t be able to do otherwise.”