John McDonnell's economic policies are popular – but regressive

John McDonnell, the shadow chancellor, has had his moments. Few could forget the moment when he tossed his copy of Chairman Mao’s Little Red Book across the despatch box to George Osborne, during last year’s Budget debate.

Prone to joking, Mr McDonnell was wise to tone down the stand-up side of his act when he addressed his party conference yesterday. It was a confident, sure-footed performance, outshining most of Jeremy Corbyn’s public outings, and there may have been a few in the audience who might have wondered whether they in fact backed the wrong leftie in two successive leadership elections. Perhaps not so many though, given the near-cult status of their leader, who is slowly improving as a media performer.

In any event, Mr McDonnell clearly believes that he is riding some sort of global zeitgeist. He is surely right there, as so many of the old certainties about the power of “free markets” have been blown away by the financial crisis and the Great Recession. Austerity in Britain has been, at best, a mixed success, and there is no mistaking public revulsion at the excesses of corporations, not least their failure to pay anything like a fair share of tax. It may not have been especially fair of Mr McDonnell to single out Sir Philip Green and Mike Ashley – they are hardly the only extremely rich businessmen – but they are two high-profile examples of the type of capitalist the public finds unacceptable. Mr McDonnell was right to highlight how little the burden of austerity has fallen on such shoulders, and how much has had to be suffered by the most vulnerable in society.

So there has been a change in the mood, and much of what Mr McDonnell said will find a ready hearing. However, the shadow chancellor is not the only politician in the land capable of discerning a public mood, and his problem is that the Conservatives will steal many of his clothes, if they have not already.

The Prime Minister and her Chancellor have both talked about inequalities, about tax avoidance, about investment in infrastructure, and, even, about the “industrial strategy” Mr McDonnell wants to bring back. In some respects, they are ahead of him, and certainly in a position to enact many of these ides before Mr McDonnell will. After all, even the much-maligned George Osborne brought in the “national living wage”, much to Labour’s frustration. Mr McDonnell may be right to be sceptical about Theresa May and Philip Hammond’s sincerity, but they have the advantage of incumbency, and are always able to ask Labour “how would you pay for more?”

A few years ago it would have been fantastical to imagine that there could be any sort of consensus on economic policy between Theresa May, Philip Hammond, Jeremy Corbyn and John McDonnell, but there has been an epidemic of political cross-dressing on economics, not least a very Thatcheresque pledge by Mr McDonnell that “Labour will always ensure that this country lives within its means”. Ms May even wants workers on the board. Things are shifting in strange ways.

Still, there is clear water between Labour and the Conservatives, and some of what Mr McDonnell proposes will certainly not help the economy recover. His promise to the Labour conference that he would abolish current trade union legislation opens up the astonishing prospect that many of the curbs on union power enacted since 1979 will be ended. Apart from one specific proposal on “sectorial collective bargaining”, Mr McDonnell therefore left hanging in the air the idea of a return to secondary picketing, closed shops, mass pickets, and union leaders being elected for life, no more secret ballot on strike action, and much else.

It may be that Mr McDonnell will promise “modern” trade union laws, but they will not be welcome to industry and commerce if they mean that British business is landed back in the 1970s, where restrictive practices and inflationary wage demands help to wreck competitiveness, destroy jobs and weaken the economy.

Sectorial collective bargaining would also be highly problematic to implement. Presumably if it was imposed in the car industry, firms as diverse as BMW, Tata, Toyota, Honda, Nissan, Morgan and McLaren would all have to bargain together with a joint union committee with shop stewards from plants all over the UK, to set national pay rates for various grades of worker that take little or no account of the fortunes of each company or the efficiency of each plant or indeed if the jobs are sufficiently similar. That rigid approach is not the way to help maintain foreign direct investment as Brexit grinds on and drives investment away; it is a short cut to recreate the sort of chaos that helped reduce the British motor industry to irrelevance all those years ago.

They do not, we may be sure, have such arrangements in Slovakia, Romania, or China, whence new investment will surely go in even greater flows. If the Labour answer to that is to “intervene” with grants or an equity stake in the UK operations of those concerns – partial or complete nationalisation – then we really would have recreated British Leyland. Mr McDonnell and Mr Corbyn may as well bring back the Bay City Rollers and have done with it. Shang-a-lang.

Britain’s flexible labour market did much to speed its economic revival from the 1990s and to protect jobs during the Great Recession. Mr McDonnell, if we take him at his word, is prepared to risk all of that for a cheer at the Labour conference.

Mr McDonnell was on better ground when he dropped his vague, but portentous, hint about bringing in a wealth tax. It would be brave, and economically efficient, if this was somehow targeted at residential property and the pension pots of the very rich, and, indeed, generally focused on the very wealthiest residents of Britain. But, like trade union law reform, it begs so many questions. Would “non-doms” be included? How would it be assessed? (Tip: taxing homes is best done on sale, when the tax can be easily afforded from a capital gain). Who would be caught in the net? How do people know it will not extend over the years to people with modest homes and savings who cannot relocate overseas? What happens if the super-rich just move out? How will it hit the City of London?

Like the trade union proposals, the idea of a wealth tax could easily turn into electoral poison and, if implemented, cause serious damage to the economy and the tax base of a Labour government that will need all the funds it can find to achieve its ambitions.

Nor did Mr McDonnell offer much solution to the greatest single threat to the economy in the short run, Brexit. To be fair, it is hardly his mess, but he had no better answer to the right trade-off between access to the single market and free movement of labour.

“Straight talking, honest politics” was the Corbyn campaign slogan Mr McDonnell said he had a hand in crafting. Much of his speech lived up to that billing; but on the unions and a wealth tax there is much too much left unsaid, too many risks with the economy and too many votes to be lost for him to leave things unsaid for much longer. He once joked that his hobby was “fomenting the overthrow of capitalism”. Maybe he wasn’t joking after all.