Would Corbynomics take us backwards or forwards?

But the veteran left winger’s economic manifesto for business, “The Economy in 2020”, also contains much that is being taken seriously by economists, as was demonstrated when 40 academics recently published a letter in a Sunday newspaper expressing their support for his anti-austerity stance.

A central precept of Corbynomics, as it has been dubbed, is that “Labour must create a balanced economy that ensures that workers and government share fairly in the wealth creation process, that encourages and supports innovation in every sector of the economy and that invests in skills and infrastructure to build an economy that is more sustainable and more equal”, none of which – with its lack of detail on how these goals will be achieved – sounds especially revolutionary.

Perhaps the most eye-catching of Corbyn’s suggestions, certainly the most novel, is that the Bank of England should print money to fund the construction of housing, energy, transport and digital projects regardless of whether the economy was in or out of recession, as part of a policy that he calls “quantitative easing (QE) for people instead of banks”.

Proponents of the policy point to the poor state of the country’s infrastructure and recent figures from Eurostat which show that, as a percentage of GDP, UK government investment is the seventh-lowest in the EU and lower now than during the financial crisis.

According to Dave Watson, of the public sector union Unison Scotland, printing money to build public infrastructure would be far more effective in stimulating the UK and Scottish economies than the £375 billion of QE injected into the economy between 2009-12 when the Bank of England created money to buy government debt. The main beneficiary of this form of bond-buying QE were collapsing banks, argues Watson, not the "real economy".

“People’s QE would improve lending to businesses and not just strengthen the balance sheets of financial institutions,” Watson said.

“The previous UK government had assumed that its form of QE would improve lending to the SME sector but this did not happen. Instead the cash was used to buy asset classes and, as a result, rich investors profited rather than businesses.”

Watson argues that, in the absence of large numbers of corporations based in Scotland, the country’s economy is particularly dependent on the SME sector, but, as “banker’s QE” did not succeed in freeing up more finance for SMEs, Scotland’s economy as a whole did not benefit from the policy.

By investing in infrastructure directly, Watson claims that Corbyn’s People’s QE would stimulate the economy by creating jobs in the manufacturing and construction sectors. This would help to rebalance the UK’s overly services-oriented economy and this would be vastly preferable to “giving the money to bankers to play with financial instruments”.

“Previous policies aimed at consumer led growth clearly failed and simply created short-term bubbles that burst,” says Watson. “Unfortunately, one of the problems of the electoral cycle is that it drives short-term solutions not the best policies for the recovery of the economy.”

Watson plays down criticisms that Corbynomics would stoke inflation, pointing to the fact that, despite the injection of £375bn of QE into the UK economy since the financial crash, inflation has been hovering at record low levels ever since.

Although the Scottish Government does not have the powers to embark on QE, Watson says that Holyrood should take advantage of today’s low interest rates by refinancing costly PFI schemes that have been used to pay for the building of schools, sewage plants, hospitals and roads, some of which are currently locked into paying up to 8 per cent interest per year.

Taking advantage of low interest rates to invest in infrastructure would be good, says Watson “but Corbynomics would be better still as it allows money that is created to be directly used to build infrastructure and does not increase state borrowing.

“Scotland’s SMEs would benefit from People’s QE as it would lead to improved broadband, telecommunications and transport infrastructure and that would be far better than giving money to financial institutions to gamble with.”

However not everyone agrees. Stephen Boyd, assistant secretary of the Scottish Trades Union Congress believes that People’s QE is only appropriate in certain, limited circumstances.

“With long-term interest rates stuck at historic lows, any investment programme can and should be funded conventionally,” says Boyd.

“A committed opponent of austerity like Corbyn should relish making the case for additional borrowing to fund investment and on this point at least he will have an unprecedentedly wide economic consensus behind him. Establishing a National Investment Bank to invest in infrastructure and innovation makes perfect sense: removing Central Bank independence does not.”

“It will be especially interesting to see how Mr Corbyn’s plans for nationalising transport and utilities progress. The railways system seems a relatively straightforward case but energy altogether more complex. It is encouraging that he seems to acknowledge that old models of nationalisation may no longer be relevant.”

Scotland’s business groups, meanwhile, remain to be convinced that Corbynomics would be good for business and growth. Hugh Aitken, CBI Scotland Director, fears that forcing the Bank of England to buy infrastructure assets would compromise the Bank’s independence, could stoke inflation in the future and thereby raise borrowing costs for households and businesses.

David Watt of the Institute of Directors Scotland says that the business community needs to hear more from Corbyn about how he plans to encourage entrepreneurialism, business growth and wealth creation.

“So far I haven’t heard a single policy from him on entrepreneurship,” he said. “I would welcome a robust public debate about how to grow the economy and how we create wealth. I don’t have a problem with that but the fact that Corbyn does not recognise the need for austerity is a problem.

“We can have a debate about the length of time that austerity might need to continue for, but not if he does not acknowledge the need for it in the first place.”

Watt says that the US’s policy of massively increasing spending on infrastructure in an attempt to kick start the economy following the financial crash had not worked and had simply left the world’s largest economy with massive debts.

While the QE of the coalition government had not led to high inflation, Watt believes that a further round of QE could lead to inflation in the future if it coincided – as now seems likely – with a period of wage inflation.

The most welcome part of Corbyn’s economic agenda is the emphasis on infrastructure investment which Watt believes is particularly necessary in Scotland to boost growth.

In this Watt is backed by the Inverness-based economist Tony Mackay who points to the decades of dithering before the money was eventually found to fund vital infrastructure projects, such as the Aberdeen bypass or the dualling of the A9. Meanwhile other important transport improvements, such as the dualling of the railway track between Inverness and the Central Belt is not even on the cards.

“It would be excellent for Scotland if we had high levels of transport and education investment as austerity policies since the financial crash have severely curtailed capital investment in the country’s infrastructure,” Mackay said.

“However there is need for Corbyn to be more realistic in his financial plans if he is going to be taken seriously and tapping into the advice of financial experts would be no bad thing.”

Mackay says he has “no particular problems” with renationalisation of the railways but claims that nationalisation of the oil companies would be a “disaster for Scotland.”

Colin Borland of the Federation of Small Businesses Scotland said that Corbyn needs to set out policies that would specifically help small to medium sized businesses.

“So far, it seemed that his focus is on wider macro-economic strategy but SMEs need to hear about policies that would encourage entrepreneurship,” Borland said.

“The main argument for Corbyn seems to be that investment in public infrastructure is good for the economy which in turn is good for business. Lots of shiny new roads and airports would create economic benefits but not necessarily if the profits from construction contracts end up overseas.”

Borland is particularly concerned by Corbyn’s threat to get rid of £93bn a year of valuable tax breaks and subsidies for business – such as an ability to offset capital investment which is widely used by firms in Scotland.

On the other hand Corbyn’s commitment to investing in post-industrial communities would have a positive economic effect on Scotland’s deprived and high unemployment areas, says Borland.

In a paper published this week, Prem Sikka, a professor of accounting at the University of Essex, wrote that Corbyn’s policies are highly pro-business.

“After all, investment in transport, education, housing, healthcare and the digital economy helps businesses,” he said.

“Higher wages and a general redistribution of wealth would increase the purchasing power of ordinary people and stimulate demand for products and services.”

With the next general election five years away and with infighting breaking out in the Labour party within hours of Corbyn’s election as leader, the chances of him ever becoming prime minister are perhaps remote, but many of his ideas to boost the still anaemic UK recovery are at least worthy of debate.