Starmer's Worrying Timidity

What caught my eye this week including Kamala vesus the price gougers, a clean energy Marshall Plan, Labour's youth mobility denialism, Silicon Saxony, and when America nearly elected a communist

Photo by Calvin Hanson on Unsplash

1. Kamala versus the price gougers

Nothing I saw, read or heard from this week’s Democratic National Convention changed this foreign armchair observer’s view that Kamala Harris is going to win. I found this Substack post by Joe Klein particularly persuasive. Contrasting Hillary Clinton’s unsuccessful 2016 campaign with its divisive focus on rights with Barrack Obama’s 2008 victory which was based on an inclusive message of unity, Klein suggested that Harris’s only path to victory was to “transcend identity politics” and embody the “mongrel genius” or America. It seems clear to me from this part of her speech accepting her party’s nomination that she clearly passed this test:

And, so, on behalf of the people, on behalf of every American, regardless of party, race, gender or the language your grandmother speaks. On behalf of my mother, and everyone who has ever set out on their own unlikely journey. On behalf of Americans like the people I grew up with—people who work hard, chase their dreams and look out for one another. On behalf of everyone whose story could only be written in the greatest nation on Earth, I accept your nomination to be president of the United States of America.

Nonetheless, there are still 73 days to go, during which her challenge, like Labour during the recent UK election, will be avoiding giving the right-wing media a stick on policy that they can beat her with. An early example of what lies in store came last week when she said that she wanted a “federal ban on price gouging in the food and grocery business”. This was immediately denounced by the New York Post as “Kamunism”,  while its Murdoch stablemate, the Wall Street Journal, accused her of embracing Nixonomics, a reference to Richard Nixon’s flawed efforts to control inflation through wage and price controls, and Washington post columnist Charlotte Rampell accused her of spouting “economic gibberish”. 

Yet Harris said nothing in her brief statement about price fixing. Nor does it seem that she is proposing anything new, but simply to do at federal level what 37 states do already: forbidding unwarranted price hikes for necessary goods during emergencies. According to Zephyr Teachout, a professor of law at Fordham School of Law, writing in The Atlantic, there is actually a well-developed body of law defining price gouging: 

A typical price-gouging claim has four elements. First, a triggering event, sometimes called an “abnormal market disruption,” such as a natural disaster or power outage, must have occurred. Second, in most states, the claim must concern essential goods and services. (No one cares if you overcharge for Louis Vuitton handbags during a hurricane.) Third, a price increase must be “excessive” or “unconscionable,” which most states define as exceeding a certain percentage, typically 10 to 25 percent. Finally, the elevated price must be in excess of the seller’s increased cost. This is crucial: Even during emergencies, sellers are allowed to maintain their existing profit margins. They just can’t increase those margins excessively.

The case for a federal law, according to Teachout, is that few states have the resources to take on multinational companies. A strong federal law would not only help protect the public from profiteering in an emergency such as a pandemic but also small-business owners who are often unfairly blamed for price gouging when they pass on price hikes from larger suppliers. A properly designed law may not even need to be used, since companies facing the threat of prosecution might moderate their behaviour. That said, whether such a law would make the slightest difference to the cost of living pressures currently faced by American households is another matter. 

What might a much bigger difference to the price of American groceries in the longer term is Harris’s promise to crack down on food industry deals that give big food companies the power to hike food prices and undermine competition. As Axios notes, the Federal Trade Commission has already sued to block a proposed $24.6 billion merger between supermarket giants Albertsons and Kroger. Another blockbuster food industry deal in which Mars agreed to buy salty snack maker Kellanova for $35.9 billion was announced the day before Harris made her speech.

I wrote a couple of weeks ago in the context of the war on big tech about how the Democrats’ approach to corporate power was shaping up to be the defining ideological battle of our times. Harris looks set to lean heavily into this agenda.

2. A Clean Energy Marshall Plan?

One thing that was conspicuously absent from Harris’s convention speech was any mention of climate change. That was a marked contrast to four years ago when climate change figured prominently in Joe Biden’s campaign. Indeed, the Inflation Reduction Act, which provides huge subsidies for clean energy investment, was one of Biden’s landmark legislative achievements. No doubt Harris’s omerta reflects how polarised the debate has become. Ford’s decision last week to scale back its plans for new electric vehicles provided further evidence of how attitudes have shifted.

Nonetheless, Harris’s silence only made this piece by one of her economic advisers published in Foreign Affairs during the week of the Democrats’ convention all the more intriguing. In it, Brian Deese calls, who was also one of the architects of Biden’s IRA, calls for America to establish a Marshall Fund for Clean Energy. This would have the dual purpose of accelerating the transition to clean energy in developing countries while boosting US industry, similar to the original Marshall Plan.

Fundamentally, the Marshall Plan was an industrial strategy that deployed public dollars to advance U.S. manufacturing and industrial capabilities in service of reconstructing Europe. Washington spent $13 billion—equivalent to $200 billion today—over four years, mostly in the form of grants to discount the European purchase of goods and services. Because U.S. companies were at the center of the program, 70 percent of European expenditures of Marshall Plan funds were used to buy products made in the United States.

Like the original Marshall Plan, a Clean Energy Marshall Plan should meet other countries’ development needs while advancing U.S. interests. In this case, the goal is to speed the adoption of low-cost, zero-carbon solutions, such as the manufacture of batteries, the deployment of nuclear and geothermal energy, and the processing of critical minerals.

Indeed, Deese reckons that such a Marshall Plan would be a natural extension of the IRA, providing outlets for the huge investments that have poured into America’s clean energy industry thanks to the new grants and subsidies. Putting these industries at the forefront of the energy transition should not only generate further innovation and growth but strengthen domestic support for the energy shift. As Deese says:

Clean energy investment in the United States reached about 7.4 percent of private fixed investment in structures and equipment in the first quarter of this year, at $40 billion, up from $16 billion in the first quarter of 2021. Investment in emerging energy technologies—such as hydrogen power and carbon capture and storage—jumped by 1,000 percent from 2022 to 2023. Manufacturing investment in the battery supply chain went up nearly 200 percent over the same period.

To support the plan, Deese says America should create a Clean Energy Finance Authority, with the ability to issue debt and equity for clean energy projects. It could draw on expertise of the Department of Energy's Loan Programs Office in assessing the risks and benefits of emerging technologies like advanced nuclear energy, hydrogen power, carbon capture, and geothermal power. He also advocates the use of smart tariffs such as carbon border adjustment taxes to level the playing field with countries such as China that try to dump excess capacity on world markets.

Crucially, this new Marshall Plan could be a “full throated” US alternative to China's "Belt and Road" initiative, the $1 trillion infrastructure project Beijing designed to expand its influence across the globe at a time when some leaders in China are calling for Beijing to go even further and develop their own clean energy Marshall Plan. Like the original Marshall Plan, it could therefore play a crucial role in enhancing America’s soft power and rebuilding alliances with the Global South. That said, Deese acknowledges that this will not be straightforward for America:

To be effective, the Clean Energy Finance Authority would need to be big yet nimble. Not only has the United States lagged other countries in offering public capital to lead the energy transition, but its financial support is also unnecessarily inflexible. Officials in foreign capitals joke that the United States shows up with a 100-page list of conditions, whereas China shows up with a blank check. The United States’ current financing authorities are constrained by byzantine rules that block U.S. investment that could advance its national interests.

Deese wrote the piece in an independent capacity. Nonetheless, if this is in any way indicative of the thinking in the vice president’s campaign team, then climate policy could yet play an even bigger and more geostrategic role in a Harris presidency than it did under Biden. That would be good for the planet, good for the global economy and good for the western alliance. Another reason to be optimistic about the future.

3. Starmer’s Worrying Timidity

Perhaps the most depressing story of the week from a British perspective was the news reported in the Financial Times that the government has rejected a European Union proposal for a youth mobility scheme. This would have allowed Europeans those aged 18-30 to volunteer, work and study in the UK for up to three years, with reciprocal rights for young Britons, partially restoring some of the rights so casually stripped away from them by Britain’s decision to quit the EU. The government was responding to a story in The Times the previous day that it was considering agreeing to such a deal as part of its planned reset of post-Brexit relations with the EU.

On Thursday a government spokesman denied a report in The Times that the plan was being reconsidered by the Labour government: “We are not considering an EU-wide youth mobility scheme and there will be no return to freedom of movement.” A Downing Street official said: “We are not considering this at all.”

This is disappointing. I find it hard to believe anyone voted for Brexit did so with the aim of depriving your people of their chance to spend time in a European university or working in a bar or ski chalet. The loss of exchange programmes such as Erasmus was one of Brexit’s worst acts of cultural vandalism. Britain already has youth mobility schemes with more than 10 countries including Australia, Taiwan and Japan, so why not the EU? Indeed, a poll for More in Common earlier this year found that 58 per cent of voters support such a deal and only 10 per cent would oppose it.

Sure, there is scope for negotiation over details such as visa fees and how much EU students should pay for university courses given that fees paid by British students do not currently cover the cost of tuition and many universities are in deep financial trouble. But to reject a deal out of hand seems incredibly short-sighted. A youth mobility deal is not a return to free movement, whatever the Daily Express or some Tories may say - and in any case, so soon after a general election in which Labour won a thumping majority, who really cares what the Tories and right-wing press think?

I’ve found it hard to take seriously the constant sniping at Labour in the media in the last six weeks over everything from spending cuts, to public sector pay rises to early releases from over-crowded prisons. Six weeks after an election, I see all this as Labour simply clearing up the wretched messes left by the previous government. But rejecting a youth mobility deal with the EU out of hand suggests a worrying timidity towards the right-wing media and a naivety towards the EU, for whom such a deal is a priority. Let’s hope it is just a negotiating tactic, even if its rather an inept one. In the meantime, it creates a significant gap in the political market for someone.

4. Silicon Saxony

Most of the economic news out of Germany seems to be bleak these days. Europe’s largest economy unexpectedly contracted in the second quarter and inflation rose in July. Yet Germany still possesses economic strengths that the rest of the continent can only envy. Last week, for example, Taiwanese semiconductor giant TSMC broke ground Tuesday on a massive new plant in Germany, its first in Europe.

This $10-billion-euro plant was partly funded by €5 billion in subsidies unlocked through the European Chips Act as part of the EU’s goal of doubling its share of the global microchips market, from 10% to 20%, by 2030. The location of the new plant in Dresden is another success for a region of Germany now known as “Silicon Saxony”. A third of Europe’s semiconductors are now manufactured around Dresden, which is home to major chipmakers like GlobalFoundries, Infineon, and X-FAB.

Nonetheless, the investment does not come without its complications. One, highlighted by Politico, is the risk that the Taiwanese-led venture spoils Germany’s delicate relationship with China. Another risk, highlighted by Semafor, is the risk that the rise of the German far right — or at least the narrative that extremist, anti-immigrant parties are surging — could make the country less appealing to skilled foreign workers who are desperately needed in the microelectronics sector.

Campaign signs around Dresden from the far-right Alternative für Deutschland party that proclaim “DEPORT, DEPORT, DEPORT” are sure to frustrate businesses trying to recruit talent from abroad.

For an alarming take on the state of German politics, it is worth reading this recent piece in the Financial Times by Constance Stelzenmuller, director of the Center on the US and Europe at the Brookings Institute, a Washington-based think-tank.

A glance at the polls explains the jitters. In Saxony, the far-right Alternative for Germany (AfD), which polls nationally at 17 per cent, is in second place at 30 per cent, hard on the heels of the conservative Christian Democrats. But in Thuringia and in Brandenburg, the AfD is in first place, at 30 and 24 per cent respectively. The new hard-left Sahra Wagenknecht Alliance (BSW, named after its founder) polls at 7-8 per cent nationally. But it gets 11 in Saxony, 19 in Thuringia and 17 in Brandenburg.

In other words, two openly anti-system parties that nationally get a quarter of the poll vote are likely to receive a collective share of between 41 and 49 per cent in these three states. Both are Eurosceptic, anti-Nato and anti-American. Both are pro-Russian, and against supporting Ukraine. That said, neither will work, much less govern, with the other. But they can cause havoc all the same.

Stelzenmuller argues that the forthcoming German elections in September could determine not just the governability of three eastern states, but of the entire country, with democracy itself under attack. It is a reminder that in this era of polarisation and fragmentation, local politics can often matter just as much as geopolitics.

5. America’s Brush with Communism

With all the overblown talk this week about whether Kamala Harris is a communist, I really enjoyed this podcast episode in the always brilliant Past, Present, Future series hosted by David Runciman about the time when America came close to ending up with an actual communist as president. On the whole I’m not a huge fan of counter factual history. Its hard enough making sense of what actually happened without speculating about what might have been. But this discussion of how history might have been different had Henry Wallace remained as vice president in Roosevelt’s fourth term rather than being replaced by Henry Truman fascinating.