JOHN MCDONNELL has been on a tea offensive. Labour’s shadow chancellor of the exchequer spent three decades on the party’s left-wing fringe before he was thrust to its top in 2015, following the surprise election of Jeremy Corbyn as Labour’s leader. Now Mr McDonnell, who lists among his hobbies “fermenting [sic] the overthrow of capitalism”, has been touring the City of London and taking tea with bankers to disabuse them of their fears. “They expect to meet a raving extremist who is about to nationalise their company and send them on a re-education course somewhere up north,” he told financiers during a speech at Bloomberg’s headquarters in London last month.

The audience laughed. But the prospect of a far-left government led by Mr Corbyn and Mr McDonnell is not the joke it might have seemed 18 months ago. Labour deprived the Conservatives of their majority in a general election last year. Polls now have the opposition snapping at the heels of the flailing Tories, who are hopelessly bogged down in Brexit negotiations. What precisely would Labour’s leaders do to Britain’s economy if they got into power?

Tory MPs warn that Mr Corbyn wants to drag Britain back to the 1970s, when left-wing Labour governments jacked up taxation and spending and made a hash of managing the economy. Some of them say he would turn Britain into Venezuela—whose government under Hugo Chávez he praised—only minus the oil and the sunshine. Labour sometimes sounds outright hostile to capitalism. “When they [bankers] say we’re a threat, they’re right,” Mr Corbyn boasted in November in a video that swiftly went viral. Mr McDonnell has previously advocated nationalising the banking system; in 2013 he declared that he was a Marxist.

At other times, however, the duo’s economic plans don’t sound drastically more radical than those of Labour’s previous, centre-left leader, Ed Miliband. The party’s manifesto last year was more moderate than expected. “If I was putting forward these ideas in Germany, I’d be called depressingly moderate, depressingly old-fashioned,” Mr Corbyn has said.

Marx brothers?

Piecing together Corbynomics is difficult, not least because it has evolved during Mr Corbyn’s time in charge of Labour. The gulf between the Labour leadership’s past positions and the milder proposals in the manifesto means that enormous uncertainty hangs over what a Corbyn-led government would do in office. But it is already clear that Corbynomics is not what Labour’s opponents believe. It owes more to little-known 20th-century economists than it does to Karl Marx. And its radicalism, which is real, lies in the area that has so far attracted least attention.

Economic programmes comprise three big things: monetary policy, fiscal policy and structural reforms. The Conservatives’ attacks on Corbynomics have focused on the first two categories.

There is plenty of radical thinking about monetary policy going on in leftist circles. Followers of Bernie Sanders, a socialist senator who challenged Hillary Clinton for the Democratic presidential nomination in 2016, have leapt on “modern monetary theory”. MMTers believe that because currency is a creature of the state, governments enjoy more financial freedom than they recognise. They can spend without first collecting taxes and borrow without fear of default.

The eyes of Mr McDonnell’s advisers would bulge at the suggestion that they adhere to MMT. Though Mr Corbyn entertained wacky policies in the early days of his leadership—including “people’s quantitative easing”, which amounts to printing money to fund public investment—the message today is orthodox. Labour is toying with the idea of altering the Bank of England’s mandate, to make it more like the Federal Reserve’s, in which unemployment is targeted in addition to inflation. It is also thinking about moving parts of the bank to Birmingham, a cosmetic change. For those on Labour’s left, the party’s reticence is frustrating. “Labour have never ‘got’ monetary policy,” moans one prominent left-wing thinker.

If that all sounds fairly small-bore, so is much of Labour’s fiscal policy. The primary objective is to undo much of the fiscal austerity that Conservative-led governments have implemented since 2010. Labour would raise annual day-to-day spending by about £45bn ($61bn), ultimately bringing it back to where it was in 2015. A rise in corporation tax from 19% to 26%, restoring it to its level in 2011, is the biggest tax measure. A “national transformation fund” would raise public-sector net investment from around 2% of GDP to 3%, the highest sustained level in four decades. These policies add up to Labour’s most left-wing programme in many years. But last year’s election suggested that voters thought the Venezuelan comparisons didn’t quite ring true.

The other Austrian economist

In fact, fiscal and monetary policy turn out to be the least radical parts of Labour’s economic plan. “Keynesianism is not enough,” wrote James Meadway, now Mr McDonnell’s economic adviser, in 2015. The problem with the British economy, as Labour sees it, is not a few too many years of austerity or over-tight monetary policy. “There are no quick fixes,” added Mr Meadway. The third plank of Corbynomics, therefore, involves structural reforms, proposals for which have been fleshed out since the general election. Here the most interesting ideas are to be found.

From 1979 Margaret Thatcher launched an assault on the structure of Britain’s economy and society. Guided by the works of Friedrich Hayek, and in particular his “Road to Serfdom”, published in 1944, her governments cut the size of the public sector and blitzed trade unions. They instilled a culture of individualism and self-reliance in Britons.

Those in the Labour leadership want a repeat of 1979, except with a resurgence of the collective, rather than the individual. Previous Labour governments largely focused on redistribution. Mr Corbyn wants to overhaul the institutional structure of the economy, argue Joe Guinan and Martin O’Neill, two influential left-wing thinkers, in a forthcoming edition of Renewal, an academic journal. Speaking to the Sunday Times in 1981, Thatcher declared: “Economics are the method; the object is to change the heart and soul.” The Corbynites have something similar in mind.

To understand how Labour intends to change Britain’s heart and soul, consider the works of another Austrian who wrote a book in 1944. Karl Polanyi was part of a group loosely known by historians as the “moral economists”. The typical socialist critique of capitalism is that it produces poverty and inequality, argues Tim Rogan of Cambridge University. The moral economists’ critique was socialist, but in a different way. They focused on something abstract and difficult to measure: the spiritual and moral decline that is said to accompany capitalism.

Polanyi aimed his critique at economic liberals. According to him, they believe that market exchange and self-interest are how societies naturally organise themselves. But other principles have underpinned societies throughout history, too, including reciprocity, honour and loyalty. If societies focus just on market exchange, Polanyi said, resistance (what he calls the “counter-movement”) inevitably follows.

Polanyi was writing shortly after a tumultuous period of global history. Liberals of the early 20th century had believed that integrated global markets, propped up by the gold standard, would endure for ever. But in Polanyi’s view, economic liberalism came at a cost. Free global trade put many firms out of business. Adhering to the gold standard required governments to impose painful austerity measures. As people moved around in search of work, family bonds were broken and friendships made shallower. All this, he argued, ultimately provoked a reaction in the form of fascism.

The solution, in the moral economists’ view, was not to get rid of markets entirely, as Marxists would advocate. Instead, it was to soften them. That meant giving workers more bargaining power and influence over economic decisions. It meant constraining the power of finance. And it meant removing certain aspects of society from market exchange altogether. To those who objected that all this would cause GDP to fall or unemployment to rise, the moral economists countered that the country would gain in other ways.

The thinking of the moral economists has a rich tradition in the Labour Party. R.H. Tawney, an English economic historian, was a favourite of many Labour MPs in the 1940s. Tawney, in a manner similar to Polanyi, argued that capitalism encouraged greed and thereby corrupted everyone. The “alternative economic strategy” of the 1970s, promoted by Tony Benn, a Labour MP and mentor of Mr Corbyn, has echoes of the moral economists. According to a 1981 issue of Marxism Today, it was popularly perceived as “a programme for greater state control of the economy”. In fact, Benn “stressed the need for democracy and popular involvement in economic planning.”

This is the intellectual tradition in which Mr Corbyn and Mr McDonnell developed. Publications by Mr McDonnell when he was an obscure backbench MP, now stored on dusty shelves in the British Library, have moral economy written all over them. “[F]ar from making people happier, the net effect of consumer capitalism is to reinforce individualism at the expense of health and well-being because it only offers the illusion of control,” he wrote in one. He spoke at a conference celebrating Tawney in 2016. According to Mr Corbyn’s friends, he learnt most of his economics from Benn. When Mr Corbyn says that “it cannot be right …that profits extracted from vital public services are used to line the pockets of shareholders,” the echoes of the anti-utilitarian approach of the moral economists are loud.

Labour has also realised that Britain seems to be having its own “counter-movement”. Many feel increasingly uneasy about the deregulation and privatisations that have occurred since the 1980s. More than three-quarters of Britons back the renationalisation of water, electricity, gas and railways. The Brexit referendum saw millions of people choose to risk their economic prosperity for what they saw as a chance to “take back control” from faceless technocrats in Brussels.

From Polanyi to the present

This context makes it easier to understand exactly what today’s Labour Party proposes, and why. Last year a report commissioned by Mr McDonnell, called “Alternative Models of Ownership”, fleshed out ideas for what Labour thinkers refer to as the “democratisation” of the economy.

One element involves nationalisation—but, Labour says, of a different kind from that which Britain saw after the second world war. Guided by the thinking of Herbert Morrison, a Labour minister, post-war nationalisation relied heavily on expert groups managing industries and services in the national interest. These groups were “too distant, too bureaucratic and too removed from the reality of those at the forefront of delivering services,” Mr McDonnell said in a recent speech. The result of the Morrisonian model, according to the report for Mr McDonnell, was “a small private and corporate elite [with] little democratic scrutiny or debate around their operation.” This analysis mirrors Polanyi’s of the Soviet Union. A centralised system of economic management, he said, took power away from ordinary people.

Labour therefore proposes a different sort of public ownership. Local authorities, trade unions and workers, all of whom are seen as more responsive than expert panels to local needs, would play a greater role in the management of services. Councils would help run regionally owned utilities, for instance. “[N]ational state ownership of the grid and infrastructure of electricity and gas sectors could be combined with local, regional and community ownership,” the report says.

An embryonic version of these energy proposals has already taken effect in Nottingham, where Labour runs the city council. In 2015 the council set up a not-for-profit gas and electricity supplier, Robin Hood Energy, which also sells across the country under other councils’ local brands (Angelic Energy, in Islington, counts Mr Corbyn as a customer). Robin Hood Energy takes risks—the council lent it £11m—and reinvests any rewards. Its prices compare well with those of private rivals. “We are reinventing the wheel of municipal socialism,” says Steve Battlemuch, the councillor who sits on the firm’s board.

Preston, in north-west England, is a laboratory for other aspects of Corbynomics. Under an agreement with the local council, large public institutions such as the university bias their procurement towards providers in the local area. For Matthew Brown, the councillor who started the scheme, it is about taking back control of public resources. “It democratises the capital,” he says. If elected to Downing Street, Labour would get the government to use its colossal procurement budget for policy goals, demanding that suppliers pay the living wage (a voluntary amount slightly higher than the statutory minimum wage) or cap bosses’ pay at 20 times that of the median worker, for instance.

Another part of “democratisation” involves promoting worker control over private businesses. Worker-owned and -managed companies are rare in Britain. Less than 1% of workers are members of co-operatives. Most people do not understand what a co-op is or how to set one up—though they like the look of John Lewis, the retailer owned by its workers, which is often cited by politicians trying to build support for co-ops. (Even David Cameron, a former Conservative prime minister, praised the chain.)

Labour goes further. It has promised to give workers a “right to own”, allowing them the first chance to buy their company if it is sold. The party has also said it will make it easier for co-ops to acquire finance, lack of which is one of the main things that holds them back. Co-ops cannot list on stockmarkets, since they are owned by their workers. And banks are loth to lend to what is an uncommon form of business, with difficult-to-understand ownership structures. Labour’s proposed “national investment bank”, a new lender that could capitalise itself by issuing £20bn of government bonds a year, may be used to funnel money their way.

Corbynomics’ cost

These plans would incur some hefty upfront costs. When it comes to nationalising privately held utilities, Mr McDonnell says that Parliament would determine the price to be paid for the companies’ holdings. In practice it might not be so simple. Nationalisation for less than full market value could trigger compensation claims by investors. And determining that value would be tricky. To nationalise the water industry, for instance, might cost anywhere from £14bn (according to Bernstein, a research firm, using Labour’s preferred methodology) up to £90bn (according to the Social Market Foundation, in a study commissioned by the industry). Whatever the cost, it is risky for a country with a large current-account deficit to mess around with foreign investors. Capital could flee at the prospect of more compulsory purchases.

When it comes to the long-term effect of the nationalisation policy, there is little evidence either way whether publicly or privately run utilities perform better. The private sector has not always proved up to the job: on May 16th the government announced that it would bring train services on the East Coast Mainline back under public control, following the failure of the private franchisees. Yet Britain’s utilities and services such as the railways were hardly a byword for efficiency in their state-run days. Who owns and operates them may matter less than how they are regulated, something on which Labour has so far said little.

The bigger question-mark over Labour’s plans to “democratise” the economy is whether they would really put ordinary people in charge. Distant, out-of-touch private managers could simply be replaced by distant, out-of-touch public bosses or by party apparatchiks. Removing the focus on economic returns might make it easier to justify doling out jobs or contracts to political allies. Buying local, as Preston does, is protectionist, a bit like banning imports. A local supplier may win a contract over a better one in the next-door town. If every council did this, Britain as a whole would be poorer.

As for co-ops, it is worth asking why they have never taken off as a way of organising companies in any country. Even in Italy, sometimes cited as a place where they have thrived, by one estimate only 4% of workers are in co-operatives. Subsidised lending would risk propping up unprofitable outfits. Although worker-ownership of business gives ordinary people a greater stake, it also concentrates risk. Workers’ investments, as well as their salaries, become wrapped up in the companies they work for. Would a Corbyn government or local authority allow such businesses to fail, as they must if the economy is not to be weighed down by zombie firms?

These are the questions to ask of Corbynomics. And Labour’s critics should keep in mind the philosophical underpinnings of these policies. As far as their supporters are concerned, criticising the plans for their inefficiency misses the point. Just as warnings that Brexit would make people poorer failed to deter those who longed to claw back power from Brussels, those same arguments against Mr Corbyn’s programme may not persuade voters determined to “take back control” of the economy.