Learning the right lessons from Labour's economic record

Neither Labour nor the Coalition is willing to ask why Britain's tax base was so fragile.

You might think the one thing the world doesn't need right now is yet another instant history about the Labour years. But here one comes -- this time, though, with a difference. The authors certainly won't be dining out on the royalties and there's no insider gossip or "he said, she said" revelations about rows in Downing St. Which is perhaps one reason why it's worth reading; it says something serious about what did and didn't happen to economic performance during the Labour years.

It is authored by John Van Reenen from the LSE -- one of Britain's leading economists, and something of a guru on productivity and growth; together with Dan Corry, a seasoned and respected economic advisor from the former Labour government, and someone not averse to being contrary and defying the conventional view of the day.

Their central argument is that the 2.8 per cent a year productivity growth achieved between 1997 and the start of the 2008 recession was impressive in both historical and international terms; rooted in substantive improvements in a number of sectors, rather than relying on the frothy gains from financial services; and arose in part due to policy choices -- particularly investment in research and science, strong competition policy, expansion of higher education and gains in skills. Their argument is as unfashionable as it is empirically substantiated.

Above all it is an attempt to rebalance the current economic debate about the Labour years, a first (and no doubt doomed) effort at taking on those who assert that there was little more to the Labour era than an attempt to surf the wave of public and private debt over which it presided. This puts the authors at odds with the swelling ranks on left and right who wish to portray Labour's economic strategy as little more than a Faustian pact with the City: light regulation in return for growing tax-revenues. The report, of course, concedes financial regulation was a failure, but contends that wider economic policy made a real and positive difference to a range of sectors -- a point that is currently in danger of being completely over-looked.

Nor do the authors just make an argument about the past -- they also seek to pick a fight about the future. Entering the fray of the current economic debate, they refute the "supply-side pessimists" who assert there is no scope for any further stimulus on the basis that the productive potential of the economy has already fallen (which if true would mean that further expansionary policy would be counter-productive). In contrast, the LSE report contends there is plenty of spare capacity, it just requires some form of Plan B to ensure it is utilised. In truth, however, the authors are most interested in advocating a Plan V, as they term it, for long term growth involving a more muscular and far-sighted industrial policy.

For all the cogency of their arguments on productivity -- and let's hope someone in Whitehall is taking note about the insights offered about the real sources of growth -- there are some puzzling omissions and assertions. Little is said about the UK's ongoing trade imbalances. There is no investigation of the weakening link between GDP growth and the gains going to low-to-middle income Britain, and the associated wage stagnation that took hold in the years preceding the recession -- a phenomena that Labour in office failed to grasp. When you reach the end of the report you don't have much of a sense of the policy agenda that would lift the prospects of the millions of low and modestly paid workers employed in Britain's vast low-skill, low-productivity sectors. The authors, like so many others, focus their attention on what can be done to improve the industrial vanguard, rather than the laggards.

And when it comes to the record on public finances, they choose to pin-point blame on Labour's record on overall public debt, saying it got too high pre-recession. This seems like an odd argument to select given that the UK's debt was relatively low compared to others. A better target would have been Labour's projections for tax receipts -- together with the wisdom of running modest deficits in the middle of the last decade, in a period of steady growth when modest surpluses would have been more prudent.

But even this criticism is dwarfed by the real argument which neither Labour nor the Coalition wants to make as it doesn't fit their favoured narratives -- which is to ask why Britain's tax base was so fragile, crumbling so dramatically, during the recent recession in a way that those in other countries didn't. Indeed, after several years of intense focus on the need to "stress test" banks to ensure their balance sheets could stand up to future financial shocks, it is remarkable that there is no equivalent debate about the sort of tax-base the modern British state needs if it is to better withstand global turbulence in the decades ahead (see this for an exception). Only when this issue is properly aired and addressed will we know that Labour, along with the Coalition, are intent on having a strategic discussion about Britain's long-term fiscal future.

Decades will pass before a full and fair account of Labour's economic record is formed. For now we need to recognise that, love them or loathe them, instant histories matter in politics: they frame today's media coverage and tomorrow's policy decisions. Here, unusually, is one that merits a wider readership than it will get.

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

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5 things Labour has blamed for the Copeland by-election defeat

Other than Labour, of course. 

In the early hours of Friday morning, Labour activists in Copeland received a crushing blow, when they lost a long-held constituency to the Tories

As the news sank in, everyone from the leadership down began sharing their views on what went wrong. 

Some Labour MPs who had done the door knock rounds acknowledged voters felt the party was divided, and were confused about its leadership.

But others had more imaginative reasons for defeat:

1. Tony Blair

Shadow Chancellor John McDonnell told Radio 4’s Today programme that: “I don’t think it’s about individuals”. But he then laid into Tony Blair, saying: “We can’t have a circumstance again where a week before the by-election a former leader of the party attacks the party itself.”

2. Marginal seats

In a flurry of tweets, shadow Justice secretary Richard Burgon wanted everyone to know that Copeland was a marginal seat and always had been since it was created in 1983.

Which might be true, but most commentators were rather more struck by the fact Labour MPs had managed to overcome that marginality and represent the area for eighty years. 

3. The nuclear industry

In response to the defeat, Corbyn loyalist Paul Flynn tweeted: “Copeland MP is pro-nuclear right winger. No change there.” He added that Copeland was a “unique pro-nuclear seat”. 

In fact, when The New Statesman visited Copeland, we found residents far more concerned about the jobs the nuclear industry provides than any evangelical fervour for splitting atoms.

4. The political establishment

Addressing journalists the day after the defeat, Corbyn said voters were “let down by the political establishment”. So let down, they voted for the party of government.

He also blamed the “corporate controlled media”. 

5. Brexit

Corbyn's erstwhile rival Owen Smith tweeted that the defeat was "more evidence of the electoral foolhardiness of Labour chasing Brexiteers down the rabbit hole". It's certainly the case that Brexit hasn't been kind to Labour's share of the vote in Remain-voting by-elections like Richmond. But more than 56 per cent of Cumbrians voted Leave, and in Copeland the percentage was the highest, at 62 per cent. That's an awful lot of Brexiteers not to chase...

I'm a mole, innit.