It's time for Osborne to use the I word - 'Intervention'

We need the state to invest in business innovation and infrastructure that commercial investors fear

It's not looking good for Osborne. Output, employment, sectoral data and confidence all point to an economy either on the brink of recession or stuck deep in the doldrums. Inevitably, the debate about how to escape this very nasty patch intensifies and the battle lines dividing fiscal hawks from doves become ever more stark. But it is a debate that masks an even nastier truth for the UK economy. Even when we are through this crisis, we will still be an economy unfit to fight the big global economic battles ahead.

As a new paper published this week by IPPR and written by myself and David Nash shows, the UK is a serial under-performer compared to our competitors on those OECD, IMF and other international economic indicators which are most vital for successful competition in the global market.

On investment in business, on skills, on innovation and productivity, and on presence in emerging markets we are decidedly mediocre and, in some cases, worse than mediocre when compared to similar economies.

This should be troubling at any time but at a point when new, confident players from the East are striding into global markets and as business practices and markets are being turned upside-down by web technologies, fear and trepidation should be stalking Whitehall and the business world.

But because of the intense focus on the short-term crisis there is a real risk that once the economy is growing healthily again, a 'job done' mentality will seize policy-makers. It would hardly be a surprise. There is a long history of complacent back-slapping in British economic policy-making: Macmillan's "never had it so good" as inefficiency ate away at the economy, Nigel Lawson's self-satisfaction at rapid growth in the late 1980s just before the property market crashed under its own weight, and Gordon Brown praising the City to the skies in his 2007 Mansion House Speech while the credit crunch (and worse) rumbled in the distance.

A continuation of this ignoble tradition could prove equally disastrous now.

We can avoid the potential crisis of the future not just by acknowledging the threat but also by moving beyond ideological shibboleths about the state as the enemy of enterprise that has gripped government for too long. Instead we need a new pragmatism that learns from those economies that have long out-performed us on business investment, skills, innovation and exports. These are countries have a hugely healthy respect for the free market and intense competition as the main drivers of growth and innovation but also recognise that the market simply is not very good at delivering some of the fundamentals.

Germany, Japan, the Scandinavian economies and, yes, even the USA use the state to invest in business innovation and infrastructure that commercial investors fear. At their best, they take an active role in predicting skills needs and so can shape their education and training systems to get ahead of the curve. They positively target innovative firms not just with tax breaks but with world class generously funded research. And when firms want to export they get generous credit guarantees plus a whole range of other supports. In short, they intervene. Not out of some ideological love of the state but because it works. Of course, these economies have their own problems and they are far from perfect but on the measures mentioned above, they consistently do better than us.

Intervention has, of course, had a very bad name in the UK. This is partly because the Thatcherite world view became so successfully embedded into Whitehall and into Party political debate (even though Thatcher herself could be quite the intervener when she wanted). But it is also because intervention became confused in the public mind with the economic planning of the 1940s and 1950s when the focus was actually on controlling employment and prices, not on the modernisation of business, as it was in the rest of Europe. The only time when intervention was seriously tried in the 1960s, it was all too late and ill-conceived to save out-dated British business and it degenerated in the 1970s into support for lame duck firms and fading industries.

The intervention we need today should have a very different focus. It is not about predicting the economy of the future and plotting a path there. It needn't even be about identifying high growth sectors and giving them special support. It should focus instead on the very significant long-term weaknesses of the UK economy relative to our competitors by building a bold policy framework to address those weaknesses before it is too late and we find ourselves once again in decline mode. In short, it is the opposite of our tradition of complacency replaced by an embracing of the pragmatism and common sense displayed overseas.

Adam Lent is Associate Fellow at IPPR.

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Sadiq Khan is probably London's new mayor - what will happen in a Tooting by-election?

There will be a by-election in the new mayor's south London seat.

At the time of writing, Sadiq Khan appears to have a fairly comfortable lead over Zac Goldsmith in the London mayoral election. Which means (at least) two (quite) interesting things are likely to happen: 1) Sadiq Khan is going to be mayor, and 2) there is going to be a by-election in Tooting.

Unlike the two parliamentary by-elections in Ogmore and Sheffield that Labour won at a canter last night, the south London seat of Tooting is a genuine marginal. The Conservatives have had designs on the seat since at least 2010, when the infamous ‘Tatler Tory’, Mark Clarke, was the party’s candidate. Last May, Khan narrowly increased his majority over the Tories, winning by almost 3,000 votes with a majority of 5.3 per cent. With high house prices pushing London professionals further out towards the suburbs, the seat is gentrifying, making Conservatives more positive about the prospect of taking the seat off Labour. No government has won a by-election from an opposition party since the Conservative Angela Rumbold won Mitcham and Morden from a Labour-SDP defector in June 1982. In a nice parallel, that seat borders Tooting.

Of course, the notion of a Tooting by-election will not come as a shock to local Conservatives, however much hope they invested in a Goldsmith mayoral victory. Unusually, the party’s candidate from the general election, Dan Watkins, an entrepreneur who has lived in the area for 15 years, has continued to campaign in the seat since his defeat, styling himself as the party’s “parliamentary spokesman for Tooting”. It would be a big surprise if Watkins is not re-anointed as the candidate for the by-election.

What of the Labour side? For some months, those on the party’s centre-left have worried with varying degrees of sincerity that Ken Livingstone may see the by-election as a route back into Parliament. Having spent the past two weeks muttering conspiratorially about the relationship between early 20th-Century German Jews and Adolf Hitler before having his Labour membership suspended, that possibility no longer exists.

Other names talked about include: Rex Osborn, leader of the Labour group on Wandsworth Council; Simon Hogg, who is Osborn’s deputy; Rosena Allin-Khan, an emergency medicine doctor who also deputises for Osborn; Will Martindale, who was Labour’s defeated candidate in Battersea last year; and Jayne Lim, who was shortlisted earlier in the year for the Sheffield Brightside selection and used to practise as a doctor at St George’s hospital in Tooting.

One thing that any new Labour MP would have to contend with is the boundary review reporting in 2018, which will reduce the number of London constituencies by 5. This means that a new Tooting MP could quickly find themselves pitched in a selection fight for a new constituency with their neighbours Siobhan McDonagh, who currently holds Mitcham and Morden, and/or Chuka Umunna, who is the MP for Streatham. 

According to the Sunday Times, Labour is planning to hold the by-election as quickly as possible, perhaps even before the EU referendum on June 23rd.

It's also worth noting that, as my colleague Anoosh Chakelian reported in March, George Galloway plans to stand as well.

Henry Zeffman writes about politics and is the winner of the Anthony Howard Award 2015.