Ed Miliband's challenge

Shifting economic paradigms won't be easy.

Ed Miliband told us in his speech to the Labour Party conference earlier this week that he wants to see a new type of economy: one with different aims and values from those that prevailed during much of the last 30 years. Bringing about such change will not be easy. In a new IPPR paper, David Nash and I show how resistant to change economic paradigms can be.

As Martin Kettle argues, if Ed Miliband wants a new type of economy in Britain, he will have to argue long and hard for it. He will have to continually highlight the flaws in the existing model and he will need to make a persuasive case for the alternative. This week his framing of this important argument was not strong enough and as a consequence, it has been more easily criticised and caricatured than it might have been.

Distinguishing between "predators" and "producers" was an unnecessary hostage to fortune as the shadow cabinet discovered when defending the speech to the national media. The arguments of thinkers such as Will Hutton, Anatole Kaletsky and William Baumol over different models of capitalism got obscured as Andy Burnham and Sadiq Khan resisted the temptation to list good and bad businesses. And without a stage managed letter to the Financial Times from company CEOs calling for a level playing field on apprenticeships or placing workers on remuneration committees, the new policy nuggets were easily picked off by a hostile media.

Nonetheless, Miliband's analysis of the flaws in the existing economic model was sound as the Telegraph's Peter Oborne has recognised. After all, it allowed the worst financial crisis since the 1930s to develop and this was followed by the deepest recession in the post-war era, both in the UK and globally. There is also a growing recognition that, even in the good times before the financial crisis, the economy was only delivering for the wealthiest in society. In the UK, living standards for those on median incomes stopped improving after 2003 - a full four years before the crisis.

And yet there is nothing to suggest that a paradigm change is imminent. Indeed, apart from some toughening of the regulations covering the banking sector (and then less than might have been expected three years ago), it is largely business as usual. There has been no great change in the way economic policy is designed and implemented, no change in the objectives of economic policy and no change the dominant strands of academic economic thinking.

Perhaps, things have not been bad enough for paradigm change to occur. Unemployment has increased sharply, but at around 8 per cent it is considerably below the 20 per cent plus levels seen in the Great Depression: levels that eventually helped create the conditions for the Keynesian Revolution in economic thinking and policymaking. Nor does the combination of 5 per cent inflation and 8 per cent unemployment feel as bad as the 27 per cent inflation and 6 per cent unemployment that were experienced in 1975.

More importantly, there are not enough new economic ideas waiting in the wings to coalesce into a new economic paradigm. Keynes said that it takes a theory to kill a theory and Kuhn argued that a paradigm cannot be displaced by anomalies, only by another paradigm. But the economics profession continues to resist change because it has invested so much intellectual capital in the wrong models and is reluctant to admit its mistakes.

In the 1970s, Margaret Thatcher, Keith Joseph and others in the Conservative Party were able to work with critics of Keynesian thinking, such as think tanks like the Institute for Economic Affairs and the Centre for Policy Studies, to develop the ideas of the Chicago monetarist school into policies that could be implemented in the UK. The politicians helped give support and credibility to the new way of thinking, and in return benefited from appearing more up-to-date in their ideas than their political rivals in government.

Ed Miliband's primary problem is that there is no new well-developed economic model - comparable to monetarism in the 1970s - sitting on the shelf waiting for him to pick it up and champion it. He therefore faces a tough decision. Does he want to tinker at the edges with the existing model - a bit more banking regulation here, an employee representative on a company board there? In some ways, that would be the easy option. But it will hardly distinguish him from David Cameron and George Osborne.

Or is he prepared to make the case for more radical change and to champion those independent voices in economics that are not heard enough? This might involve rethinking the objectives of macroeconomic policy, for example by giving the Monetary Policy Committee a dual mandate to target inflation and full employment (in line with the US Federal Reserve's mandate), or requiring explicit targeting of asset prices. It might involve developing new objectives for economic policy that take account of the distribution of income; of non-monetary measures of progress such as wellbeing; or of future resource constraints. Or it might involve abandoning altogether the solutions proposed by traditional economics in favour of new ways of economic thinking, which better describe the real word, such as complexity economics.

Such an approach would be riskier. It would be a real call for a new economic paradigm and shifting economic paradigms is not easy. There would be an inevitable backlash from beneficiaries of the status quo - the wealthy and the right-wing press.

But the prospect of a decade of stagnating living standards for the bulk of the population suggests a big change in thinking is required. History suggests a shift in the economic paradigm requires political support and if Ed Miliband is prepared to take up the challenge, he could help to forge a new approach to economic policymaking in the UK. The added bonus for him would be greater differentiation between current Labour Party thinking and both its own past and the government's approach.

Tony Dolphin is Chief Economist at IPPR

Tony Dolphin is chief economist at IPPR

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Who will win the Copeland by-election?

Labour face a tricky task in holding onto the seat. 

What’s the Copeland by-election about? That’s the question that will decide who wins it.

The Conservatives want it to be about the nuclear industry, which is the seat’s biggest employer, and Jeremy Corbyn’s long history of opposition to nuclear power.

Labour want it to be about the difficulties of the NHS in Cumbria in general and the future of West Cumberland Hospital in particular.

Who’s winning? Neither party is confident of victory but both sides think it will be close. That Theresa May has visited is a sign of the confidence in Conservative headquarters that, win or lose, Labour will not increase its majority from the six-point lead it held over the Conservatives in May 2015. (It’s always more instructive to talk about vote share rather than raw numbers, in by-elections in particular.)

But her visit may have been counterproductive. Yes, she is the most popular politician in Britain according to all the polls, but in visiting she has added fuel to the fire of Labour’s message that the Conservatives are keeping an anxious eye on the outcome.

Labour strategists feared that “the oxygen” would come out of the campaign if May used her visit to offer a guarantee about West Cumberland Hospital. Instead, she refused to answer, merely hyping up the issue further.

The party is nervous that opposition to Corbyn is going to supress turnout among their voters, but on the Conservative side, there is considerable irritation that May’s visit has made their task harder, too.

Voters know the difference between a by-election and a general election and my hunch is that people will get they can have a free hit on the health question without risking the future of the nuclear factory. That Corbyn has U-Turned on nuclear power only helps.

I said last week that if I knew what the local paper would look like between now and then I would be able to call the outcome. Today the West Cumbria News & Star leads with Downing Street’s refusal to answer questions about West Cumberland Hospital. All the signs favour Labour. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.