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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The rise of the green mayor – Sadiq Khan and the politics of clean energy

At an event at Tate Modern, Sadiq Khan pledged to clean up London's act.

On Thursday night, deep in the bowls of Tate Modern’s turbine hall, London Mayor Sadiq Khan renewed his promise to make the capital a world leader in clean energy and air. Yet his focus was as much on people as power plants – in particular, the need for local authorities to lead where central governments will not.

Khan was there to introduce the screening of a new documentary, From the Ashes, about the demise of the American coal industry. As he noted, Britain continues to battle against the legacy of fossil fuels: “In London today we burn very little coal but we are facing new air pollution challenges brought about for different reasons." 

At a time when the world's leaders are struggling to keep international agreements on climate change afloat, what can mayors do? Khan has pledged to buy only hybrid and zero-emissions buses from next year, and is working towards London becoming a zero carbon city.

Khan has, of course, also gained heroic status for being a bête noire of climate-change-denier-in-chief Donald Trump. On the US president's withdrawal from the Paris Agreement, Khan quipped: “If only he had withdrawn from Twitter.” He had more favourable things to say about the former mayor of New York and climate change activist Michael Bloomberg, who Khan said hailed from “the second greatest city in the world.”

Yet behind his humour was a serious point. Local authorities are having to pick up where both countries' central governments are leaving a void – in improving our air and supporting renewable technology and jobs. Most concerning of all, perhaps, is the way that interest groups representing business are slashing away at the regulations which protect public health, and claiming it as a virtue.

In the UK, documents leaked to Greenpeace’s energy desk show that a government-backed initiative considered proposals for reducing EU rules on fire-safety on the very day of the Grenfell Tower fire. The director of this Red Tape Initiative, Nick Tyrone, told the Guardian that these proposals were rejected. Yet government attempts to water down other EU regulations, such as the energy efficiency directive, still stand.

In America, this blame-game is even more highly charged. Republicans have sworn to replace what they describe as Obama’s “war on coal” with a war on regulation. “I am taking historic steps to lift the restrictions on American energy, to reverse government intrusion, and to cancel job-killing regulations,” Trump announced in March. While he has vowed “to promote clean air and clear water,” he has almost simultaneously signed an order to unravel the Clean Water Rule.

This rhetoric is hurting the very people it claims to protect: miners. From the Ashes shows the many ways that the industry harms wider public health, from water contamination, to air pollution. It also makes a strong case that the American coal industry is in terminal decline, regardless of possibile interventions from government or carbon capture.

Charities like Bloomberg can only do so much to pick up the pieces. The foundation, which helped fund the film, now not only helps support job training programs in coal communities after the Trump administration pulled their funding, but in recent weeks it also promised $15m to UN efforts to tackle climate change – again to help cover Trump's withdrawal from Paris Agreement. “I'm a bit worried about how many cards we're going to have to keep adding to the end of the film”, joked Antha Williams, a Bloomberg representative at the screening, with gallows humour.

Hope also lies with local governments and mayors. The publication of the mayor’s own environment strategy is coming “soon”. Speaking in panel discussion after the film, his deputy mayor for environment and energy, Shirley Rodrigues, described the move to a cleaner future as "an inevitable transition".

Confronting the troubled legacies of our fossil fuel past will not be easy. "We have our own experiences here of our coal mining communities being devastated by the closure of their mines," said Khan. But clean air begins with clean politics; maintaining old ways at the price of health is not one any government must pay. 

'From The Ashes' will premiere on National Geograhpic in the United Kingdom at 9pm on Tuesday, June 27th.

India Bourke is an environment writer and editorial assistant at the New Statesman.

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