The case for a new kind of quantitative easing

Policy-makers are clinging to a rigid determination to do everything at arms-length. Even when it do

Vince Cable famously described his critics as the "ideological descendents of the people who sent children up chimneys". But the real problem is not the influence of those who voted against the Ten Hours Bill. It is that economic policy remains in the hands of those with a snobbish horror of trade.

Perhaps it is a horror of government intervention. Perhaps it is a horror of broken finger nails. But, whatever it is, policy-makers cling to a rigid determination to do everything at arms-length. Even when it doesn't work.

Instead of effective local economic regeneration, based on using local money flows more efficiently, we have plans to raise the motorway speed limit to 80 mph. Instead of reforming local government systems to bring to bear people's face-to-face skills and pride in the job, we get shared back office services and call centres.

But worst of all, instead of ambitious projects to direct new money where it is needed, we have quantitative easing -- a hands-off, labyrinthine scheme for buying government bonds from banks, which they then use for bonuses. All the evidence from Japan over the past generation is that this form of quantitative easing doesn't work. It seems unable to kickstart the zombie banks into life.

But perhaps that is hardly surprising, because it is so indirect. Why have we lost our faith in our own ability to roll up our sleeves and make things happen?

The news that the government will launch "credit easing", a project to invest government money in small business bonds to help them expand, is a sign that the coalition has begun to feel the same way. It is a sign that ministers realise not just that Project Merlin has failed, but that if you want something done, you will be as old as Methuselah (as Ebenezer Howard used to say) if you expect the money to trickle down magically into the right sectors.

You have to use money more precisely, not just from the centre but locally too. We have to find the enterprising people and the green business projects, help them with their plans, find them the start-up finance, provide them with mentors. There is no point waiting politely for the trickle down that never trickles.

So here is the real test. When we get a new round of quantitative easing, as we almost certainly will, can we persuade the Bank of England to abandon the gentlemanly -- and, let's face it, downright wasteful -- hands-off method?

If they are going to create the money we need, interest-free, then for goodness sake, they must direct it to where it matters. We don't have the time for trickling. They must:

  • Put it directly into the new institution, buying small business bonds.
  • Buy bonds in the new Green Investment Bank, so that the money goes directly into loans that build the green economy (green quantitative easing).
  • If necessary, create the money to pay off the euro debt that threatens the world.

No more polite distaste for the mucky business of making things happen. It is time to act and to innovate. Because, at the end of the day, economics was made to serve humanity, not humanity to serve economics.

David Boyle is a fellow of the New Economics Foundation and the author of The Human Element (Earthscan).

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The UK is dangerously close to breaking apart - there's one way to fix it

We must rethink our whole constitutional settlement. 

When the then-Labour leader John Smith set up a report on social justice for what would be the incoming government in 1997, he said we must stop wasting our most precious resource – "the extraordinary skills and talents of ordinary people".

It is one of our party’s greatest tragedies that he never had the chance to see that vision put into practice. 

At the time, it was clear that while our values of equality, solidarity and tolerance endured, the solutions we needed were not the same as those when Labour was last in power in the 1970s, and neither were they to be found in the policies of opposition from the 1980s. 

The Commission on Social Justice described a UK transformed by three revolutions:

  • an economic revolution brought about by increasing globalisation, innovation and a changing labour market
  • a social revolution that had seen the role of women in society transformed, the traditional family model change, inequality ingrained and relationships between people in our communities strained
  • a political revolution that challenged the centralisation of power, demanded more individual control and accepted a different role for government in society.

Two decades on, these three revolutions could equally be applied to the UK, and Scotland, today. 

Our economy, society and our politics have been transformed even further, but there is absolutely no consensus – no agreement – about the direction our country should take. 

What that has led to, in my view, is a society more dangerously divided than at any point in our recent history. 

The public reject the status quo but there is no settled will about the direction we should take. 

And instead of grappling with the complex messages that people are sending us, and trying to find the solutions in the shades of grey, politicians of all parties are attached to solutions that are black or white, dividing us further. 

Anyone in Labour, or any party, who claims that we can sit on the margins and wait for politics to “settle down” will rightly be consigned to history. 

The future shape of the UK, how we govern ourselves and how our economy and society should develop, is now the single biggest political question we face. 

Politics driven by nationalism and identity, which were for so long mostly confined to Scotland, have now taken their place firmly in the mainstream of all UK politics. 

Continuing to pull our country in these directions risks breaking the United Kingdom once and for all. 

I believe we need to reaffirm our belief in the UK for the 21st century. 

Over time, political power has become concentrated in too few hands. Power and wealth hoarded in one corner of our United Kingdom has not worked for the vast majority of people. 

That is why the time has come for the rest of the UK to follow where Scotland led in the 1980s and 1990s and establish a People’s Constitutional Convention to re-establish the UK for a new age. 

The convention should bring together groups to deliberate on the future of our country and propose a way forward that strengthens the UK and establishes a new political settlement for the whole of our country. 

After more than 300 years, it is time for a new Act of Union to safeguard our family of nations for generations to come.

This would mean a radical reshaping of our country along federal lines where every component part of the United Kingdom – Scotland, Wales, Northern Ireland and the English regions – take more responsibility for what happens in their own communities, but where we still maintain the protection of being part of a greater whole as the UK. 

The United Kingdom provides the redistribution of wealth that defines our entire Labour movement, and it provides the protection for public finance in Scotland that comes from being part of something larger, something good, and something worth fighting for. 

Kezia Dugdale is the leader of the Scottish Labour party.