As Adam Smith knew, the experts think they know best, but what do the people say?

The high-powered experts who make up the LSE’s growth commission have proposed a blueprint for reviving Britain. To achieve its goals, though, we’ll have to get rid of those blasted MPs and councillors. What say we?

What makes economies grow? You could say it is the oldest question in economics: the complete title of Adam Smith’s foundational work is An Inquiry into the Nature and Causes of the Wealth of Nations.

It took Smith nearly a thousand pages to set out his formula. This past week, an independent “growth commission” convened by the London School of Economics provided a modern answer – albeit for the UK only – in a mere 36 pages.

Not that the LSE’s commission’s report ever risked being superficial. Its authors include a Nobel Prizewinner, a former chief economist of the World Bank and the first woman to become a deputy governor of the Bank of England. And its attempt to prescribe “the institutions and policies that should underpin growth for the next 50 years” is timely. For the past four years, the policy debate in the UK has been dominated by the question of how to escape from the slump induced by the financial crisis, yet few would deny that the UK needs a long-term economic strategy as well as short-term tactics.

So what is the commission’s answer to the question of what Britain needs to do to reinvigorate its economy in the 21st century? It identifies three critical determinants of prosperity in which the UK is deficient and which policy should therefore cultivate: skills, infrastructure and innovation.

On one level this sounds like a statement of the bleeding obvious. Can you win a Nobel Prize for working out that it would be a good thing if the workforce was better educated, railways and roads got an upgrade, and if private companies spent more on research and development? Where do I apply?

But we should cut the report’s authors a bit of slack. Yes, it is unfortunate that economists’ theories of growth are formulated at such an Olympian level of abstraction that by themselves they generate only the most platitudinous of conclusions. For this very reason, however, the test of a body such as the LSE commission is whether it is brave enough to advocate more specific policies – and on this score, it does not disappoint. The constraints it has identified may not come as much of a surprise; but the solutions it proposes are more controversial.

In secondary education, the authors endorse the academy model of more autonomy and greater centralisation of funding and accountability for schools. They advocate the creation of a National Infrastructure Bank. On innovation, they back proposals for an allowance for corporate equity that would remove the existing tax incentives to finance businesses with debt, and thereby encourage risky start-ups for which equity funding is the only realistic option. These are serious policy proposals, backed by detailed argument; they deserve a serious hearing from the government.

Unfortunately, the commission makes a further, overarching recommendation – one that is not just controversial, but positively dangerous. How, it asks, did Britain get into this mess in the first place? Why did it lose its historical lead in skills, infrastructure and innovation? The ultimate answer, it says, is simple: the root of our problems is politics.

The trouble with Britain is that it allows elected politicians to make policy. Worse still, we allow local politicians a say in things such as planning and schools. And, to cap it all, we have an unfortunate habit of changing our minds and electing different parties every few years. The result is a chronically unstable environment for long-term investment. Public priorities never stay the same for long enough to get anything done, and the private sector is at the mercy of Nimbys and the political cycle.

So, if we want to make Britain grow again, we need not only to make the right policy choices, but to take those choices out of the hands of politicians. We need a “new insti­tutional architecture” that can “put politics in the right place”. Only then will we bid farewell to interminable “flip-flopping”, the inevitable harvest of “political bickering”. Economic policy will at last be in the capable hands of independent experts: an infrastructure planning commission to decide, say, where nuclear power stations should be built, and a national growth council to dispense an industrial strategy.

It is a seductive view of what constitutes economic progress – one that has bewitched well-meaning technocrats down the ages, from enlightened imperialists such as John Stuart Mill, who argued for a “government of leading-strings” for Britain’s colonial possessions, to the socialist planners charged with the instant industrialisation of the eastern bloc’s developmental nation states. If only the benighted people and their annoying representatives would get out of the way, the impartial experts could get on with modernising the country.

The reality is that policies made by unaccountable experts are unsustainable – because they do not reflect what the people want. Only a democratic process, however flawed, can do that.

The LSE commission’s report was published in the same week as it was announced that it will take 20 years to complete the High Speed 2 rail link, in large part because of the need to follow time-consuming planning procedures. Such is the price of a democratic economy. No doubt unelected bureaucrats handing down compulsory purchase orders could do the job in half the time. But policy would no longer be reflecting people’s interests; it would be reflecting what the experts say their interests are.

It is a critical distinction – and, as it happens, one of which Adam Smith’s Wealth of Nations remains the original exposition.

Felix Martin is a macroeconomist and bond investor. His book, “Money: the Unauthorised Biography”, will be published by the Bodley Head in June

Adam Smith. Image: Getty Images

Felix Martin is a macroeconomist, bond trader and the author of Money: the Unauthorised Biography

This article first appeared in the 11 February 2013 issue of the New Statesman, Assange Alone

Photo: Getty
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Corbyn is personally fireproof, but his manifesto could be torched by the Brexit blaze

There is no evidence that EU migration has depressed wages – but most Labour MPs believe it has.

News, like gas, expands to fill the space available to it. That’s why the summer recess can so often be a time of political discomfort for one party or another. Without the daily grind of life at Westminster, difficult moments can linger. Minor rows become front-page news.

There are many reasons why Theresa May is spending three weeks hiking in northern Italy and Switzerland, and one of them is that it is hard to have a leadership crisis if your leader is elsewhere. That makes the summer particularly dangerous for Labour. The danger is heightened as the majority of the press is unsympathetic to the party and the remainder is simply bored. Even a minor crisis could turn into a catastrophe.

Jeremy Corbyn’s interview on BBC1’s The Andrew Marr Show on 23 July, therefore, carried the same risks as juggling lit matches in a dry forest. The Labour leader ruled out continuing participation in the single market after Britain leaves the political structures of the European Union. For good measure, he added that the “wholesale importation” of people from eastern and central Europe had been used to undermine pay and conditions for British workers. Both statements only aggravate the stress fractures in the Labour movement and in its electoral coalition.

The good news for the Labour leader is that he is fireproof. Only God or Corbyn himself can prevent him from leading the party into the next election, whenever it comes, and no one will be foolish enough to try to remove him, even if they had the inclination. Also, while the question of what flavour of Brexit to pursue divides Labour in the country, it doesn’t divide Labour at Westminster. Most Labour MPs nodded along in agreement with Corbyn during the Marr interview. They believe – as the shadow international trade secretary, Barry Gardiner, outlined a day later – that remaining in the customs union and the single market would be a betrayal of the wishes of Leave voters, who want full control over Britain’s borders and laws.

There is no evidence that migration from the eastern bloc has depressed wages. But most Labour MPs believe that it has. “I am convinced,” one formerly pro-European MP told me, “that no matter what the studies say, immigration has reduced wages.”

Most of the Labour people who are willing to kick up a fuss about “hard” Brexit are outside parliament. These include the Welsh First Minister, Carwyn Jones, who wants Britain to remain in the single market; the general secretary of the TSSA union, Manuel Cortes, who recently used the New Statesman website to urge the party to keep all of its options open, including a second referendum to keep Britain in the EU; and the rapper Akala, who lambasted Corbyn’s interview on Twitter. While a large minority of Labour MPs back a softer version of Brexit, they are a minority, and not a large enough one to combine with Tory dissidents to make a Commons majority, even when the votes of the SNP, Plaid Cymru and the Green MP Caroline Lucas are taken into account.

This increases the party’s dependence on Jeremy Corbyn. As the leader’s aides observe, even among the quarter of the country that believes the government should simply overturn the referendum result, only a quarter of that quarter do so because they have a particular affection for the institutions of the European Union.

For the majority of hard Remainers, Brexit is a significant battleground in a larger culture war, one in which Corbyn is otherwise in perfect alignment with their values. His electoral appeal to Labour MPs is that he is someone who can say the same things on Brexit and migration as Yvette Cooper or Stephen Kinnock previously did, but without losing votes in England’s great cities.

The electoral threat to Labour from backing a harder form of exit is, in any case, often overstated. The first-past-the-post system makes the Liberal Democrats an inadequate refuge for anguished Remainers in England, while the SNP’s support for Scottish independence makes it an unsuitable home for Labour refugees in Scotland. Team Corbyn feels that Vince Cable, the Liberal Democrats’ new leader, will struggle to convince Labour voters that he can be trusted because of the role he played in designing the new system of tuition fees (having previously pledged to vote against them). In any case, the risk of letting in a Conservative prime minister – probably one committed to a version of Brexit even harder than Labour’s – further locks Remainers in Labour’s corner.

That leaves Labour in Westminster free to pursue a version of Brexit that meets the needs of both the leadership, which relishes the freedom to pursue a more radical economic policy unconstrained by the European Union, and Labour MPs, particularly those with seats in Yorkshire and the Midlands, who are concerned about opposition to immigration in their constituencies. This has the happy side effect of forcing the Conservatives to take the blame for delivering any Brexit deal that falls short of the promises made by Vote Leave during the referendum and in the high-blown rhetoric used by Theresa May during the election campaign.

However, all is not rosy. What most Labour MPs seem to have forgotten is that Brexit is not simply a political battleground – something to be leveraged to reduce the number of complaints about migration and to hasten the Tory government into an early grave. There is a political victory to be had by using the Brexit process to clobber the government. But there is also a far bigger defeat in store for the left if leaving the EU makes Britain poorer and more vulnerable to the caprice of international finance. That Jeremy Corbyn is personally fireproof doesn’t mean that his manifesto can’t be torched by the Brexit blaze. 

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

This article first appeared in the 27 July 2017 issue of the New Statesman, Summer double issue