Show Hide image

Say no to protectionism

The most important focus for the left should be on equipping people to live in an uncertain economic

François Hollande may be running for president of France, but his election manifesto reads to me like a sign of the general times for the global left. Parts of it could have been written by the protesters in Athens or Madrid. Parts of it could have been lifted from Barack Obama's recent State of the Union speech. What links them is a sense of lost control and a desire to take it back. Control taken away by financial markets, by the forces of globalisation, in Europe by Brussels and, by implication, Berlin.

This is an important moment for the left. Globalisation is attacked from all sides. Capitalism is apparently in crisis. The EU's collective rush to austerity politics presents a grave threat to growth. The instinct of the left is to position itself against all three, but it needs to choose its targets carefully. This implied warning was the theme of an IPPR report I helped prepare on the "Third Wave of Globalisation".

If the left's strategy is to take back a greater measure of control over our economic lives there are plenty of credible candidates. Tougher regulation of financial markets will help, as will promoting greater long-termism in investment. Reducing deficits at an appropriate pace will help keep the bond market off our backs. But the most important focus for the left should be on equipping people to live in an uncertain economic world, not shutting that world out. Railing against globalisation misses the target.

Because globalisation itself is not really the problem. The pre-globalised world was not a secure and egalitarian paradise. Every politician who has ever uttered the words "export-led recovery" has acknowledged the reality that Britain and Europe need to sell to global markets to prosper. Our huge European single market and the growing markets of the emerging world are critical to our economic future.

However, you cannot realistically be pro-exports but anti-imports in an international economy built on global supply chains, as much of what we import we transform into goods that we then sell abroad. Every politician who has ever worried about the cost of living must have noticed that international production models have lowered the costs of the basics of life to levels that have no precedent in economic history.

The banking crisis discredited certain kinds of financial capitalism and financial regulation, not capitalism in general. It was a warning about consumer debt and the fact that you can't build an economy on it. It was a warning about short-term incentives trumping long-term goals. And in its aftermath we recognise very starkly that the gap between the rich and the rest in our society has grown unacceptably wide. But these are problems of taxation, regulation, corporate culture and personal responsibility. We still have to have faith in the basic model of an open and competitive economy.

What is undeniable is that open markets on a global scale have increased the competitive pressure on the west in a way that has made life a lot more insecure for anyone whose livelihood depends on the production of internationally traded goods, which is a very large and increasing number of us. That insecurity, coupled with the growing inequality of the past decade, is a genuine political problem that demands a real solution.

Holes in the net

The European left should seize the opportunity to argue, contrary to the prevailing political view internationally, that the European social model remains our best tool for living with globalisation. Not because it is a burden on our flexibility to compete but because, designed right, it can be central to our competitiveness. It makes us less vulnerable to volatile collapses in demand by ensuring a minimum level of income. It can make us more flexible and confident if it gives workers confidence that unemployment will not be a life-destroying tragedy. Thoughtful Republican commentators in the US have occasionally drawn the connection between the US's weak safety net and its vulnerability to blue-collar calls for job protection. If losing your job means losing your health care, protectionism will always trump openness.

There is no question that many of Europe's social models need dramatic reform to make them affordable and durable. They can be a dependency trap if badly designed. But this is a challenge of practice, not of principle. A big part of the challenge of exiting from the eurozone crisis is putting in place that reform plan. The current EU fiscal treaty prioritises deficit contraction over everything else in a way that poses a serious challenge to Europe if it is not balanced by a new, concerted growth strategy.

Our long-term strategy has to include a credible plan for deficit reduction and public-sector reform on a realistic timetable. It needs to include a growth plan that spends Europe's structural funds better on building future competitive capabilities and a medium-term prospect for collective liability of eurozone debts.

It also has to include reform of Europe's social models for a different century. The passion, pro-Europeanism and urgency in the Hollande campaign can and should be channelled into all of these aims. A realistic, responsible "Non" to some of the prevailing tenets of conservative economic strategy is needed. The same challenge faces the rest of the European centre left. The left has arguments to win this debate if it can overcome the instinct to lose it.

Lord Mandelson led a policy review for IPPR on globalisation which was published last month

This article first appeared in the 20 February 2012 issue of the New Statesman, How do we stop Iran getting the bomb?

Getty Images.
Show Hide image

Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.