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The left must beware of excessive pessimism

The search for economic realism and credibility can easily tip into fatalism.

Ed Miliband addresses TUC members in Hyde Park.
Ed Miliband addresses TUC members in Hyde Park at the end of a march in protest against the government's austerity measures. Photograph: Getty Images.

The task for a Labour government elected in 2015 will be a tough one. The debt and deficit will still be high and so one, old, conception of social democracy, of spending more money, will not be available and new approaches will be needed.  My former Downing Street colleagues Nick Pearce and Gavin Kelly gave a typically thorough and sensible version of that in a recent article. But there are a number of reasons why we must not take that too far.

First, Labour has to win the next election. And that means finding a strategy that has realism running through it but that also has the uplifting sense of optimism.  Yes, economic credibility is crucial but telling people that if they vote for us, things will be a bit less bad than under the other lot, will never do for social democrats. Even when we are forced to be modest in our offer in the short-term, we must hold up a better Britain for the future. If the only choice is cuts, some people will shrug and say "better the devil we know".

The big danger is not of Labour being punished for being unclear on its priorities for spending cuts, but that it may still be held responsible for having presided over economic collapse. Being macho on cuts is not an answer to that.  The clamour from commentators arguing that Labour must be exact on what it would cut is an issue to be managed, not to build a strategy around.

We do not even know what the economic situation will be.  A possible scenario is that, by 2015, we are starting to have a little growth but how quickly the deficit and debt will come down when and if UK and EU growth kicks in is very hard to say. Economists are hopeless at forecasting this sort of thing but historically tend to severely underestimate how quickly deficits rise in a recession and how fast they fall in an upturn.

The search for realism and credibility can easily tip into fatalism. Over time the deficit needs to come down but we have some time to play with. Markets are not itching to punish the UK for not cutting hard enough – as even the IMF now agrees - especially if the spending we are making is clearly investment spend with good supply side and "preventative" features (that reduces spend in the future).

Another area where fatalism can take hold is on the ageing society. Of course there will be strains, but analysis of the OBR long term fiscal sustainability forecasts makes clear that things are not that grim, that much of the problem is about health productivity as much as the age profile of the population.

Growth and how we get it going is the number one thing to talk about. We must avoid transforming from being social democrats who too often only wanted to talk about spend and not how to create wealth, into social democrats who only talk about how to cut.  Going forward, the route to growth must be about investment, competition policy, industrial and labour market policy.

In many ways the awkwardly titled ‘pre-distribution’ debate should get us talking about growth and the structure of our economy.  It is clearly right to say that life would be much easier for social democrats if household incomes from market wages were more equal and so traditional redistribution did not have to do so much work. However, a number of the options put forward are not only rather small but are in fact about redistribution and not about changing the structure of industry.

Putting aside issues of employment, a more universal living wage would be useful (especially for the public sector and contracted out services) and getting more mums back to work to balance up household incomes in the lower deciles is an important policy goal. But policies like that  do not really address the major problem of Britain having far too many people employed in firms and sectors that have a low wage, low skills  approach to their activity. The task now is to take advantage of the mood in the country today to search for bolder approaches and not be so critical of redistribution itself that we forget that we will always need it as an important tool in our armoury.

None of this means that tough decisions can or should be avoided on tax and spending. I would be surprised if Labour did not have to embrace more or less whatever the government has said on spending plans for at least the first year or two of a new Parliament, much as it did in 1997. This makes political sense but is also practical since it is very hard to understand where the manoeuvre room is until you are in power. 

We, as social democrats, need to widen the conversation way beyond spending (and tax) to a whole set of other issues that deliver for Britain.

One is to do with getting regulation right so that banks, utilities and other companies act in ways that are more favourable to the national good and to equity. Corporate governance and competition reform come into this category, changing the way that people experience markets and promoting social responsibility.

There are issues at local level and the reclaiming civil society.  Public spending will play a smaller role in the next period than it has in the last decade or two. Yet unlike the right, that sees this as a chance to contract out to for-profit providers, the centre-left can draw on its history of self-help, mutualism and voluntary action to make sure communities are cohesive, support each other and do so in fair ways that avoid total post-code lotteries.

These are some ways of both delivering growth and getting pre-distribution better that get us towards values and keep us away from spend (or tax). These sort of ideas need to have as much prominence in any debates on growth and fairness, as supposing that the answer to our industrial and economic issues will revolve around  more childcare, valuable as that would be.

I am not a tax and spend social democrat: far from it. But I have seen debates of doom and gloom take over the centre–left before.  This gloomy introspection is a dead-end.  Instead we have to focus on growth and the re-creation of hope. Realism yes, but let’s keep our nerve, optimism and our political sense too.

Dan Corry worked for the Labour Party 1989-92, was a Special Adviser in various departments during most of the Labour Government years, including Chair of the Council of Economic Advisers in the Treasury 2006-7 and Senior Economic Adviser to the PM 2007-2010.