Statecraft without statism: governing for shared prosperity in an age of austerity

The task is to seek material gains through a new, less transactional politics.

Whoever governs from 2015 will have to do more than repair the public finances, as tough as that will be. If shared growth is to be saved, an incoming administration will need to be radically reformist at the same time. This will mean fixing the structural failures that caused living standards to falter for all but the richest before 2008, restoring the three conditions of shared growth: fuller employment, a strong link from productivity to pay, and a sustainable welfare system for families. It will mean little less than re-crafting the state for new times.

Consider fuller employment. Simply returning the UK to a pre-crisis employment rate requires 850,000 more jobs. Even if the UK now emulates the strongest sustainable period of employment growth in the past 20 years –the late-1990s jobs boom – this will take until late 2016. We will not come close to this without steady growth.

But fuller employment won’t flow from growth alone. It will also require reform. The UK population aged 65 and over is growing twice as fast as the population aged 16–64, meaning unprecedented employment among over 65s is needed to stand still. And with soaring childcare costs undermining incentives to work, parents as well as older workers will need more support if people are to move into the new jobs we create.

What about productivity and pay? Anaemic demand has caused an unprecedented collapse in real wages and spikes in job insecurity. But around one in five UK workers were already paid below £7.50 an hour before 2008, trapped in sluggish swathes of our jobs market that have expanded over time. Meanwhile, the link from productivity to pay has eroded; only 18 per cent of pre-tax income now goes to the entire bottom half while 10 per cent goes to the top 1 per cent. None of this will change until growth returns.

But just as with employment, growth won’t be enough. Addressing low pay will require reform. In a society that is older, more unequal and increasingly online, the growth sectors of the future aren’t just hi-tech knowledge industries that create well-paid jobs but also low paying industries like social care, hospitality and logistics. The UK’s skills system and the structures in our jobs market don’t encourage good quality versions of these jobs. They need an overhaul.

Finally, what about welfare? How will families with children keep up with childless households as growth returns? No level of employment or wage growth can fulfil this function. Assuming that we don’t want to send children out to work, the task of sharing growth with larger households is necessarily one for the tax and benefit system – it’s one reason that tools like Child Benefit were created.

The squeeze on these forms of support is unlikely to end until growth returns. But even once a recovery takes hold, no-one seriously believes that today’s approach to family support is a sustainable settlement. In 2015, the UK will be left with two illogically separate systems of means-tested child support, Child Benefit and Universal Credit. Meanwhile, the coalition’s cuts work mainly by freezing and squeezing support rather than re-sculpting it. No party has yet set out which parts of the system should be protected or extended and which will need to be run down over time. Such decisions will be needed if the system is to be made sustainable.

So, ambitious reform is needed to save shared growth. How can this be delivered when there’s no money? One thing is clear: the answer can’t be to use the same approach as the last government, when so many major reforms relied heavily on a growing spending envelope, whether through large pay hikes for GPs’ extended opening hours, vast capital spending for early academies, or simply funding reductions in child poverty without contentious cuts elsewhere. Next time around, there won’t be money to oil the wheels.

In thinking about how to drive reform without money, a useful place to start is Jon Cruddas’s recent critique of New Labour’s statecraft. He argues that New Labour became managerial and bureaucratic, focusing overwhelmingly on material goals that under-emphasised culture, community and family and also became pre-occupied with state remedies. The result was a transactional approach to social problems like child poverty that had some major successes, for example, raising 1.1 million children above the poverty line, but that was also both too reliant on new spending, and too liable to lead to change with shallow roots.

The call for a richer, deeper statecraft – both less purely materialist and less instinctively statist – is a useful one when thinking about a post-2015 agenda on living standards. But it has both strengths and weaknesses. On the one hand, it must be right that shared growth won’t be saved unless progressives break away from a cold arithmetic of cash transfers and distributional charts to argue for more structural reforms. On the other hand, by far the greatest challenge we now face is a material one of falling living standards. Now is hardly the time to retreat into a post-materialist politics of pubs, patriotism and parks.

So the task is to seek material gains through a new, less transactional politics, obsessing less with static charts of winners and losers and more with economic empowerment through reform, embracing an instinct to spread power in the market. That means rejecting power hoarding in the central state, including policy solutions that see poverty reduction as something done for people rather than with them, and shifting away from cash transfers towards structural reforms like investment in pro-employment public services and the institutions in which they are provided.

What could that mean in practice? On employment, the priorities are services that give individuals and families more freedom to boost their own incomes through work, like childcare and elderly care, and fully functional re-employment and support services for older workers as extensive as traditional job search services are today.

What about pay? A minimalist approach of ‘skills supply plus a minimum wage’ has proven a grossly inadequate response to the modern challenge of low-wage labour. A fuller response would make the Low Pay Commission worthy of its name with a broader, more strategic remit, advising the government on how to reduce the extent of low pay and assessing the ‘affordable wage’ that major sectors could pay without employment effects. This would need to be backed with stronger sectoral institutions to address the coordination failures that stop UK employers from investing in skills, and particularly long-term training relationships with young people. It will also require detailed work to raise demand for skills – for example, through the greater use of occupational licences.

The long-term view must be grounded in a recognition that shared growth depends as much on reform as on recovery. Broad-based real income growth won’t return until its three foundation stones – fuller employment, a stronger link from productivity and pay, and a sustainable welfare system for families – are back in place. Achieving this in the austere environment of the next parliament will require a new way of governing. It is a no less material agenda than those pursued by progressives in the past. But it will need a richer, more confident and less statist approach to reform than the last government, requiring a statecraft that is appropriate for new times.

 

James Plunkett is director of policy at the Resolution Foundation. He writes in a personal capacity.

A fuller version of this article first appeared in the February issue of Juncture.

Jon Cruddas, the head of Labour's policy review, has criticised the last government for becoming too managerial and bureaucratic. Photograph: Getty Images.

James Plunkett is director of policy and development at the Resolution Foundation

Getty
Show Hide image

How the mantra of centrism gave populism its big break

A Labour insider reflects on the forces behind the march of populism. 

For just under a quarter of a century, British politics has been dominated by what might be called, paradoxically, a “theology of centrism” - the belief that most people were more concerned with what works than ideology, and that politics should principally be the art of improving the delivery of public goods. It was a theology that, for all their policy differences, united Tony Blair and David Cameron. Anyone who thought electoral success could be won anywhere but from the centre was either naïve or fanatical, or both... but definitely wrong.

Now, populism is on the march across the West. In Britain, as elsewhere, the political class is unnerved and baffled.

So what happened? Partly, as with all revolutions in politics, the answer is: “events”. Unsuccessful wars, economic crashes and political scandals all played their part. But that isn’t enough of an explanation. In fact, the rise of populist politics has also been a direct result of the era of centrism. Here is what has taken place:

1. A hollow left and right

First, the theology of centrism was the culmination of a decades-long hollowing out of mainstream politics on the left and right.

In the mid-20th century, Conservatism was a rich tapestry of values – tradition, localism, social conservatism, paternalism and fiscal modesty, to name but a few. By 1979, this tapestry had been replaced by a single overriding principle - faith in free-market liberalism. One of Margaret Thatcher's great achievements was to turn a fundamentalist faith in free markets into the hallmark of moderate centrism for the next generation of leaders.

It is a similar story on the left. In the mid-20th century, the left was committed to the transformation of workplace relations, the collectivisation of economic power, strong civic life in communities, internationalism, and protection of family life. By the turn of the 21st century, the left’s offer had narrowed significantly – accepting economic liberalism and using the proceeds of growth to support public investment and redistribution. It was an approach committed to managing the existing economy, not transforming the structure of it or of society.

And it was an approach that relied on good economic times to work. So when those good times disappeared after the financial crash, the centrism of both parties was left high and dry. The political economic model of New Labour disappeared in the first days of October 2008. And when a return to Tory austerity merely compounded the problem of stagnant living standards, public faith in the economic liberalism of the centre-ground was mortally wounded.

2. Fatalism about globalisation

Second, Labour and Tory politics-as-usual contained a fatalism about globalisation. The right, obsessed with economic liberalism, welcomed globalisation readily. The left under Bill Clinton in the US and Blair in the UK made their parties’ peace with it. But globalisation was not a force to be managed or mitigated. It was to be accepted wholesale. In fact, in his 2005 Conference speech, PM Tony Blair chastised those who even wanted to discuss it. “I hear people say we have to stop and debate globalisation," he said. “You might as well debate whether autumn should follow summer. They're not debating it in China and India.” (I bet they were, and still are.) The signal to voters was that it was not legitimate to fret about the pace and consequences of change. No wonder, when the fretting began, people turned away from these same politicians.

3. A narrowing policy gap

Third, the modernising projects of Blair and Cameron ended up producing a politics that was, to use Peter Mair’s term, “cartelised”. The backgrounds, worldviews and character of party elites began to converge significantly. Both parties’ leaderships accepted the same external conditions under which British politics operated – globalisation, economic liberalism, sceptical acceptance of the EU, enthusiasm for closeness to the US on security issues. The policy space between both main parties narrowed like never before. As a result, economic and class divisions in the country were less and less reflected in political divisions in Westminster.

The impression arose, with good reason, of an intellectual, cultural and financial affinity between politicians across the main divide, and between the political class and big business. This affinity in turn gave rise to a perception of “groupthink” across the elite, on issues from expenses to Europe, and one that came with a tin ear to the concerns of struggling families. It may be misleading it is to depict all politicians as snug and smug members of a remote Establishment. Nevertheless, social and economic convergence inside Westminster party politics gave populists an opportunity to present themselves as the antidote not just to Labour or the Tories, but to conventional politics as a whole.

4. New political divides

Lastly, the populist moment was created by the way in which new electoral cleavages opened up, but were ignored by the main political parties. The last decade has seen a global financial crash that has restored economic insecurity to frontline politics. But at the same time, we are witnessing a terminal decline of normal party politics based fundamentally on the division between a centre-left and centre-right offering competing economic policies. 

Of course economics and class still matter to voting. But a new cleavage has emerged that rivals and threatens to eclipse it - globalism vs nationalism. Globalists are economically liberal, positive about trade, culturally cosmopolitan, socially progressive, with a benign view of globalisation and faith in international law and cooperation. Nationalists are hostile to both social and economic liberalism, want more regulation and protection, are sceptical of trade, see immigration as an economic and cultural threat, and have little time for the liberal international order.

The factors that drive this new electoral divide are not just about voters’ economic situation. Age, geography and education levels matter – a lot. Initially both main parties were tectonically slow to respond to this new world. But populism – whether Ukip, the SNP or Theresa May's Tories – has thrived on the erosion of the traditional class divide, and sown seeds of panic into the Labour party as it faces the prospect of sections of its traditional core vote peeling away.

Centrists thought their politics was moderate, pragmatic, not ideological. But signing up to free market liberalism, globalisation and an economistic view of politics turned out to be seen as a curious kind of fundamentalism, one which was derailed by the 2008 crisis. The exhaustion of the theology of centrism did not create populism – but it did allow it a chance to appeal and succeed.

Those on the left and right watching the march of populism with trepidation need to understand this if they are to respond to it successfully. The answer to the rise of populist politics is not to mimic it, but to challenge it with a politics that wears its values proudly, and develops a vision of Britain’s future (not just its economy) on the foundation of those values. Populists need to be challenged for having the wrong values, as well as for having anger instead of solutions.

But calling for a return to centrism simply won’t work. It plays precisely to what has become an unfair but embedded caricature of New Labour and Notting Hill conservatism – power-hungry, valueless, a professional political class. It suggests a faith in moderate managerialism at a time when that has been rejected by events and the public. And it tells voters to reconcile themselves to globalisation, when they want politicians to wrestle a better deal out of it.

Stewart Wood, Lord Wood of Anfield, was a special adviser to No. 10 Downing Street from 2007 to 2010 and an adviser to former Labour leader Ed Miliband.