The two big lessons for the UK from Germany and the Nordics

Social investment welfare spending is central to future prosperity and the state has to become a more active and assertive economic actor.

There are two big economic debates in Britain today. The first is the familiar one about whether austerity is the right response to the aftershocks of the global financial crisis that pushed so many countries around the world into deep recession, leaving a colossal debt overhang. The second, and no less important, is the question of whether Britain can craft a more sustainable growth model, if not a new political economy. To a large extent, the government seems intent on sidestepping this question, mainly resorting to quick fixes like subsidised mortgage credit, and sticking plasters, like timid banking reform and lower corporation tax, to recover the economic output that has been lost since 2008. Labour, in contrast, sounds more ambitious and has repeatedly advocated the need for deeper reform of the British economy.

The case for reform is indeed strong: despite hosting numerous leading edge companies and sectors, together with world class universities and a strong labour market, the UK remains a worryingly weak export nation gripped by excessive financialisation and rising consumer debt. Business investment is pitifully low and productivity failing to improve. Many companies struggle to offer decent, let alone quality, employment. From this perspective, the recovery looks far less impressive.

No wonder, therefore, that progressive policy-makers look for inspiration to countries that appear to offer a more attractive socio-economic model of development. For many on the British left, Germany provides the answers: its strong manufacturing base, ingenious system of apprenticeships and vocational education, and network of regional banking would guarantee a better balanced, more competitive, higher wage economy. Its record low youth unemployment rate, now below 8 per cent, is a case in point. Yet if Labour is right in wanting to pursue an agenda of radical economic change, is it also correct in singling out the German model as a beacon for Britain? The answer is: yes and no.

If policy emulation and international comparison are imperative for countries to improve their own policies, path dependency, long-standing traditions and all sorts of political obstacles put a clear limit to what can actually be transposed.  For instance, Germany’s system of municipal, non-for-profit banks (Sparkassen) goes back to the 18th century. Over more than 200 years they have built up a market share of nearly 40 per cent in retail and SME banking, generously aided by explicit state subsidies, now suspended. How to replicate such a system under present-day conditions, in which new entrants face formidable hurdles, is hard to imagine. And is Britain really dealing with a crisis of "safe lending"? The evidence remains inconclusive. In other words, mutual policy learning requires a much greater capacity for adaptation, experimentation and institutional renewal within set boundaries. Grand ambitions alone do not suffice.

There is another important caveat: as the political economist Kathleen Thelen has argued, the coordinated social market economies, like Germany, have been liberalising in recent decades too, creating new forms of dualism between low wage service sector employment and the high-skill export sectors. While precarious working conditions increased significantly, real productivity growth did not occur. Germany has its very own set of competitiveness weaknesses, ranging from highly unfavourable demographics (the highest median age in Europe) to, skill shortages in important export sectors and a creaking infrastructure.

We just cannot import a new political economy. This is all the more true given the enormous pressures that any successful economic model is currently facing. As in the case of Germany, the Nordic countries, the traditional standard bearers of centre-left aspiration, have their fair share of challenges – whether in the fight to combat unemployment, most notably in Sweden, the quest to maintain and secure educational excellence, or the economic integration of migrants. Moving on from the policy frameworks and partnerships of the 20th century to new, innovative forms of governance fit for the 21st century is proving difficult everywhere in the industrialised world.

Britain must learn selective lessons from northern Europe and beyond, adjusting reforms to its own particular institutions, geography and policy trajectories. Two immediate lessons stand out. First, social investment welfare spending remains absolutely central to future prosperity. Contrary to what many conservatives claim, strategic investments in childcare, welfare-to-work or retraining programmes underpin high employment rates, productive economic growth and fiscal resilience. The big challenge for Labour is how to increase the level of social investment while decisively cutting the deficit. Stark choices have to be made.

Second, the state has to become a more active and assertive economic actor. This can mean devising fine-grained industrial strategies for key sectors, coordinating employers to organise and invest in apprenticeships and skills, or sponsoring new links between leading edge SMEs and public sector agencies. But it should also be about empowering cities with tools for economic development as well as new forms of fiscal devolution. As the economist Wendy Carlin and others have shown, cleverly designed supply-side polices can promote dynamism and reduce inequality.

The bottom line is that the state will continue to evolve from the traditional welfare role towards an agent of modernisation and structural reform. Best practice from abroad will be an indispensable guide – but only if applied in the right way.

Olaf Cramme and Nick Pearce are, respectively, directors of Policy Network and the Institute for Public Policy Research. The conference “A New Political Economy for Britain’ takes place on 30 January

 

The Reichstag building housing the German parliament Bundestag. Photograph: Getty Images.

Olaf Cramme and Nick Pearce are, respectively, directors of Policy Network and the Institute for Public Policy Research

Nigel Farage and Paul Nuttall. Photo: Getty
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Nigel Farage and Douglas Carswell don’t need to stand again as MPs – they’ve already won

I just loathe these people. I want to see them humiliated. 

We’re a week in to the campaign, and it’s clear that the 2017 election is going to be hell on toast. The polls show the Tories beating Labour in Scotland (for the first time in a generation) and Wales (for the first time in a century). The bookies put the chances of a Labour majority at around 20/1, odds that are striking mainly because they contain just one zero.

The only element of suspense in this election is whether Theresa May will win a big enough majority to keep Labour out of power for a decade, or one big enough to keep it out for an entire generation. In sum: if you’re on the left, this election will be awful.

But there was one bright spot, a deep well of Schadenfreude that I thought might get us through: the campaign would provide plentiful opportunities to watch the people who got us into this mess be humiliatingly rejected by the electorate yet again.

After all, Ukip’s polling numbers have halved since last summer and the party has fallen back into fourth place, behind the pro-European Lib Dems. Nigel Farage has failed to become an MP seven times. It thus seemed inevitable both that Farage would stand, and that he would lose. Again.

If the vexingly popular Farage has never made it to parliament, the odds that his replacement as Ukip leader, Paul Nuttall (the Walter Mitty of Bootle), would manage it seemed minimal. Ukip may have won last year’s referendum; that did not mean its leaders wouldn’t still lose elections, preferably in the most embarrassing way possible.

The true highlight of the election, though, promised to be Clacton. The Essex seaside town is the only constituency ever to have returned a Ukip candidate at a general election, opting to let the Tory defector Douglas Carswell stay on in 2015. But Carswell’s libertarian belief that Brexit was definitely not about immigration always seemed an odd fit with Ukip, and he left the party in March. In the upcoming election, he seemed certain to face a challenge from the party’s immigration-obsessed donor Arron Banks.

The Clacton election, in other words, was expected to serve as a pleasing metaphor for Ukip’s descent back into irrelevance. The libertarians and nativists would rip chunks out of each other for a few weeks while the rest of us sniggered, before both inevitably lost the seat to a safe pair of Tory hands. This election will be awful, but Clacton was going to be brilliant.

But no: 2017 deprives us of even that pleasure. Carswell has neatly sidestepped the possibility of highlighting his complete lack of personal support by standing down, with the result that he can tell himself he is quitting undefeated.

Carswell has always stood apart from Ukip but on this matter, at least, the party has rushed to follow his lead. Arron Banks spent a few days claiming that he would be running in Clacton. Then he visited the town and promptly changed his mind. At a press conference on 24 April, Paul Nuttall was asked whether he planned to stand for a seat in Westminster. Rather than answering, he locked himself in a room, presumably in the hope that the journalists outside would go away. Really.

As for Farage, he seems finally to have shaken his addiction to losing elections and decided not to stand at all. “It would be a very easy win,” he wrote in the Daily Tele­graph, “and for me a personal vindication to get into the House of Commons after all these years of standing in elections.” He was like an American teenager assuring his mates that his definitely real Canadian girlfriend goes to another school.

Why does all of this bother me? I don’t want these people anywhere near Westminster, and if they insisted on standing for a seat there would be at least the chance that, in these febrile times, one of them might actually win. So why am I annoyed that they aren’t even bothering?

Partly I’m infuriated by the cowardice on show. They have wrecked my country, completely and irrevocably, and then they’ve just legged it. It’s like a version of Knock Down Ginger, except instead of ringing the doorbell they’ve set fire to the house.

Partly, too, my frustration comes from my suspicion that it doesn’t matter whether Ukip fields a single candidate in this election. Theresa May’s Tories have already assimilated the key tenets of Farageism. That Nigel Farage no longer feels the need to claw his way into parliament merely highlights that he no longer needs to.

Then there’s the fury generated by my lingering sense that these men have managed to accrue a great deal of power without the slightest hint of accountability. In the south London seat of Vauxhall, one of the most pro-Remain constituencies in one of the most pro-Remain cities in the UK, the Labour Leave campaigner Kate Hoey is expected to face a strong challenge from the Liberal Democrats. Even Labour members are talking about voting tactically to get their hated MP out.

It remains to be seen whether that campaign succeeds but there is at least an opportunity for angry, pro-European lefties to register their discontent with Hoey. By contrast, Farage and his henchmen have managed to rewrite British politics to a degree that no one has achieved in decades, yet there is no way for those who don’t approve to make clear that they don’t like it.

Mostly, though, my frustration is simpler than that. I just loathe these people. I want to see them humiliated. I want to see them stumble from gaffe to gaffe for six weeks before coming fourth – but now we will be deprived of that. Faced with losing, the biggest names in Ukip have decided that they no longer want to play. And so they get to win again. They always bloody win. 

Jonn Elledge edits the New Statesman's sister site CityMetric, and writes for the NS about subjects including politics, history and Daniel Hannan. You can find him on Twitter or Facebook.

This article first appeared in the 27 April 2017 issue of the New Statesman, Cool Britannia 20 Years On

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