A new economic plan that could make Labour the natural party of government
The IPPR’s new report recognises the need for more aggressive state intervention than traditional social democrats and liberals could ever countenance.
There was a time when, if I received a report from the IPPR, fronted by a bunch of well-meaning, progressive chief execs, I would flip through the executive summary and throw it in the shredder. The ideas were usually bland but harmless: austerity-lite, privatisation with a human face, light-touch regulation. The aim - to put a human face on neoliberalism - was often window-dressing.
But Prosperity and Justice: A Plan for the New Economy is worth a lot more than a cursory read. It represents a belated shift in thinking within the centre left about economic strategy. Plus, because it contains enough detail to bulk it out to book size, the report is unshreddable.
The authors have drawn up a plan which the Labour frontbench should accept, embrace and build on: not because it contains the most radical left programme for economic renewal but the opposite. It represents a shift in thinking inside a section of Britain’s business class which, if consolidated, would make Labour - allied with the progressive nationalist parties - the natural party of government for the next decade.
The analysis of Pros’perity and Justice is not new: indeed it will be familiar to every left-of-centre pundit fuming against the orthodoxy of the last two decades: short-termist investment and reliance on asset price inflation has created a low-productivity economy, a highly monopolised business landscape, with an unsustainable trade deficit, producing wage stagnation and a society scarred by injustice.
What’s new is the philosophy behind the solutions offered: the acceptance that the market cannot self-correct these old problems, and the realisation that - as we grapple with them - the UK is failing to address the new problems, above all the challenge of automation and its coming effects on work and consumer demand.
The solutions to the old problems are well-known from the textbooks: investment-led growth, active industrial strategy, the suppression of both speculative finance and monopoly power. What is new in the IPPR’s report is the understanding that each of these requires much more aggressive state intervention than traditional social democrats and liberals could ever countenance.
At the core of the strategy lie two institutions long advocated by Mariana Mazzucato, one of the report’s advisers: a national investment bank and an industrial strategy that goes beyond hi-tech clusters, and instead uses state-directed investment to promote a new export industry, and restructures how individual firms operate at the micro level.
If they worked, these proposals, alongside a new remit for the Bank of England would not put the UK in the same league as South Korea, Japan and Germany overnight. But they would at least give us the chance to start playing the same game.
The weakness of the report lies in its failure to properly describe the obstacles it faces.
The first two are domestic: Britain’s elite is increasingly dominated by people who manage the money, legal affairs and PR for foreign oligarchs, mafiosi and princelings. These no longer simply include the despots of central Asia and the playboys of the Middle East, but the new rich of the industrial economy everyone is trying to emulate: China.
There is, not just in the finance sector but across the elite service industries, a material interest wholly opposed to the creation of a fairer Britain by suppressing speculation and reregulating the economy.
The second domestic barrier is mainstream economics, as hardwired into the Treasury, the government economic service and numerous elite-funded mouthpiece bodies. Their doctrine tells them that state intervention, micro-scale business reform, borrowing to invest are cures worse than the disease.
On top of that are the external obstacles. Trump has taken a wrecking ball to globalisation, started a trade war, and may yet tear the WTO to pieces.
And on top of that, there is a more existential problem. Right now, in every business conference I attend, I hear a mixture of technological euphoria and geopolitical doom. Trump, Brexit, Salvini etc are all disasters, goes the argument. But hey, the fourth industrial revolution is just around the corner. The tacit assumption is that technological progress will in some way solve the geopolitical and social crises we are living through.
The argument of my book Postcapitalism is that it does not. Information technology does not create value in the sense understood by mainstream economics, but - outside conditions of high monopoly and rent-seeking - erodes it. By this analysis, the 2008 crisis was not an accident caused by poor regulation, to be resolved after 10 years of deleveraging and austerity, but an advance signal that there is not enough value in the hi-tech economy of the future to service, let alone repay, the debt mountain created in the neoliberal era.
If I am right, then, instead of a being a strategy for staking Britain’s claim on the sunny uplands of the fourth industrial revolution, the state intervention advocated by the IPPR might be necessary simply to defend the UK’s national interest in a world where major economies begin to compete viciously for what growth, jobs and trading opportunities remain.
That said, Prosperity and Justice is significant, and makes Labour’s task both easier and more urgent. In Labour policymaking circles, the most commonly expressed frustration is the slowness and caution of the leader’s office. No matter how different Corbyn’s leadership has been from that of Blair, Brown and Ed Miliband, it seems there is a default mode for Labour, when it comes to making policy, of slowness and inexactitude.
The IPPR report, therefore, is a precious gift to the left. It validates John McDonnell’s political impulse to make industrial strategy and the national investment bank the flagship policies of the next Labour government.
But in response, before and during the party conference, we need a display of verve, decisiveness and narrative skill. I want to hear from the shadow housing, business, environment, transport and local government ministers. And what I want to hear is: what is the one dramatic thing you are going to do that will transform this country?
Finally, the IPPR report begs a question Labour still seems reluctant to answer – what kind of Brexit do we want?
The report’s core proposal is to reindustrialise Britain. For that, you need target export markets. And for that you need to make a clear choice, whose implications will reverberate for decades: do you want to build an export industry primarily focused on our major market, Europe, or as the Tory right advocates, produce for a post-Trump world whose trade patterns have yet to be established.
In an era of global fragmentation, for me it is a no-brainer that a new British export-oriented industry should primarily focus on the European single market. It does not matter that the old British trade patterns, focused on services and a massive trade deficit, drifted away from Europe and became more global after 2000: we are talking here about the rational design of a new sector.
To fulfil the IPPR’s plan, Britain would need to be inside either EFTA/EEA or the EU itself. To build the new industrial capacity might need some tough negotiations with Brussels, for instance on competition and state aid laws. But I cannot see the alternative as viable - that is, designing the UK’s future export sector in a way that sees friction free trade with Europe as “nice to have”.
We need, to put it bluntly, some clarity from the Labour frontbench over the Brexit endgame – to fulfil the vision the IPPR report outlines you would need to be either in the single market or so close to it that you cannot tell the difference.