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27 February

Keir Starmer’s economic model isn’t Blairism – it’s ordoliberalism

The Labour leader’s emphasis on economic institutions resembles the philosophy behind Germany’s social market.

By Jonathan Portes

It’s easy to mock Keir Starmer’s pledge to give the UK the highest sustained growth of any G7 country, both for being too specific – and setting him up for failure – and too general (who doesn’t want higher growth, particularly given the UK’s recent mediocre performance?). But both somewhat miss the point: obviously economic growth should be central to Labour’s agenda, and if Labour can indeed achieve consistently faster growth few will care whether or not we outperform Canada on some cyclically adjusted measure. The question is whether Labour’s policies will deliver.

Here Starmer offered some specific areas of focus, but very little in the way of detail: childcare, planning reform, a wide industrial strategy, a more strategic approach to public procurement. Few politicians – including, for example, George Osborne and Vince Cable – would dispute that these are important. As ever, the test will be whether policies can not just be announced but implemented.

But more broadly, he also committed to an approach to economic management that is based on stability, predictability and a reliance on the UK’s established economic institutions and rules. Some have caricatured this as either reheated “Blairite neoliberalism” or the formalisation of an existing consensus with the current (as opposed to the previous) Conservative administration.  

[See also: Labour’s fiscal paradox]

There are certainly risks to the pledge that all spending needs to be “fully costed”. Arguably, one of Tony Blair and Gordon Brown’s greatest mistakes was the commitment to stick to the Conservative’s wholly unrealistic spending plans. This led to unnecessary and damaging spending restraint in the first two years, meaning very rapid increases then became politically and economically inevitable. This bust-then-boom approach did eventually improve services, but much more could have been done with a more gradual and better planned approach. If Labour is serious about reforming health, welfare and crime and policing, upfront spending will be required.  

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But Starmer was talking about more than just tax and spending. He emphasised that reversing the UK’s abysmal record on business investment, and building a genuine partnership between public and private sectors to deliver growth, requires certainty and stability across the board, in economic policies and institutions well beyond fiscal policy. Part of this is the obvious contrast with the current regime: while Rishi Sunak and Jeremy Hunt can claim to be personally committed to these principles, their party clearly is not.

Making a reality of that means more than just setting and respecting fiscal rules. It means establishing a durable economic framework for fiscal devolution, so that cities and localities do not just have control over spending but assurance that they can plan for the future on that basis. It means making tax reforms that don’t just focus on pulling Budget rabbits out of hats but on simplicity, predictability and transparency. And it means not just “fixing” our Brexit deal but – as Starmer also said – resetting our economic relationship with the EU for the long term.

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So this goes rather further than the Blair-Brown approach of macroeconomic stability combined with fiscal redistribution and better funded public services. Starmer’s faith in the necessity of a strong and stable institutional framework, with a government committed to maintaining it, goes beyond neoliberalism – indeed, arguably, it looks more like a version of “ordoliberalism”, the philosophy that underpinned Germany’s successful postwar social market economy.  The catch is, of course, that it requires a new political consensus. Starmer and Labour can lead, but other parties, and the wider political class, have to follow.

Read more:

I would never have been selected in Starmer’s Labour

What does Keir Starmer stand for?

Keir Starmer’s missions

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