by Sahil Dutta
The IPPR, which describes itself as The Progressive Policy Think Tank, has launched the interim report of its Commission on Economic Justice, titled Time for Change: A New Vision for the British Economy. It is a thoroughly researched, useful and important resource that provides a diagnosis of what is broken in Britain’s political economy and how it should be fixed. It nonetheless also speaks from a tradition of centre-left economic thought that has failed for the last four decades.
1. The report
The commission was launched in November 2016 bringing together elite representatives in business, trade unions, civil society and academia - to rethink economic policy for post-Brexit Britain. As an interim report, Time for Change does not make specific policy recommendations but rather “sets out the case for a new approach to economic policy”. The report is hugely critical and the case it makes is powerful, but familiar: The UK is one of the most unequal countries in Europe - geographically, generationally, and in terms of income - and suffers from a flagging economy unable to generate rising income for the majority of the population.
All of which leaves the UK unprepared for the “decade of disruption” that awaits in the 2020s. The challenges are again familiar: Brexit, globalisation, an ageing population, technological change with automation and the rise of digital monopolies, and environmental degradation.
The solution is for an “inclusive… partnership economy in which successful and responsible businesses, a smart and accountable state, strong trade unions and a vibrant civil society work together for the common good.” While these are hopeful sounding statements, they draw from New Labour-era communitarian critiques of capitalism.
In 1931 the Macmillan Committee published a report into British finance and industry that bemoaned the lack of investment support Britain’s financial sector provided the nation’s small and medium size companies. Four decades later Labour's then opposition leader Harold Wilson used his conference speech to attack the “tipster” culture of the City of London, calling for investment for productive purposes, an end to speculation, and the establishment of a state-owned investment bank. Fast-forward to 1995 and Will Hutton’s The State We’re In became a paperback favourite of the concerned classes, making much the same point: Britain’s speculative, shareholder-centric financial sector was failing to adequately support industry.
Time for Change, though also discussing automation, digital capitalism and the gig economy, outlines all the same fundamental concerns with Britain’s economic model that have worried the British left for a century: low productivity, low investment, amateur management, speculative finance.
Were it written in 1987, would Time for Change have identified something different? Though it is important to lay out the weaknesses of the British economy, the report might have been more useful exploring the weaknesses of past attempts at progressive reform.
3. New Labour
In erasing this history, Time for Change also overlooks the IPPR’s own role. The IPPR is very much a New Labour Think Tank and the report is steeped in New Labour thinking. Indeed, even the name of the commission - on “Economic Justice” - is a reference to its Commission on Social Justice that was established by John Smith after Labour’s 1992 election defeat. That commission, whose secretary was David Miliband, was charged with carrying out “an independent inquiry into social and economic reform” and its recommendations helped inform Labour’s workfare social security strategy.
New Labour’s broader position on economic justice stemmed in part from Anthony Giddens’ view that ‘reflexive selves’ – individuals - rather than competing classes, should be the units of both social analysis and policy action. As such to remedy the ills of British capitalism meant government intervention to reform society, rather than the economy. This found life in the ‘inclusion’ agenda: Grant people the skills to facilitate their participation in the economy and ensure globalisation does not mean they are ‘left behind’. Economic inequality was tolerated on the basis that social intervention would prevent economic inequality from transforming into social exclusion.
This thinking is clearly present in Time for Change when it claims that the contemporary fault lines in UK economy “are between those able, through education and culture, to seize the opportunities of a globalised economy, and others who find themselves unable to escape poor jobs on low wages; and between cities that have found new economic strengths, and post-industrial areas that have not”. Exclusion, rather than exploitation, is deemed the problem to solve.
4. Patient capital
Much of the long-standing frustration about Britain’s “growth muddle”, as the report describes it, was the lack of patient, long-term capital provided to Britain’s non-financial companies (NFCs). The same point was a major theme of Hutton’s 1995 book, Labour’s recent Alternative Models of Ownership report, and Mariana Mazzucato’s well-known advocacy for an Entrepreneurial State.
All of this unfolds from the idea that NFCs - those firms like retailers, pharmaceutical companies, manufacturers or management consultants, whose primary product line is not banking or finance - are burdened by shareholders demanding short-term results. This supposed pressure curtails investment in both the workforce and broader research and development needed for sustainable long-term growth.
The trouble with depicting short-termism as a problem of capital market investors, rather than NFCs themselves, is that the solution seems straightforward: use state institutions to incentivise or bypass the market and ensure the provision of "patient capital”. Hence the repeated calls for state-owned banks. Yet, while it is true that small and medium-size enterprises struggle for investment finance, more broadly we live in an age of abundant capital. As the report itself lays out, Britain's corporate sector is hoarding cash. Impatient investors are less the problem than the fact that in a political economy saturated with credit, it is easier for NFC managers to use capital markets to plunder short-term profits for themselves than it is to develop longer-term productive growth.
Indeed, the report notes how stock markets are used by NFC managers for cashing out rather than raising investment finance, but still depicts the problem as one ultimately of rapacious shareholders. It was not "shareholder value governance” that pushed Phillip Green, for example, to ransack BHS. And protecting against similar abuses of managerial power won’t come by using state institutions to provide a deeper pool of patient finance. Rather the challenge is to address financialised management itself.
5. The object of “the economy”
One of the strongest points made in Time for Change is that economic growth is in itself not adequate, for what about the debt, regional inequality, wage stagnation and environmental destruction it might entail? It also notes the staggering inadequacy of using GDP as a proxy for progress.
Yet it offers little reflection on what “the economy” really is. Despite discussion of the need for new economic thinking, the economy is still presented in the neoclassical vein: a self-contained object, like a machine with levers to be pulled, and flows to be adjusted.
Missing is a sustained reflection on the power of economic indicators to constitute political economic life. The structural deficit, as we know, is an estimated accounting entity that anchored economic debate in right-wing territory until Jeremy Corbyn became Labour leader.
In the past, right-wing Think Tanks helped Margaret Thatcher forge revolution in her party, and then the country more broadly, by forging new “objects” of the economy, specifically a highly dubious measure of credit creation, M3. By treating credit creation as a rudimentary function of the government deficit, and inflation as a simple outcome of credit creation, Thatcher was able to turn the terms of economic debate in her favour.
Are economic indicators purely representative - with no real impact on the ‘real world of the economy’ - or are they more productive than that? And how limited is left ambition by the current construction of ‘the economy’? If the "balanced growth" the report desires is to be achieved, perhaps progressive critics would be better served trying to shift the terrain the on which the politics of the economy is fought.
6. The role of government
Time for Change stresses how its proposals present a sharp contrast to the “free market” thinking of Thatcher and Blairism. Government, it contends, is the solution not the problem. Not just to fix market failures but to more actively generate and direct value creation. The idea of government being a complimentary partner upholding a competitive market system comes from a ordoliberal, “institutionalist” tradition that undergirds the German social-market economy. This has long been a source of inspiration for centre-left liberals in Britain.
Yet the belief that filling the “free market” with “institutions” will deliver progressive outcomes misconstrues the role the state currently plays in the so-called Anglo-Saxon, liberal model of British capitalism. The astounding corporate welfare bill is testament to how active the British state is in the private economy. The problem is not a lack of state institutions and “free markets” but the state’s lack of progressive management capacity allowing it to be captured and gamed by the corporate sector.
The IPPR hope the points raised in Time for Change will cut across party lines. Speaking at the launch Michael Jacobs, director of the commission and ex-advisor to Gordon Brown, spoke about the interest Nick Timothy and others close to Theresa May had expressed in the commission’s work before the last election. He also saw hope in May’s early rhetoric about executive pay and worker representation on corporate boards. That, as is always the case, this all came to nothing was apparently no grounds for pessimism.
The belief that somehow ‘common sense’ policymaking can prevail and deliver progressive outcomes requires a significant leap of faith. That wages stagnate, the environment decays, and speculative financiers cash-in isn’t the outcome of ill-conceived policy programmes. It is the outcome of deep power inequities, or what the report describes as “vested interests”.
To counter these deeply embedded privileges the report offers a tautological fix: “increase competition”. In contrast to Labour’s Alternative Models of Ownership report - which focused on restructuring ownership as a means to redistribute power - the privileging of competition is a solution cut from the same ordoliberal cloth as Ed Miliband and the communitarian leanings of New Labour.
To learn from the failures of the past, perhaps the report should now consider how to generate the capacity to force change upon powerful interests who will do all they can to resist. There is little point developing a shopping list of policies if there is no reflection on what is needed to deliver them. In Time for Change, there is little discussion on the techniques of policy implementation that preclude progressive objectives. At the moment, government spending options are worked through the Treasury’s Green Book, which is a very narrow neoliberal procedure for cost-benefit analysis. The Bank of England’s macro-prudential regulation is shaped by models built on largely neoclassical foundations, and staffed by people with a limited conception of political economy.
The policymaking and policy-implementing apparatus of the British state is so concentrated. Confronting that is as much a part of designing a New Vision for the British Economy as coming up with new policies. It may be that Britain’s political economic problems are precisely the kind that cross-party consensus won’t solve.
Photo: Alan Murray Rust
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