Sunday, 9 September 2018

Prosperity and Justice for All

The significance of the IPPR report, Prosperity and Justice: A Plan for the New Economy, is that it would not have been produced as recently as five year ago. Then, Ed Miliband was denounced as a Bolshevik for the modest proposal of a cap on energy prices. That the Conservative government has now implemented such a cap is merely routine opportunism. That a think-tank closely identified with New Labour has developed a plan for the economy that centres on social justice - i.e. equality of outcome rather than equality of opportunity - suggests a more fundamental change in attitude. This is reflected in the language. For example, the word "worker" appears six times more frequently than "entrepreneur" in the report. However, "socialism" is nowhere to be found and "capitalism" only appears in the notes in reference to other publications. This remains at heart a centrist view of the world, but that in turn shows the extent to which the Overton Window has shifted in the realm of political economy. Some commentators have associated that shift with the impact of Brexit, or with Labour's strong showing in last year's general election, but a better analysis is that they were symptoms of a country becoming both more radical and more pro-social since 2010. In retrospect, Ed Miliband's failure in 2015 looks to have been the result of his timidity.

The positive response by John McDonnell, who compared it to the Beveridge Report, might suggest that the IPPR's thinking provides a strong indication of the contents of Labour's next manifesto, and that the latter will therefore be cautious but presented as radical and transformative. On the other hand, McDonnell may be reminding us (with no little irony) that the 1945 Labour government went much further than the Liberal Beveridge did in his proposals, particularly in its plans for the NHS. One piece of evidence to support the latter view is that McDonnell's first major policy statement since the report's publication has been to advocate "ownership funds" whereby a portion of a company's profits would be used to buy non-tradeable shares on behalf of the employees that would provide collective voting rights and potential dividends. This is significantly more radical than the IPPR's suggestion of tax incentives for employee ownership trusts (EOTs) and co-operatives. What McDonnell appears to be suggesting is closer to the Meidner Plan than John Lewis.

The immediate response of the right to the IPPR report focused on the proposals for the greater taxation of wealth (removing the lower rates for CGT and dividends, replacing inheritance tax with a lifetime gifts tax etc), rather than on the proposals for increased worker power or greater state intervention in industry. While wealth and its associated hierarchies have always been the right's priority, they have historically cloaked this in concerns over the competence of the state and the need to encourage private enterprise. Sociologically, this suggests that the right is now dominated more by rentier interests than the entrepreneurs of the Thatcherite imagination, which would certainly accord with the evidence that the Tory Party's electoral support is now even more dominated by the over-60s. The response of the left has been broadly positive, albeit with some caveats about excessive caution, however I can't help thinking that this is because the report is essentially comforting rather than challenging, and even a bit nostalgic. The importance accorded to exports and R&D is strongly reminiscent of David Edgerton's The Rise and Fall of the British Nation, while some of the suggestions in relation to state-led investment and technocratic support for improving productivity carry the flavour of the Wilson years.

The welfare system and education are both "out of scope", which seems odd in a report addressing social justice, but this means that the report can delicately avoid ideas that might challenge the fundamental tenets of social democracy, such as a universal basic income (UBI). Insofar as education does get a look in, there is still an emphasis on the panacea of "improved skills", despite the fact that the two decades since Labour won the 1997 general election on the mantra "education, education, education" have not produced a notable improvement in labour calibre as measured in GDP or productivity. While poor management is cited as a factor in the latter, the connection between the UK's management culture and private education does not come in for scrutiny. All that said, the report's recognition of the importance of power in the economic sphere is welcome, though its unashamedly industrial focus ("we need to shift from trade deficits to what we call 'new industrialisation' across the UK") means that it tends to ignore the importance of power in areas such as the professions and the self-employed.

In terms of those parts of society and the economy that are addressed, the report is still within the paradigm of New Labour. For example, its proposals around housing are still biased towards purchase rather than rent. Saying that "one-third of all new housing should be social housing for rent; one-third genuinely affordable (in perpetuity) for sale; and one-third for sale at market prices" seems radical in the current context, but this will not reverse the historic shift of rentals from the public to the private sector while it isn't explained how you make a third of new builds "genuinely affordable (in perpetuity)" in an open market. A radical policy would be an immediate moratorium on right-to-buy and for 90% of all new builds over the next five years to be council houses for rent. Together with controls on private rents, improved tenancy rights and punitive taxes on empty properties, this might stand a chance of making a small dent in the housing problem over the course of a parliament. In reality, a fix will take a generation, if only because of the headwinds of an ageing population and declining household density. The challenge is at least a big as that of post-war slum-clearance and needs to be addressed as systematically.

Poor productivity is correctly analysed as largely a problem of too many small businesses and too many poor managers, rather than a feckless or unskilled labour force, but the solution is essentially cosmetic in its focus on the coaching of firms. While poor productivity isn't a general problem (there are many high productivity firms in the UK), it is still structural. The key issue is that there are weak incentives for SMEs to consolidate and invest. Raising the minimum wage and empowering unions will both help, but a more radical approach would be to raise the cost of starting a business (or make it expensive to maintain a failing one) in order to dissuade poor performers. In other words, if you can't deliver an above-average rate of productivity from the off, you shouldn't be forming a new firm. That might seem "anti-entrepreneurial", but it should be clear by now that the UK's indulgence of the "entrepreneurial spirit" over the last thirty years has actually been counter-productive, leading to a low-productivity, low-wage economy. Instead of Schumpeter's brave entrepreneur and creative destruction we've had lazy lifestyle businesses and cannibalisation.

The concerns over monopoly are fashionably centred on technology platforms like Google and Amazon, but this tends to downplay that competition between large businesses has declined across many traditional sectors for reasons that have nothing to do with new technology. One reason has been financial engineering, leading to anti-competitive mergers and acquisitions. There is also the problem that natural monopolies that have been privatised, like rail and energy, simply don't produce real competition. Paradoxically, nationalisation would actually reduce the degree of monopoly in the private sector. The IPPR's solutions for restraining the tech giants range from a new quango, the Office for Digital Platforms (OfDigi, no less), to network neutrality and protecting open standards (another example of the essential nostalgia of this report, harking back as it does to the 1990s and an earlier conception of the "new economy"). One that caught my eye was "requiring companies and public institutions to keep audit logs of the data they feed into their algorithms and be prepared to explain their algorithms to the public on request". A statement on what the algorithm is meant to do will not expose unconscious bias or errors of omission in scope. A better proposal would be to require companies to provide a public interface for their algorithms that anyone could feed their own test data to.

Overall the IPPR report is a positive development, though less for the specific proposals than for the rehabilitation of the twin ideas that the state can both positively influence the economy and effect social justice. It is an argument for an activist government, but that in itself does not mean the IPPR is breaking with neoliberal orthodoxy so much as rejecting the extremes of post-Thatcherite laissez faire, which means an evolution from the thinking of the New Labour days rather than a revolution. I suspect the report's chief value for the contemporary Labour Party is in the normalisation of the idea that the state can intervene in the economy. The danger is that it encourages the strain of social democratic nostalgia that has been visible since 2008, leading to a policy framework centred on what David Edgerton characterised as "productionism". The positive sign is that John McDonnell in particular appears to be up for more radical ideas, notably in relation to ownership and social protection. I doubt the IPPR report will have as lasting an influence as Beveridge, but it is a sign of which way the political wind is now blowing.


  1. I feel you are not at you reflective best when you talk of 'productionism'. Yes you take your cue from Edgerton, but why not call it 'manufacturism' or 'increasing returns to scale-ism' or 'investmentism'. All this really means in practice, given mass employment in such sectors is foreclosed by technology, is a still nebulous political search for a legal framework that can hold capital to account, that makes its reproduction somehow dependant on the acquiescence of labour. Of course, as you point out, some of the low hanging fruit here are housing reform, and shareholder employee schemes etc, but those alone won't cut it unless access to the UK market (profit) is made partly conditional on firms deepening the labour-capital ratio. Unless we get back on that track, then the logic of relative scarcity will continue to tear at our political and social stability. So hooray for productionism and the search for policy freedom in a world of capital freedom.

    1. What I was referring to as "productionism" is not a commitment to a larger manufacturing sector (which is to be applauded) or investment more generally (ditto) but a particular approach to economic governance in which success is measured in terms of output and in particular exports and the balance of payments. There are two problems with this.

      First, the measure of success for a government then becomes economic performance (much as success since the late-80s has been measured in terms of financial performance, e.g. the exchange rate and "market confidence"). This distracts from tangible achievements in the social sphere (something that was all too apparent during the Wilson years), plus it gives the City too much of a voice in the assessment of an administration.

      Second, a focus on relative performance with other nations ("the global race" etc) means that the UK would be on a hiding to nothing. One of Edgerton's key points is that Britain's industrial policy was actually very successful in the 45-75 era but that the relatively faster development of competitor nations (for secular reasons that were beyond the UK's power to affect) allowed this to be damned as "decline".

      Paul Mason, in the New Statesman, makes a similar point when he says that "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".

      The IPPR report suggests that we can have both prosperity and justice, but it may be that the best we can hope for in respect of the former is to maintain levels of GDP and gradually improve productivity. In that case, the political focus should be on justice: addressing inequality. The danger of the productionist mindset is that we spend most of our effort worrying over the balance of payments.

  2. Thank you for replying. I see much better now what you mean. The wider question appears to me to be a reprise of Hume's famous jealousy of trade argument. In the 18th c the question was bullionism and populationism as indices of relative economic supremacy, whereas today it is export led growth, and populationism, both of which are identified and manifested in the national statistical complex as the terms of the GDP / debt ratio. I quite agree that this kind of race for international honours tends to break away from a more meaningful understanding of what constitutes prosperity for a country. I’m not sure how Mason actually relates to this. His argument for a defensive strategy for the ‘good jobs’ ultimately circles back to the state nurtured development strategies of the 40s and 50s for both poor and rich countries, and though I welcome this, it is impossible to achieve without restricting capital movement. The IPPR, nor yet any main stream group, has nothing to say about this particular mastodon in the room. The classical economists always understood this point. Even Ricardo’s comparative advantage free trade argument is explicitly predicated on capitals being fixed within nations. In terms of labour party politics, it is tempting to see MacDonald and Corbyn being split on this issue, with the former focused on the domestic agenda, and Corbyn only excited by neo-colonialism and foreign policy justice. But ultimately the former requires the latter to succeed, if ‘productionism’ is to be replaced by something that can survive the next century.