Policy Research in Macroeconomics

Rethinking Britain: the fundamental choice we face on December 12th


At stake in December’s General Election in December is much more than just Brexit, though Brexit in the form proposed would be damaging enough.  It is a fundamental choice of the kind of society we want to develop.

In September, Rethinking Britain: Policy Ideas for the Many, was published, of which I was co-editor. The book brings together the creative ideas – across a wide range of economic and social policy fields – for a revived Britain based on the principles of a progressive, future-focused social democracy.  Some 40 authors have contributed.

I was given the challenging task of writing the introduction and conclusion to the book.  Below, I set out my concluding chapter in which I have sought to draw the strands together, and reflect on what is at stake..  The final words summarise what I see as the fundamental nature of the choice the people of Britain are called upon to make on 12th December.

“Today, we face huge challenges and risks as a country, and fundamental choices of political and economic direction.  Our situation is not so grave as in 1945, for sure, but the choices we make now will shape our country for many decades to come.

We face, broadly, three choices for the UK’s future. The first is of conservative nationalism.  The second is of market fundamentalism.  The third is a progressive turn to the values of social democracy, translated into policies shaped to support and liberate the many, not to empower and enrich the few.”

‘Rethinking Britain: Policy Ideas for the Many’ is a publication of Policy Press, in partnership with PRIME and the Progressive Economic Forum (PEF).  Price £11.99 via Bristol University Press website. It is edited by Sue Konzelmann, Susan Himmelweit, Jeremy Smith and John Weeks.

 Policy Ideas for the Many – Conclusions

We have sought to organise the policy proposals in this book under five broad themes that reflect principles of a future-focused social democracy.  However, the ideas set out here come from almost 40 authors, and – despite their breadth and scope – neither pretend nor aim to form a comprehensive package of social and economic policy proposals.

Moreover, one of our editorial purposes for this book is to encourage and facilitate readers to dip in and out of the contributions, according to interest and opportunity.   We have therefore not sought to set out a definitive set of “conclusions” that would claim to draw together all the strands of policy to be found within the book’s cover.

What unites all the contributions, however, is a spirit – a clear, strong sense that the hitherto dominant economic paradigm is not only shifting but melting before our eyes, and that new policy solutions are urgently needed.

Since 1945, the UK and indeed all those countries comprising the ‘advanced economies’ have lived through two discrete politico-economic eras, each lasting some 30 years, and each giving rise to its specific suite of social and economic policies.

Era 1 – the age of managed capitalism

The first, which lasted (more or less) till the late 1970s, and whose end was symbolised by the British government going to the IMF for a ‘structural adjustment’ programme, we may call the era of managed capitalism, with a mixed economy and strong welfare state, and full employment as a key goal. Despite its hard ending, this era saw bigger increases in GDP per head and incomes, and lower inequality, than in any other.

Era 2 – the ‘free market’ age

The second, the ‘free market’ age, in which the state promoted and enforced liberalisation, privatisation and financial deregulation, held sway until the Global Financial Crisis struck in 2008. The argument (often self-interested) that deregulated globalised finance, leading as it did to the build-up of unprecedented levels of private debt, was for the public benefit, imploded almost overnight amidst its own contradictions, along with the economy itself.

Until 2007, GDP per head on average continued to rise at a reasonably fast rate (2.3 to 2.4% average per year).  Inequality rose sharply, as measured by the UK Gini coefficient, between 1979 and 1991 (from 0.26 to 0.34), before plateauing a little below the 1991 level.

The stalled decade from 2008

Annual GDP per head then almost stalled for over a decade (the average change from 2008 to 2017 being just 0.4%).   No other decade since 1945 has seen such a weak overall economic development.  The fact that unemployment fell back from a crisis peak of over 8% in 2011 to its lowest levels since the early 1970s is simply another way of describing the “productivity puzzle”.  For paradoxically, while technological change appeared to accelerate, the rate of productivity change has markedly declined.

Austerity and the dismal decade

There should be no doubt that austerity – even if the UK model was slightly less extreme than that imposed on or practised by some Eurozone countries – contributed to this economically dismal decade. Not only did it act as a fiscal ‘drag’ on the economy; by focusing on cuts in public services (as well as in benefits) it lowered the social wage, affecting the poor and women disproportionately, while changes and reductions in taxation  ensured that the better off were far less affected, and  maintained  their power to privately consume.  Since poorer people tend to rely more on public services for their well-being, this has had the effect of increasing actual social inequality. And while racism has always existed, the growing economic and social divisions (mirrored also in regional divergences) have surely helped to stoke its fires and target some of the ‘blame’ for our plight on to migrants and, more generally, the ‘other’.

A protective reaction?

The economic historian Karl Polanyi, writing in 1940, argued, in a section headed “national boundaries as shock-absorbers” that

 “If international division of labour is effected by competition and consequent elimination of the less efficient, then much will depend upon the rate at which the change proceeds as well as upon the dimensions of the units involved…. While a slowly increasing division of labour effected by the market mechanism would be purely beneficial, a fast rate of change might work out as a machinery of sheer destruction.” [From “Five Lectures on The Present Age of Transformation”, Bennington College]

 In his view, “Modern nationalism is a protective reaction against the dangers inherent in an interdependent world”. But that protective reaction could be positive (the state moving in a democratic direction) or negative (a turn to authoritarianism).

Fast forward to the present age of financial globalisation, and the pace of change imposed by its relentless algorithms can be seen as operating – for some – as just such a “machinery of destruction”.

Brexit divisions as harbinger

Which brings us back to Britain and the intense divisions experienced over Brexit.  There is a strong sense – and Brexit may be seen as a potent symbol or harbinger – that we are on the cusp of a new and very different era; but one whose philosophical as well as political outcome remains to be determined.

Will we see a further political shift towards right-wing nationalism in Britain, reflecting the “strong man” authoritarian trends in other parts of the world? In this scenario, the policy ideas in this book will surely be destined to lie untested and unconsidered, quietly gathering dust.

Positive role of nation state

But there is the alternative, optimistic future, on which this book is premised, and for which it is destined.  In this scenario, the nation state plays a positive role in providing society with security, protection and redistribution, to counter the destructive excesses of the global market and financial systems.  We imagine – anticipate – a new, progressive government taking office, dedicated to tackling inequality and to addressing the challenges.

The example of Roosevelt and the New Deal

As history tells us, a government committed to restructuring power relationships must know in advance what it will do, and needs to be ready to act. Take the example of Roosevelt’s first Presidency, when FDR in his first days and months in office in 1933 handled the banking crisis, took on the power of finance, released the US from the Gold Standard, and instituted a giant programme of public works.  And this was just the start – but a start without which the rest of the New Deal programme would not have been possible. It reframed the sense of what was politically possible, and reconfigured – not wholly but significantly – the overall power relationship with Wall Street.

Our modest purpose through this brief volume is to help make such a radical, democratic and popular programme feasible: to stimulate a broader, more radical policy debate, to offer a diverse menu of robust, progressive policy ideas.

Overturning the Treasury economic orthodoxy

At the core of any transformative programme must be macroeconomic policy. Till now, the traditional Treasury orthodoxy – enthusiastically supported for their own political reasons by recent governments – has given unyielding intellectual support to austerity as economic policy. Sir Nicholas (now Lord) Macpherson, former Permanent Secretary to the Treasury, in 2016 described Chancellor Osborne’s policies as “perfectly sensible”; he added: “I’ve only had four years in 31 at the Treasury when there has been a surplus. If you don’t aim to get the surplus, you’ll never get there.”  Yet Sir Nicholas was candid enough also to say:

“I see myself as one of a number of people in finance ministries, central bank regulators, in the UK and the US who failed to see the crisis coming, who failed to spot the build-up of risk… This was a monumental collective intellectual error.”

Our contributors have (Part I) rejected the Treasury orthodoxy; a future progressive government needs to start with a new macroeconomic paradigm; in headline terms, the government is not like, or constrained in the same way as, a household. The economy’s primary focus should be on good quality employment, making full use of the country’s overall economic capacity, and on productive investment in our future (including social investment, and not least to address the great generational challenge of climate change), on tackling  inequality, and promoting equity both through taxation and public spending priorities.

Industrial strategy and public investment

In Parts II and III, our authors have addressed the linked issues of public investment, industrial strategy, rebalancing workplace rights, new ways of structuring and democratising corporations, and re-directing ‘finance’ to a more social role.  The UK government has been resistant to the adoption of any of these policies.  The UK is at the bottom of the public investment league for ‘advanced’ economies.  We (as a nation) have refused to develop a serious, forward-looking modern industrial strategy.  We have ignored the merits and successful examples of National Investment Banks in other countries. We have stripped workers of rights and protections, and allowed a low pay economy to evolve. This is why the UK always comes near the top of the OECD’s league table of “labour market flexibility”, and why real wages have been able to fall so dramatically.

Harnessing finance

In the neoliberal era of deregulated finance, “finance” has become ever more disconnected from the productive economy and acted only in its own interest.  But “finance” should not be seen as always and inevitably an enemy.  The task is to harness and channel it, for productive purposes for the common good.

Genuine social security

In our final parts IV and V, looking at what makes for genuine social security and at providing for social needs, our authors have proposed new ways to tackle some of our sharpest, and most urgent social issues.  Our market-obsessed society has offered little or no help or protection from exploitation for those forced or lured into debt, to rent sub-standard housing, or to cash in their pension pots. For those needing to apply for state benefits, the present system, worsened in practice with the flawed roll-out of Universal Credit, has proved harsh and error-prone.  And then there are the great but fragile community services – health, care services, education, housing etc. – whose public quality has been undermined by austerity and/or dogmatic and often poorly-performing privatisation, or which risk sliding into decay as needs and resources move further apart.

The future of work

Not least in these sections, we start to pose some deep questions about the policy dilemmas for our society as technological change permeates ever more deeply. Will ‘work’ and ‘employment’ continue to be seen as essential not only to our economic life, but to our sense of purpose as humans?  Will society need as many ‘workers’ as hitherto?  Our contributors differ as to the answers, but can surely agree that we will need, whether via paid employment or otherwise, to dedicate more of our time and ‘human resource’ on caring for each other and for the planet, and learning how better to do so. Universal Basic Income is one response to this question.

The challenges and choices we face

We have recalled, above, FDR’s first days in office, in which his programme of radical reform was firmly installed, and for which strong public support was generated and enlisted.  In the UK, the 1945 Labour government is sometimes seen as having a near equivalent impact, with its introduction of the National Health Service, the wider welfare state, a broad commitment to full employment, and the ‘nationalisation’ of the Bank of England.  Attlee was both more cautious than FDR, and in an even more complex situation; the war still continued for several weeks in the east, and the burden of reconstruction and external war debts imposed from the outset harsh economic constraints.

Today, we face huge challenges and risks as a country, and fundamental choices of political and economic direction.  Our situation is not so grave as in 1945, for sure, but the choices we make now will shape our country for many decades to come.

We face, broadly, three choices for the UK’s future. The first is of conservative nationalism.  The second is of market fundamentalism.  The third is a progressive turn to the values of social democracy, translated into policies shaped to support and liberate the many, not to empower and enrich the few.

Note: the sub-headings in this blog are not in the book itself

About “Rethinking Britain” from the publisher’s ‘blurb’:

In everyday language, Rethinking Britain presents a range of ideas from some of the country’s most influential thinkers such as Kate Pickett and Ha-Joon Chang. From inflation to tax, and health to education, each contribution offers solutions which, if implemented, would lead to a fairer society.

Curated by leading economists from the Progressive Economics Group and accompanied by a ‘jargon buster’, this book is an essential aid for citizens who are interested in critiquing inequalities while looking to build a better future.

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