This week Rachel Reeves delivered the Mais lecture, setting out Labour’s economic policy.
For those who don’t follow such things the Mais lecture takes place at the Bayes business school in London, and for a future Chancellor of the Exchequer this is a big thing. This is where Nigel Lawson explained Thatcherism, Gordon Brown announced Neo-Classical Endogenous Growth Theory, and where George Osborne tried to convince anyone that austerity had a real economic meaning, and wasn’t just some politically expedient right wing nonsense sprinkled liberally with cocaine.
With an election coming soon this is the closest we will get to understanding Labour’s new economics:
1.Globalisation is over, and so is neo-liberalism. The main feature of globalisation has been massively stretched supply chains, using cheap labour on one side of the world to sell goods to rich consumers on the other side, who gave up their manufacturing base as a side effect. Reeves plans to reverse that; post Covid, wars in Ukraine and the Middle East countries can’t afford these lengthy supply chains. Reeves wants a re-shoring of manufacturing supply, using Government investment to make it viable; bringing jobs and investment back into the UK. Previously that would have been seen as inflationary, but Reeves bet is that with war, Covid, and Boris’s bodged Brexit that inflation is already with us. This seems to have a good reception from people in the business community who would normally howl with anguish, which is a very positive sign. Lots of the modern left have denounced neo-liberalism and globalisation without really been able to explain what the alternative is. This is quietly very very radical. It also something that is easier because of Brexit, which means that Reeves will be the first politician to actually do something to make Brexit work.
2. Supply side labour market changes. One of the biggest debates in economics is how to make markets more flexible, particularly Labour markets. Conservatives believed that reducing workers rights and cutting benefits would make labour markets more flexible and reduce wage inflation. This became the dominant economic orthodoxy particularly among people who liked cutting wages and reducing workers rights. The problem was that it didn’t work. Thatcher spent over a decade making labour markets more flexible, only to make 3m people unemployed along the way. Reeves approach is the opposite; she correctly identifies that the UKs problem is too many economically inactive people; by increasing workers rights and protections she wants to pull people into the Labour market rather than push them, break down barriers to employment. This is similar to some New Labour policy, but much more aggressive, with a bigger focus on workers rights, more incentives to enter the Labour market. Again the usual howls of horror from the business community have largely been absent, which either means that they recognise that we need to attract and retain good employees into the UK labour force, or they are just so sick of the Tories that anything is better.
3. Other supply side. Reeves understands that there is a lot of capital waiting for an investment opportunity. She plans that the state will make investments in areas such as green energy, which in turn will create profitable opportunities for the private sector. The same with land, Labour will allow a lot more house building, which in turn creates opportunities for private sector investment. This is really old fashioned Keynesianism retooled for the modern world, but I expect middle class lefties to gnash their teeth at the state creating opportunities for the private sector to make money even though that is one of the key principles of Keynes, Cripps and Attlee. Good.
4 Changes to OBR. The OBR was set up by Osborne, and still reflects his austrian view of the economy. Reeves will change the rules about Government investment multipliers to make it a lot easier to justify Government capital spending. Again I realise that this is obscure stuff, but this is a real huge change. The Government using public spending to kick start the economy and draw in private capital. Essentially this is based on the idea that the last 14 years of slow growth have been a liquidity trap, and extra government investment is the only way out. One of they key criticisms of Starmer and Reeves is that they was too quick to follow Tory spending rules, which I think is totally misplaced; these new rules on government investment multipliers are boring, technical and very radical.
5. Markets matter. This is a radical restatement of old school Keynesianism that would be familiar to Attlee or Wilson. But she knows that the big prize is using those keynesian rules to give businesses stability and to create opportunities for profit. If she can pull it off, and reduce the amount we pay for Government debt interest the pay off for investment in public services is huge
6. It’s all about growth. If Labour can get the economy growing at 3-4% a year it’s all easy. If not nothing works, and we are back in a permanents spiral of decline. Giving the poorest a bigger slice of the cake is a whole let easier if the cake is growing than when the cake is shrinking. There is a growing belief on parts of the left in a “left laffer” curve – that government spending increases pay for themselves by creating growth, just in the way that fiscal conservatives believe that tax cuts pay for themselves. Both ideas are equally daft. It is hard to grow the economy if government spending is falling, but to grow it means more than just more government spending – it needs more business investment, more consumer spending, and a better balance of imports and exports. On the latter point I expect to see some swift technical changes to Boris’s bodged Brexit deal almost immediately Labour come into power
There is however one bit of the plan that is missing – reform of the public sector. Over the last 14 years the Conservatives have disparaged the public domain, trashed civil society. They have taken every opportunity to put their own yes men and women in positions of power. And the result, combined with massive underfunding and ministerial neglect are public institutions that are in a terrible state
Starmer has Sue Gray, a former senior Civil Servant, as his chief architect of a new state, but I don’t think Starmer or Reeves has truly come to terms with how bad things are. The public realm is destroyed, it’s culture is obsequious to the rich and contemptuous to everyone else. Everything is broken, and there is a huge job of making sure that the machinery of government works before they can start and rebuild Britain. Not sure even I know where to start with that.
There are still people complaining that Labour’s economic strategy is Tory, which is daft and mostly based on memes on Facebook rather than actual analysis. We all hate it when our favourite band become big* But in truth what Labour can do over the next few years will be shaped by the legacy of 14 years of terrible economic policy. Starmer and Reeves have done well in plotting a path out of the mess they will inherit , but Labour need t tell people what the real economic strategy is so that people other than me listen.
*I don’t have that problem as I only listen to vintage Yugoslavian psychedelia
You’re right. It’s no good just a few people like yourself going beneath the headlines and doing a more thorough analysis of Reeves’s economic strategy. I guess however it gave the impression to the media that there was nothing too radical here to worry about so quickly move on. Let’s just hope and pray that they unlock some doors to the European market as this will surely improve the balance sheet.
It is interesting that Reeves had got such a good reception for an economic strategy that goes a lot further than most left wing parties have, even though it does include a space for investors to make money. There are lots of people right now sat on lots of money to invest, and the right government strategy can bring a whole lot of investment into play