Leading commentators on the political economy must have been flattered to hear many of their principles and policies given lip service by Shadow Chancellor Ed Balls this week in his speech to the Labour party conference. Flattered only to be deceived, sadly, as lip service is all he paid; underneath the rhetorical support for a reformed political economy promoted by the likes of Will Hutton, the Institute for Public Policy Research, Ha-Joon Chang and others, Balls’ prescription for the UK economy amounts to little more than tinkering with the same old policy levers that haven’t worked in the past.
Mr. Balls’ speech was riddled with apparent contrition for Labour’s role in the crisis we face, but the apologies were more for political errors (that undoubtedly cost them electoral support) than for a decade and more of Blairite economic policy (that equally undoubtedly cost the country its prospects for the foreseeable future). There was a mea culpa for failing to regulate banks sufficiently, but still no recognition that the broader economic crisis has its roots not just in a simple regulatory failure but more in multiple failures that go to the core of the peculiar version of capitalism that New Labour remains wedded to.
The reliance on a bankers bonus tax to fund the only real policy presented in the speech (housing and ‘100,000 jobs,’ although for whom and doing what remains unclear) exemplifies Labour’s inability to wean itself off its dependence on the financial services sector. So Dr. Balls, do you want banks to stop rewarding failure, or continue to hand out paying exorbitant bonuses that fed into the near-collapse of the entire capitalist system as it represents much of your revenue stream? This contradiction was at the very heart of Labour’s term in office – a dependence on impermanent revenue to shore up public spending, whether from one-off windfall taxes or volatile financial speculation. There’s a depressing failure of imagination here that means Balls’ only recourse is to call for more of what’s failed in the past.
The centrepiece of Balls’ “5 point-plan for recovery” appears to be the tired old cut in VAT. Never mind that is predecessor as Labour Chancellor tried this to very little effect (according to consumers and the Institute for Fiscal Studies there was a marginal, 1.2% boost to consumption that naturally reversed when VAT rose again). After much fanfare, Labour’s answer to the greatest economic crisis in living memory is to cut the price of (mainly luxury) goods we’ve realised we can do without by a few pence – this is supposedly the great stimulus the nation’s economy needs. I need not labour the point (pun intended) that this rather lame tinkering is once again more of the same, more of what’s failed in the very recent past. I’ve little doubt that temporary supply-side tweaks such as national insurance holidays and reduced VAT on home improvements will help a little, but for how long will the effects last? How will they make the UK better equipped to whether the gathering economic storm?
To give credit where it’s due Mr. Balls does recognise the need for economic growth as we try and turn the corner. Again, to give him credit, he also recognises that expansionary fiscal contraction is unlikely to crowd in record private sector surpluses and drive the investment in jobs that the country needs. The trouble is that what he proposes has little or no chance of sparking said growth, at least not on the equitable, sustainable and green basis that is needed. The diagnosis – that the UK economy isn’t growing or creating jobs at anywhere near the required rate – may well be correct, but the prescription is far from adequate.
Go back to the leading thinkers I mentioned, and the proposals for a fair and sustainable economy that they have made. None of what Balls said makes these proposals any more likely to be implemented. For some time now I and others have called for a change of direction away from George Osborne’s Plan A – not towards Labour’s Plan B, which appears less adequate the more we learn about it – but to a Liberal Democrat Plan C. Ed Randall argued for a new, better-orchestrated round of Quantitative Easing (QE) that expressly supports small businesses not just bank balance sheets. This should form just one part of a Plan C (and I don’t apologise for overusing that phrase) that goes much further, combining short-term boosts to investment by crowding in private-sector surpluses with a radical overhaul of our financial system and more long-term boosts to worker security and our skills base. Such a Plan C realises that cutting the deficit using only direct approaches – reducing spending and raising taxes – won’t be as effective as a Kay-sian oblique approach that puts dynamic and sustainable economic growth at its centre.