Pearce & Kelly’s After Austerity
Nick Pearce and Gavin Kelly have penned an article for the New Statesman previewing a forthcoming, longer essay in the IPPR’s Juncture magazine. I thoroughly recommend it.
They urge Labour to adopt an agenda of ‘fiscal realism and economic radicalism’.
I’ve argued in the past (responding to last year’s ‘In the Black Labour’ publication) that these two agendas are, to a large extent, linked.
Simply put, the reason why the UK ended up with a deficit of over 10% of GDP despite a relatively small stimulus was a collapse in tax revenues. As the OBR noted in its July Fiscal Sustainability Report, the fall in revenue from the finance and housing sectors “was one of the primary drivers of the severe deterioration in the UK public finances in recent years, exposing the risks to sustainability of reliance on revenue from these sectors”.
So for ‘fiscal conservatism’ to work in the future, governments will not only have to closely monitor their spending levels but also ensure a diverse and dependable tax base not overly reliant on a few key sectors…
Without a rebalanced economy we will never have truly sustainable public finances, a point that cannot be made forcibly enough especially as the Coalition continues to put its faith in lacklustre ‘growth strategies’ based on the old Thatcherite recipe of corporate tax cuts and deregulation.
Pearce and Kelly (and to be fair this is short article not the long essay) are reasonably vague on quite what ‘fiscal realism’ means. As with the authors of ‘In the Black Labour’, there is talk of ‘tough choices’ and ‘difficult times’ but little in the way of detail as to quite what this means.
There is also the wider question of whether ‘economic radicalism’ can be done ‘on the cheap’ as it were. Pearce & Kelly for example, rightly, argue that the cuts to capital spending enacted by the Coalition (and planned by the last Labour Government) should be reversed, but that will of course cost money.
It is their suggestions on ‘economic radicalism’ that I find especially interesting. In many ways it fits into what I call ‘reforming capitalism’ and the issues that they highlight–the need to raise real wages, the case for banking reform, the problems of Britain’s existing system of corporate governance, the lack of investment, etc – will be familiar to readers of this blog.
They acknowlegde that many of these problems predate the crisis of 2008.
One striming feature of their economic reform agenda is how little of it is to do with the traditional levers of fiscal and monetary policy. I think this is exactly correct, the debate about economic policy has to be about far more than taxation levels and spending programmes.
The diagram below is taken from Hall & Gingerich’s excellent 2009 article on Varieties of Capitalism (available for free for a limited time here) ,it shows the interactions of various different components of the makeup of any capitalist political economy:
For far too long, the political debate about the economy in the UK has concentrated on fiscal and monetary policy and generally ignored much else (with some occasional technocratic initiatives on skills/training or competition policy on the side that generate less interest).
Pearce & Kelly’s call for ‘economic radicalism’ seems to reject this approach, it takes the debate inside the ‘blackbox’ of the firm to look at corporate governance, it talks about the structure of the banking and it looks at the scope for raising wages. In other words, it gets inside the diagram.
I’m very much looking forward to reading the longer essay.