From the TUC

Big change versus small change. Or why 2015 isn’t 1997.

18 Nov 2013, by Guest in Economics

Stefan Stern has interesting post up at LabourList asking if there is a danger of history repeating itself. As he argues in the mid 1990s Labour flirted with a variety of alternative theories of political economy from communitarianism to Will Hutton’s ‘stakeholder economy’ but:

…come May 2nd 1997 the practical business of government, and necessary compromises, took priority. The big idea became getting things done. By the turn of the century intellectuals and their deep thoughts were less prominent. Instead, we had the Millennium Dome.

He wonders if ideas about ‘responsible capitalism’, ‘predistribution’ and all the rest could turn out the same way – useful intellectual mood music in mid-term opposition but not actually having much impact in government.

This is no doubt a valid concern. I’ve written quite a bit on these themes (for example last week) and the need for wider economic reform but I can also see the danger that come 2015 politicians feel the need to focus on smaller issues, to highlight small differences and to basically settle for a few distributional and fiscal tweaks as opposed to wider changes.

I can certainly see why a ‘smaller offer’ appeals to politicians. In some ways it is easier to make – for example, in February this year Ed Miliband made a wide ranging speech on changing Britain’s economic model and the coverage was dominated by a fairly small beer pledge to restore the 10p tax rate.

It also offers fewer hostages to fortune and is less likely to scare the horses, in terms of provoking a reaction from various vested interests.

But more fundamentally I think there is a deeper tension between those advocating more radical change and those arguing for a more cautious approach. I think the unsettled question revolves around a disputed view of the UK’s economic performance 1997-2010 (or 1997-2007).

There are those who think the economic model was essentially sound and the aim of policy is basically to return us to the early to mid 2000s and there are those (such as myself) who argue that despite important successes there were fundamental problems with the UK economy in 2000s pre-2008. Problems with wage setting, problems with regional and sectoral balance, public finances too dependent on frothy revenues, underinvestment and short-termism and a banking system that wasn’t working.

In reality the worry Stefan expresses over at Labourlist (that the broad reform agenda might disappear in government) is part of a debate between those who think Labour needs a big, bold reforming electoral offer and those who favour something more modest.  In most cases that debate comes down a question of how the protagonist thinks the UK economy performed before the crash.

In some ways though this debate is more important than its 1990s equivalent. 2015  will not be 1997.

In 1997 the UK was 5 years into what became a 15 year boom and living standards had been growing for several years. By 2015 the UK economy might have been growing for a couple of years but GDP per capita is likely to be below 2008 levels. The growth model is broken in a fairly obvious way and although a falling household savings ratio has helped boost growth in the short term, no one thinks that is a long term strategy for prosperity. Equally with the case for stronger financial regulation well accepted, the easy money option of taxing asset markets and financial sector profits to fund redistribution and public service spending has been closed off.

For what it’s worth, I think the UK needs a big vision – one of an economy where growth means higher living standards for the majority, real wages are rising, productivity is high, the regions are doing better and the public finances are sustainable.  I think getting there will take more than Parliament – institutional reform can be a slow process but its effects are longer lasting than simple fiscal transfers.  But setting out the end point whilst announcing the first steps strikes me as sensible way to both reassure and inspire. Such a programme for economic renewal (as outlined here) is both radical in its desires and realistic in the steps that can be taken first. If policy makers really want an economy where growth means rising living for most, they won’t get it with out wide reaching economc reform.