George Osborne: British Conservative or German-style Christian Democrat?
My former TUC colleague Duncan Weldon, who is now the Newsnight economics correspondent, has written an interesting post for his BBC web page today under the headline ‘Osborne’s “Christian Democrat Budget”? Duncan knows that I’ve long taken an interest in the German economic model and, accordingly, I’m keen to add a few reflections on Duncan’s article.
Describing yesterday’s National Living Wage as a “huge shift” in government policy on wages, Duncan reports that the Chancellor has directly intervened in how the wage floor in Britain is set. Moreover, the government’s own analysis of this policy shows that while it will boost wages, it will also increase unemployment, by 60,000 by 2020. This turns on its head the argument that a low paid job is better than no job at all. With employment high but with wages having lagged behind forecasts for years, Duncan reports that the government is now comfortable trading marginally higher unemployment for higher pay.
Duncan also foresees an economic experiment about to play out. There has been much talk about the UK’s productivity puzzle and one explanation for this, Duncan argues, could be that there are more people now in low skill, low wage, low productivity jobs. If those jobs are to be not-so-low wage, by dint of government dictat, it could force the employers providing such jobs to invest more in skills, thereby pushing up productivity. The fact that the government has also introduced an apprenticeship levy could give that experiment an extra shove.
Duncan argues that “Britain’s labour market is about to become a bit less flexible” and that a “smaller state is also taking a more direct role in macroeconomic management than was the case in the 1980s, the 1990s or even in the Blair years”. Duncan adds: “Osborne has embraced industrial activism, devolution to city regions, government-mandated wage floors and an apprenticeship policy, where firms will be charged a levy in order to avoid free riding on the training provided by others.” This nudges the UK a bit closer to a German economic model – not the Social Democrat vision admired by the left, but the Christian Democrat version currently represented by Angela Merkel. Some of the hallmarks of Osborne’s chancellorship, including targeting near-permanent surpluses and “favouring productivity boosting industrial policy” would not be out of place in a German Christian Democrat manifesto, says Duncan.
There’s a lot here. As Paul blogged yesterday, the TUC welcomes what is effectively a rise in the National Minimum Wage for over-25s, which the Chancellor could not resist calling a new National Living Wage in an undisguised land grab on the policies of the left. The TUC does, of course, have some questions, such as what will happen to the under 25s and how will it related to the public sector pay cap. We also welcome the end to the failed experiment of voluntarism in training policy.
Duncan could have mentioned science policy. George Osborne has strongly supported science, on his own terms. The real terms science budget was cut during the Coalition years, but the budget was frozen in cash terms and, given the eye-watering cuts affecting other areas, this was a success for science. Science unions could give a long list of facilities that suffered under austerity, but science did better than most policy areas, recognised as vital for the UK’s economic future.
But I can’t go as far as to describe the Chancellor as “favouring productivity boosting industrial policy”. There’s a lot of talk about the Northern Powerhouse, but we are a long way from results and, as Philip blogged yesterday, the shelving of the trans-Pennine Rail Link in the week before the Budget undermines the credibility of the Northern Powerhouse. More generally, this idea lacks strategic clarity. I’ll wait to see what emerges before I get too excited.
Furthermore, as the IPPR have reported today, yesterday’s Budget means that non-protected government departments will see a real terms fall of departmental spending of 29.9 per cent between 2015-16 and 2019-20. That includes the Department for Business, Innovation and Skills, which still calls itself the department for economic growth. If “productivity boosting industrial policy” is a policy of the Chancellor’s, nobody has yet told the Business Secretary, Sajid Javid, who no longer uses the term “industrial policy”, preferring “our industrial approach”. I don’t much care what he calls it, but I hope the consensus achieved between Peter Mandelson, Michael Heseltine and Vince Cable, in favour of industrial policy, holds under the new regime.
But the real reason I disagree with Duncan’s analysis that George Osborne has started to introduce some kind of Rhineland Capitalism is that Germany is a country of moderation, which recognises the need for checks and balances. There is a much smaller gap between Berlin and German second tier cities than exists in the UK, partly because the growth of Berlin was constrained by the Allies after the Second World War. But Germany recognises the need to balance local, regional and national elements to its economic strategy, in which each aspect fits with the others.
And, of course, Germany has its wonderful co-determination system, which I wrote about in the TUC report, ‘German Lessons’. As part of my research, I visited Volkswagen in Wolfsburg, where Thymian Bussemer from the Industrial Relations Department told me: “[The social market economy] is very strong in Germany, which means there is a very close interaction between enterprise, especially big ones, the welfare state, the unions. We saw that in the crisis.” While at Volkswagen, I saw the Works Council in action. The year before I went, Angela Merkel had been the guest of honour. It’s hard to imagine David Cameron or George Osborne attending a similar meeting at a UK company.
Indeed, rather than encouraging social partnership, the new Conservative Government is busy introducing a Trade Union Bill designed to undermine unions’ legitimate activity. I am pleased that the government increased the minimum wage yesterday, but the best way to ensure the workforce at large get fair pay is to encourage collective bargaining. How might George Osborne respond to such a German-style request in the UK? I can think of two words: Nein, danke!