This post is designed to pull together a number of threads indicated in various other posts I have made since March 2019, and to put them in a coherent context. It seems like a good idea to do this in light of the GE2019 outcome, where there is something of a battle going on in the Labour party over how far to the left the party’s policy objectives should be positioned. For the record, I don’t find this argument particularly helpful, representing, as it does, something of a false dichotomy. To start with, there are a number of points that I take to be axiomatic:
- There needs to be a radical re-think of the role of the modern state. Traditional left/right distinctions need to be abandoned, and the concept of the state’s role as as an interface between the public and private sectors fully embraced. Doctrinaire considerations need to be erased, and replaced by an evidence-based commitment to prosperity, welfare and efficiency.
- Free market objections, as a matter of principle, to state intervention need to be abandoned. Politicians and political institutions have been too slow to take onboard the way in which what might be termed as ‘Chicago School’ doctrines have been discredited.
- The left needs to abandon its irrational squeamishness about actually using capitalist processes and institutions to achieve goals like equality and common ownership. Much of this squeamishness can be traced to Marxist or neo-Marxist doctrines which draw attention to capitalism’s ‘contradictions’ and predict its ultimate collapse (These predictions are reminiscent of the shifting sands of Jehova’s Witness’s Armageddon – oft foretold, but never arriving.). The historical facts point in a different direction. Capitalism has proven extraordinarily flexible and adaptive in meeting the challenges posed by successive economic and financial crises. It mutates organically faster than any disaster can engulf it. Financial journalists with strong predictive instincts like Gillian Tett of the FT have already started to track ‘green’ investment vehicles and ESG issues on a regular basis.
So what does ‘riding the tiger’ amount to?
- Accepting that capitalism is not going to implode, and resolving to use it rather than waiting in vain for it to collapse.
- Creating a Sovereign Wealth Fund to hold and maximise the value of and income from publicly owned assets.
- Creating a National Investment Bank to stimulate investment, new economic activity and productivity.
- Integrating the activity of a Sovereign Wealth Fund and a National Investment Bank to create a symbiotic relationship that maximises the effectiveness of each. The Bank should manage the Fund, and the Fund should underwrite the Bank.
- Prioritising activity that delivers optimum combinations of income, welfare, investment and growth of the public asset base. Ending the housing shortage is an obvious place to start.
Why Should We Do This?
None of this is rocket science, nor should it be controversial. There are, however, a number of compelling reasons for pursuing the policy options that I have advocated:
- The IMF is in the midst of a historic turnaround in its stance on fiscal policy and its importance: ‘In the 1990s, the IMF was at the heart of the Washington consensus – a free-market approach to running economies that included the belief that tax cuts for the better off would have trickle down benefits through greater innovation and higher growth… But the IMF has shifted it stance amid evidence of weak growth, a concentration of wealth among the top 0.1% of the population, and a falling share of national output going to workers. In recent years, it has produced research disputing the Washington consensus belief that countries could have lower inequality or faster growth but not both.’ – Guardian 07/01/20. Make no mistake, this is a momentous shift. Above all, it addresses the dystopian prospect, already evident in the changing structure of the UK economy. of a high employment situation where an increasing proportion of the workforce is trapped in low-wage, precarious, service oriented ‘virtual employment’.
- The IMF’s focus is currently on inequality and its dangers (suggesting that public expenditure on health and education should be the principal remedial routes), but its change in stance comes at a point when monetary policy is running out of operating space. Very low or negative interest rates, coupled with the ineffectiveness of quantitative easing is shifting emphasis to fiscal policy as a means of achieving growth and productivity improvement. It seems only a matter of time before the IMF’s turnaround shifts its focus to more generalised support for public expenditure, particularly in pursuit of increased investment.
- Avoiding a low-wage, virtual-employment, high-inequality dystopian trap depends on improved productivity through investment. If the private sector will not finance this then the public sector must step in to plug the gap. In all probability, if the public sector’s response is adequately scaled and fully committed, the private sector will respond positively. ‘Crowding out’ arguments are discredited nonsense. If the state’s approach is non-ideological and, as it should, generates opportunity for the private sector , then there isn’t a problem.
- Investment in public infrastructure has complex benefits. Economists, especially those of the Keynesian school, have tended to focus on shorter-term stimulus effects. However, longer term benefits can outweigh these and be more important. Post WW2 the American economy benefited tremendously from the New Deal’s investment programme. The Chinese seem to understand this.: China has built 8,489 kilometers (about 5,275 miles) of new railway lines in 2019, including 5,474 kilometers of high-speed rail. Unlike other ‘solutions’ to low growth and investment, at least this leaves you with something solid and a platform for future growth, even if you do break the bank…