Britain’s Broken Economy – and how to mend it

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The New Political Economy Network has launched a new ebook today. It can be downloaded here. I am one of the authors. Entitled Britain's Broken Economy and how to mend it the book sets out to deliver ideas to do just what it says on the cover.

As Jonathan  Rutherford and Aditya Chakrabortty, coordinators of the network, say in the Guardian this morning:

The truth is there is no such thing as a "progressive moment", certainly not in Britain. The two great crises of capitalism of the last century – the depression and the oil shocks of the 70s – led to Conservative prime ministers, Stanley Baldwin and Margaret Thatcher. But there are progressive opportunities, and this certainly qualifies: a point at which a knackered economic model is revealed for all to see as eminently fit for replacement.

And yet Labour hasn't debated what that alternative should be – not just during this summer's leadership campaign but for the best part of two decades. It's not too much of an exaggeration to say that since 1994, the party's mainstream outsourced its economic thinking to Gordon Brown, who in turn took his cues from straightlaced economists and the City. The result was neoliberalism-lite, and some of the most unsightly political contortions ever pulled by a prime minister. Who would ever have thought a Labour leader could go softer on the banks than his Conservative opposite number? Yet Cameron has consistently talked tougher on the City.

Holding that debate on what an alternative economic policy should look like will be one of the biggest challenges for whoever takes over the party leadership this weekend. He or she will not have much time to do it, nor much wiggle room, given the pressure they will be under to respond to Cameron's cuts. It was in order to try to provide such a space that a year ago we set up the New Political Economy Network. A group of economists, other academics, professional politicians and party activists, it was generously supported from the off by the MP Jon Cruddas, and by the Guardian, and has held a series of seminars and public meetings.Today we publish an e-book, laying out ideas for what a new political economy for Labour should look like.

It may have been written collectively, but a common theme runs through the book: Labour can't go on with Thatcherism with a Presbyterian brow. The old defensiveness about the role of the state in the economy is part and parcel of an old politics. In the short term, that means reducing the deficit only as jobs are created and the economy grows. Alistair Darling's election pledge of a four-year deficit-reduction plan is too rigid. The principal concern of any government in a slump should be to restore capital investment and ensure sufficient demand to restore business confidence.

But there is a role for the state over the longer term. Relying solely on financial markets to encourage new industries and create jobs hasn't worked, because financiers do not have the patience. Rebuilding and rebalancing the economy must start with a radical reform of the banking sector. We need a new system for directing credit to promising industries and to all those areas (pick pretty much anywhere north of Watford Gap) denuded of private business.

As even bankers now admit, Brown and Blair went too far with light-touch regulation. But the new regulation should not just be about capital ratios and other technicalities, however important. Labour has to take a greater interest in how corporations are run, in devolving real power and decision-making to employees and – in the case of public services, their users. That will mean radical reform of the state, with power decentralised to the nations, to local government and to civil society organisations, including unions. In other words, if Cameron (and Phillip Blond, on this page) wants to bang on about the "big society", Labour should offer a vision of the "big economy" – where wealth is not just transferred to the top but shared round.

The main sources of security in our lives are our jobs, our homes, our pensions and access to finance and credit. But for many these are now sources of insecurity. Labour has to develop an economy that delivers decent jobs, good homes, proper pensions and fair finance. The basis of this moral economy is a common prosperity. Its principles are environmentally sustainable wealth creation, equality, and human flourishing.

The old class identities and cultures that were once the bedrock of Labour support have largely gone. Labour has to build a new political coalition from a diverse range of identities, classes and interests. To do this it needs a political relationship with people based on a vision of the good society, and an economy of wealth creation and fair distribution.

This is a debate that needs to happen, and to involve a wider range of voices than a coterie of Westminster insiders or peddlers of economic orthodoxy. After all, we saw where that got us last time.