I was a signatory to this letter in the FT this morning:
The UK's failing economic model demands such bold ideas
From David Blanchflower and others
Your series of articles exploring the Labour party's economic agenda fails to appreciate the severity of the UK's current economic condition, and reproduces a number of misconceptions.
There is growing political consensus that the UK's economic model is failing. The economy has been performing badly for more than a decade. Household debt has fuelled the meagre recovery from the crash of 2007-08. Earnings have stagnated, with many families borrowing to cover basic expenses; an estimated 8.3m people cannot keep up with debts or bills. The housing market is in crisis, with young people set to be poorer than their parents. Since the 1980s, the wealthiest have disproportionately benefited from growth, driving high levels of political disillusionment. Action to prevent climate and environmental breakdown, and prepare for their effects, is wholly inadequate.
All political parties in the UK are proposing increases in public spending to meet these challenges. Your headline “Cost of Labour's economic overhaul soars” (September 3) implies that Labour's proposals are unaffordable, but the Office for Budget Responsibility analysis cited ignores the impact of public spending on growth, and thus on tax receipts. As senior IMF economists have noted in their critique of austerity, this relationship is critical. Today the government can borrow at negative real interest rates: many pressing infrastructure, education and environment projects offer returns well above zero and can therefore generate higher future tax receipts, supporting not detracting from fiscal sustainability. Taxation levels in the UK remain lower than in most European countries.
But reform of fiscal policy is not enough. Ownership of capital helps determine in whose interests the economy operates. It is a category error to suggest a mechanism such as an Inclusive Ownership Fund would “cost” companies or that the state will “seize” shares. The proposal neither reduces the book value of corporate entities, nor requires them to pay cash out. By requiring companies to issue new shares and give them to a mutual fund – mirroring the accepted practice of issuing shares for executive compensation – it ensures instead that workers share in the wealth they create.
The UK's economic model has failed before. In both the 1940s and 1980s, major policy changes were made in response. At first seen as overly radical, they were later accepted across the political spectrum. Since 2008 the UK economy has again been failing, with today's political crisis one of the consequences. This is precisely the time when bold ideas are needed from all political parties.
David Blanchflower
Professor of Economics, Dartmouth University; former Monetary Policy Committee member
Victoria Chick
Emeritus Professor of Economics, University College London
Stephany Griffith-Jones
Financial Markets Director, Initiative for Policy Dialogue, Columbia University; Emeritus Professorial Fellow, Institute of Development Studies, University of Sussex
Susan Himmelweit
Professor Emeritus of Economics, Open University
Sir Richard Jolly
Professor, Institute of Development Studies, University of Sussex; former Deputy Director of Unicef
Mariana Mazzucato
Professor in the Economics of Innovation & Public Value; Director, UCL Institute for Innovation & Public Purpose
Thomas Piketty
Professor, Paris School of Economics and EHESS
Dani Rodrik
Professor of Economics, Harvard University
On behalf of 82 signatories. The complete list of signatories is here
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
It is always good to see you in such esteemed company Richard.
An Impressive list of signatories including Portes and Wren Lewis. Perhaps the adherence to fiscal credibility “rules” are now consigned to the dustbin of history.
‘There is growing political consensus that the UK’s economic model is failing. The economy has been performing badly for more than a decade’ – ‘In the 1980s, major policy changes were made in response’.
The UK’s current account started to go negative in the early 1970’s. Whatever actions were taken since then, they didn’t work to prevent a relentless decline in the UK’s economic sustainability. Imagine what would have happened without North Sea oil revenues kicking in. For decades the UK has avoided facing reality and dealing with it appropriately. Brexit shows just how deeply and widely this deluded view is still held. I see no evidence that the UK is anywhere close to being ready for the ‘bold ideas’ that would be needed to genuinely reverse it’s decline.
Look at key factors that determine national success and compare the UK with it’s European neighbours – capital investment % of GDP, R&D expenditure % of GDP, Patent applications (eg UK vs Germany). The UK has been year on year, decade by decade, always at the bottom by miles and the result is seen in the UK’s trading position.
Unless the deluded view of the UK by so many people is radically changed, the decline will continue and I don’t see ideas anywhere near bold enough to address the UK’s key issue – it’s delusion about itself.
https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/timeseries/hbop/pnbp
https://www.theglobaleconomy.com/compare-countries/
We failed because post the Gold Standard we did not understand money
And it went downhill from there
Not to mention the flow of benefits from the former Empire were finally beginning to properly tail off as even the basket case countries entered the WTO and the UK was forced to actually pay market prices for goods and resources it formerly received for much less.
And of course all those now free Commonwealth countries had minted new national currencies and come out of the Sterling zone. The refusal to countenance a monetary union post Scottish Independence was funny if you know your history. The entire Empire was once in the Sterling zone. Those, like India with nominal currencies were tightly pegged to Sterling. This of course had lots of benefits for London not least in lower transaction costs.
I’m not disputing your point, only pointing out there were other forces feeding through. The UK’s lack of addressing the reality of the End of Empire is still an unfinished project. Entering the EEC merely postponed that.
it is possible that Brexit, with or without iScotland and Irish Reunification might actually force the City to face up to reality. Of course history shows that politically it will be easier to scapegoat some section of society as is happening to immigrants, refugees, the disabled etc.
I applaud your and your colleagues’ efforts to inject light into this dark time. I fear you will need to do this increasingly and urgently in the future. My hope as a Scot is that we can act as a beacon of possible different paths. My hope is the SNP will wake up from their need to back the Growth Commission for perceived political reasons.
Your point is well taken
The powerful and wealthy have always understood how fiat currencies function. Since the abandonment of the dollar peg to gold in 1971 they have made sure that it is created and used in their interests and they will do their utmost (supported by their armies of professional flunkies and functionaries) to make sure that money is not created and used in the interests of the “little people” (a la Leona Helmsley).
Possibly two omissions which may/may not be relevant, Namely : draw down or cashing in of pensions and PPI . Both have put unexpected wealth into many hands.