In my video and related post on the policies that I think Keir Starmer should have presented to the Labour Party conference this morning, I put forward the idea of a government much more actively involved in the UK economy.
The reasons for that was simple. As I said:
The City of London, which is the supposed pinnacle of capitalist activity within our economy, long ago forgot that its job was to provide new capital to business so that real economic activity could be created as a consequence. Instead, it just operates as a casino.
It is, in that case, interesting to see an alternative put forward by the Financial Times this morning. In an editorial they say:
When it comes to a key thread of [Starmer's] speech — the need for a more active government in Britain — Labour should tread carefully. The UK does require a government that ensures hospitals, prisons and housing are built, and trains made to work, and invests where necessary. But often this should be in conjunction with private business and funding. The goal must be to create the infrastructure for investment and entrepreneurialism to thrive so that growth can take off — but without overweening interference.
This is absurd, for a number of reasons.
Firstly, entrepreneurialism has not solved these problems despite being given forty years to do so.
Secondly, as I note, the City is not providing funding to solve these problems and clearly does not want to do so.
Thirdly, hospitals, social housing, prisons and trains are now all started led activities - so the private sector cannot be the lead on any of them.
Fourthly, no one is saying that the private sector will, however, be excluded from the gains from the investment the state must make: no doubt vast sums in contracts to deliver new construction (amongst other things) will flow from the ideas that I suggest. It is having a customer that drives business innovation, and the state will provide the private sector with that custom. It is that fact that will drive innovation and growth.
What is it about economic reality that the FT cannot see and does not understand?
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Good to see Marianna Mazzucato at the conference. Let’s hope thy listen to her. At least they’ve taken on board her “mission” thinking. Like you though I have my doubts they’ll commit enough government money to it.
I suspect you know full well why the FT ‘cannot see and does not understand’ economic reality: ideology and dogma. They’ve been up to their eye balls (and beyond) in neoliberalism since its inception – indeed, cheerleaders for it. Expecting them to change tack now is as likely as it is that Donald Trump can go an hour without lying. Impossible.
You may well be right
I am an optimist, I know
Richard, your post on the FT raises what seems to me to be the issue in relation to the ‘orthodox’ view of our economic situation, a view obviously shared by Reeves. I am no economist so what I say has to be hedged around with ‘as I understand it’.
This is what I don’t get. I don’t think that the economic commentators at the FT, Wolf, Giles, Sandbu etc are stupid, and nor do I think they are bad actors in the sense of consciously pursuing an economic ‘line’ which they do not really believe but is in the interest of their paymasters.
The common thread of the ‘orthodox’ view is that we have good reason to fear the bond markets, but the MMT view challenges that does it not? The MMT view is that the function of the bond market in developed sovereign currency economies is to anchor the financial system by providing relatively risk free assets rather than loans to government. The reality is that the constraints on public expenditure are resource constraints not the willingness of investors to buy gilts. Whether you borrow the money, or ‘create’ it the resource constraints apply in exactly the same way. Therefore so long as you have a plan to match expenditure with the availability of resources and therefore the value of gilts won’t fall with the value of the currency then why would investors be concerned? Does it not follow that the level of debt is largely irrelevant? What am I not getting?
If interest rates are kept low (zero in real terms, or close to it) you are right.
One thing they don’t understand is revealed in their simplistic association of ‘investment and entrepreneurialism’. Commercial investment is aimed almost solely at financial returns – entrepreneurs have entirely different priorities; private sector investment is now much more likely to go into unproductive speculation or assets than into building decent businesses – especially in the UK, because the vast majority of City investment in shares is now in foreign companies.
But the FT has probably almost never met a real entrpreneur
They probably think hedge fund managers qualify
There was a good piece in London Review of Books by John Lanchester showing the CIty as a gigantic gambling den – adding next to nothing to the real economy other than what the billionaire winners do with their winnings – and gives the example of one in teh States who funded the rise of Trumpism
He was right to point that out
Take housing, for example. If the houses were built at a adequate rate then prices would stop rising so fast (which would be good). Supply and demand.
But this would have two negative consequences for the wealthy. Firstly their unearned, real terms, capital gains would cease. Obviously they would not want that. Secondly there would not be an increasing private debt (from ever bigger mortgage borrowing) to (help) keep the economy from crashing (borrowing provides increased money for the economy).
The private sector will never build enough houses on their own (irrespective of removing planning impediments) such that they reduce house price rises and hence their profits. The government has to take the lead. In order to take the lead it has to provide investment (and, yes, training for the necessary trades). At the moment it seems determined not the create money or “borrow” to do this.
The same applies for the other state led activities. Without investment there can be no growth.
“Take housing, for example. If the houses were built at a adequate rate then prices would stop rising so fast (which would be good). Supply and demand.”
The alternative, of course, is for mortgage lenders to stop lending on houses that are over-priced. And to stop all BTL lending. The government could regulate to bring this about. But it won’t.
I think you are a little harsh on the FT. Considering it is the “House Journal” for The City this is positive.
They say-
“The UK does require a government that ensures hospitals, prisons and housing are built, and trains made to work, and invests where necessary”
This a start!
Of course, we might differ with the FT about what “where necessary” means and we might flinch at what might look like PPP (“But often this should be in conjunction with private business and funding”).
They then say
“The goal must be to create the infrastructure for investment and entrepreneurialism to thrive so that growth can take off —”. To me a clear admission that Government MUST start the ball rolling. Yes, we want private “investment and entrepreneurialism” but we and the FT know that the government must put the foundations in place – health, education, housing and transport – before the private sector can do anything.
This is a clear message to government – get on and do it!
You’re much more generous than me….
Richard, I tend to agree re the FT but they are open minded compared to some eg Economist. That said during British Entrepreneurial heyday the 19th it is worth noting that the business vehicle was not the company but the partnership where as you are well aware partners had full liability. The Company formation came much later in the century as wealthy Victorians wanted to invest but have no liability. This change now universal I’m not convinced supports Entrepreneurs. Hence imho FT is wrong Entrepreneurial spirit and investment by Investors and others definitely don’t go together.
I think it’s probably fair to say that it’s not so much blindness or misunderstanding as simple wilful denial, because suddenly seeing, understanding and publishing the reality would amount to an epiphany that seriously threatened the raison d’être not just of the FT, but that of most of the establishment media and those whose roles in economy and society they work to persist and enhance.
The Government and MPs should attend a free screening of the movie
“Finding the Money” followed by a panel discussion
on Thursday 3rd October 2024 at 18:15.
https://www.eventbrite.co.uk/e/finding-the-money-movie-screening-and-panel-tickets-1012868676477
I’m going to that film screening and panel discussion afterwards. (I have a fortuitous need to be in London earlier )
They do ask for a donation however. Happy to do so!
I’ll give a comment somewhere on here if it seems useful and relevant.
On one of Steve Keens courses I remember him talking about a book that made a lot of sense:
If it is a service or product everyone should have it should be under public management.
If the investment is high and the returns break even first after 20 years or more then it should be public investment.
The FT is talking rubbish. The best contracts are government contracts. They are great payers. The best way for businesses to thrive is get a good solid gov. contract.
Liberals are so convinced there is no public money that they hope for greedy capitalists whose main job is to make money on money to create a public good. Yeah, right, pull the other one.
Much to agree with
“The goal must be to create the infrastructure for investment and entrepreneurialism to thrive so that growth can take off — but without overweening interference.” (FT Editorial)
Even overweening interference wouldn’t do anything. The City is a living corpse. You can smell the rot. Its prevailing idea of “entrepreneurialism” for the last forty years is to rely on a louche legal framework to attract oligarchs and loose money from anywhere in the world, to London. Innovation? That will be using the pension industry as a brilliant application of LDIs. Or in the 1990s public-private investment was the gee-whiz idea to rip-off the public purse with usurious returns to the investor for no risk. That was so profitable they are dusting it off again for the mugs in Labour. We are still paying for it all (you can see it in the hospitals and schools nobody can afford to build, and were never built; because we are all still paying off the City). Or we van see the genius of the City in the privatisations of utilities, so the City shares in big dividends, for the investment of buttons, and our rivers are full of sewage.
If you ever want a modern, functioning infrastructure at an affordable price, the last place to start is the City.
Agreed