Economics for the Common Good?

This is a speech I delivered to Christians on the left as part of The Tawney Dialogue in Westminster Central Hall.

Thank you very much for the opportunity to say a few words this evening.

I wanted to pick up on the question posed by the title.  There’s a tendency to think that economics has little or nothing to do with the morality. If you’re on the left it is an argument that sometimes gets used against us.

Of course, our opponents will argue, it would be very nice to live in a fairer or more equal society. It would be nice, they might say, to ensure everyone has a decent home to live in, or access to education. But something that gets labelled “economics” is against all that.

“Economics” is apparently against the wealthy paying fair taxes. Or it’s opposed to funding public services properly. Some people argue this more in sorrow than enthusiasm, of course. Others enthusiastically embrace the idea of unfettered free markets.

The underlying belief is that whilst we might not enjoy it, the best way to run an economy is through free markets and low taxes. So although the left may mean well, it is argued that we simply don’t understand how to run the economy. This is unfair on the left. But it also misses an important point

Questions of morality have always informed economic thinking. It was Adam Smith, arguably the first modern economist, who described economics as a "moral science". I think that description is a good one. It is a science because considering economic problems requires serious analytical thought. And it is moral because ultimately it deals with questions of justice and fairness - of who gets and owns what.

We have to consider the two sides together. It is in this light that Labour is still developing its thinking. There are two major challenges ahead of us. The first is in winning the argument that an economic policy of the left can work. There is a desperate need for change.

The figures on homelessness or child poverty are national disgrace. Here in London, immense wealth nestles side-by-side with some of the worst poverty in the country. But we can see it also in the explosion of zero hour contracts.

There is an entire generation of young people growing up now with zero expectations about the future. They are trapped in low-wage, insecure work and inadequate housing. Owning a home of their own is an increasingly distant dream.

The moral case for a change in direction is clear. But the left has comparably little trouble winning that argument. Where we have trouble is not in convincing people of the moral case for change. Our difficulty, and it is the biggest single difficulty the Labour Party faces, is in convincing people that we can deliver this change.

I’ve called the fight for economic credibility by the Labour Party the biggest it has faced for a generation. We might not think this fight is fair. The financial crisis was global. It did not happen because of Labour overspending. But it happened on Labour’s watch and the last Labour government was too lax in its approach to finance.

Nonetheless, to give George Osborne and David Cameron their credit, once the financial crisis truly erupted in late 2008, they moved very fast. They flipped their support for Labour’s spending plans completely on its head. They have argued insistently for nearly eight years that the crisis was due to Labour spending too much.

Now this is nonsense. You don’t get a banking crisis because you employ too many nurses or teachers. You get a banking crisis because, to be blunt, you employ too many bankers.

But aided and abetted by a media campaign, the Tory leadership have drummed home the message that Labour caused the global financial crisis. I believe that message is now losing its appeal as the consequences of austerity become apparent. George Osborne is backing away from it, seeking to blame current economic difficulty

We will not be able to help create a fairer, more equal society if we are not trusted on the basics of handling the economy. Since Jeremy was elected, back in September, we’ve put in place the structures needed to start to win back credibility.

But that leads us to the second, deeper challenge.

Some might think there is a quick and easy solution to the problem of Labour’s economic credibility. One that means we concede the argument to the Conservatives and sign up to their own economic policy. I don't believe this would be the right course for us not only because I don't believe the austerity policies pursued by this government are fair.

They are clearly not.

Had we signed up to the Conseravtive's' spending plans, we would not have been able to move so quickly in opposing the disgraceful cuts to the Personal Independence Payment announced in March's Budget. Winning a reversal of that cut was a major success for us. But the Conservatives' economic policy is not just unfair. It is a failure on its own terms.

Just this week, the International Monetary Fund has revised its estimates for the UK's growth downwards. This follows a major revision downwards by the official forecasters, the Office for Budget Responsibility, back in March. Looking in to the details, the Office for Budget Responsibility cite a slump in productivity since 2007 as the main reason for the UK economy's weakness.

Since the crash, and with George Osborne as Chancellor, we have seen economic growth based on the creation of a large number of poorly paid, insecure and low productivity jobs. At the same time, consumer spending is increasingly sustained by rising levels of debt.

The OBR is forecasting unprecedented borrowing by households over the next few years, just to keep the economy moving. This should sound familiar. It was household debt that kept the economy moving before the crash, too. All of this points towards not just a failing with Osborne's economic policy. There are deep, structural problems that a government committed to real reform would address.

The challenge for those on the left will be in winning the case for those reforms. I think we can do it. The consensus amongst economists is today unusually large. Austerity measures are opposed across the board.

And the IMF, the OECD, the CBI and the TUC are all now arguing for a major programme of investment by government to help national economies weather the storm. Labour's Fiscal Credibility Rule will allow a future government the flexibility to invest in vital infrastructure like new rail, and renewable energy.

The current government, instead, is cutting government investment - flying in the face of the consensus. It's wedded to a particular vision of the economy in which the state's role is reduced to a minimum, and financial interests take precedence.

This isn't just a moral question. It means leaving the whole economy more exposed to risks. We've had two terrible examples of this in the last fortnight or so. The threatened closure of the Port Talbot steelworks places 40,000 people at risk of losing their jobs.

The case for government action is clear.

Labour has argued for its four-point plan to stabilise this vital industry and place it on a secure footing for the future. Yet extraordinarily when the market for steel globally has been trashed by the "dumping" of cheap steel by China, this government has not just refused to intervene. It has actively blocked attempts to prevent dumping by the EU.

One EU official went so far as to claim that this is "payment" by the government to China for handing over the contract to build Hinkley Point C nuclear power plant. Whatever the case, it is quite extraordinary to find a British government actively arguing against Britain's clear economic interests.

Or take the Panama Papers leak. This is about far more than just a few individuals seeking to minimise their taxes, as some Conservative MPs have claimed. What the Panama Papers show is that tax avoidance is entirely systematic. The total amount of wealth held in tax havens has been estimated at $21 trillion. It is a direct result of the massive increase in inequality we have seen over the last thirty years or more.

Extremely wealthy individuals and very large corporations, aided and abetted by shady operators like Mossack Fonesca, have been able to construct an entire offshore world. They can reduce their taxes to a bare minimum, unlike the rest of us who make a fair contribution.

And at the centre of this offshore world is the City of London. Respectable London banks and accountancy firms are at the centre of the tax avoidance system, setting up thousands of offshore shell companies. This has direct economic consequences.

Every pound squirrelled away like this is a pound not invested here. Every offshore trust investing in London property is not investing in the productive economy. The super rich and big businesses are hoarding their wealth and failing to invest for the future. One estimate puts the corporate wealth hoard at £700bn for the UK alone.

This money should be put to work. It should be invested into helping create the high tech, high wage economy of the future.

So opposing tax avoidance isn't just the right thing to do because it means fighting for fairness. It is the right thing to do because it means helping create a better economy for all of us.

We have to make a break with the failures of the past. What the crash of 2008 should have taught us above all else is that we cannot allow financial interests to sit in the driving seat of our economy again. We run the risk of being driven into a wall, again. The IMF today also warned of the increased risk of a future financial crisis.

I'm concerned about what happens in the future. I don't think we have an economy that is well prepared for an increasingly uncertain world.

As Labour develops its economic thinking, we want to win the argument not just that what we are doing is morally right. We need to win the argument that we have the best solutions to the series of problems that now threaten our economy.

Economics and economic policy is always informed by morality.

I believe that if we get this balance right, we can win a majority with the idea that not only should the economy be more just. It should also be more efficient. The two are inseparable.

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