At the heart of Britain’s economic issues is the failure to invest. Business investment remains lower than its pre-2008 peak, and, improbably, the government plans to cut its own investment further. The result is an economy that relies on substituting cheap labour in the place of capital. As research by John van Reenan and others has shown, this has become pronounced since 2008.
OECD figures suggest that real hourly wages are down 10 per cent since 2008. This makes the UK the worst performer in this respect in the entire developed country OECD group, bar Greece. 80 per cent of those in work have seen either flat or falling pay since the crash. We are facing a “lost decade” for living standards. But with de-industrialisation over the last forty years, the relatively stable well-paid jobs that manufacturing has supported have become thinner on the ground. The labour market has hollowed out, with a few, very well-paid jobs at the top—and ranks of lower paid, increasingly insecure jobs for the rest. Worryingly, forecasts cited by Andy Haldane at the Bank of England suggest that 15 million jobs are open to being automated out of existence over the next decade.
Factor in the concerns raised by the discussion of “secular stagnation” in the developed world, with low or zero growth persisting, and the future for our economy can look bleak. Britain has compensated for its structural weaknesses with debt, both in its domestic, private sector borrowing, and internationally, with our record current account deficit necessitating huge borrowing from and assets sales to the rest of the world.
Under these circumstances, hoping to turn the clock back to 1945 or even 1997 is simply not an option. Our economy needs restructuring if it is continue to provide rising living standards and the high-quality public services we demand. We need to think not only about how to spend money, but how to earn it.
The opportunities are there if government is prepared to take them. Manufacturing is going through a renaissance, on the back of new technology and more sophisticated processes. One in six UK manufacturers have “reshored,” bringing production back from overseas, in the last few years. The most adept governments are those able to take advantage of this shift, as in the German government’s “Industrie 4.0” programme.
Our party’s economic policy falls into three parts. First, an iron commitment to fiscal stability. Our Fiscal Credibility Rule, drawn up in consultation with world-leading economists, was originally announced in March. The basic idea is simple: we will spend only what we can afford, but ensure government has the capacity to invest in transforming the economy. And of course we will stand ready to use fiscal policy if economic stability demands it.
The second plank is our investment commitment, totalling £500bn, between a £250bn National Investment Bank and network of regional development banks, and a £250bn public investment commitment. All of this will fit inside the fiscal space currently provided by the Fiscal Credibility Rule. That £250bn figure, if invested over ten years, would represent a doubling of current public investment, bringing the UK up to OECD standards.
We would look to address the huge inequalities in investment, where planned public investment in London is over £5,300 per head, but in the north east only £413. We’ll provide for high-quality transport across the whole country, alongside a commitment to meet the best broadband internet standards in the world, matching the schemes being introduced in China and South Korea. And we’ll lift science and technology expenditure, reversing the £1bn real terms cuts George Osborne oversaw and aiming to meet the OECD 3.5 per cent of GDP target for public and private sector research spending. Britain’s science base is amongst the best in the world. We should be building on that history and success. We’ll move to rapidly decarbonise our energy system, putting Britain at the head of action on climate change—and building on our natural advantages to tap into the $630bn global renewables market forecast for 2030.
We’ll also establish a new National Education Service, ensuring that everyone, from the youngest to the oldest, has access to the best possible education and training, providing the skills our emerging high-tech economy needs.
Finally, we want to transform corporate governance, and spread company ownership far and wide. The lack of direction from government and the excessive focus on private financial returns has generated a short-termism in our big corporations. We aren’t delivering the investment needed to take best advantage of the opportunities there. Changes to corporate law, restricting some of the bad practices that characters like Philip Green have exemplified, and providing a bigger voice for the workforce are an essential part of this. The regional development banks will help promote small businesses, and co-operative and worker ownership across the economy, recognising the major productivity benefits these bring.
We’ll work with businesses, unions and customers to deliver a comprehensive industrial strategy for the UK, so that no-one and nowhere is left behind.
John McDonnell / September 20, 2016 / Prospect Magazine