In the economic debate dominating British politics, Labour must not lose sight of why we are so desperate for growth: to deliver an increase in living standards for the people of Britain. Ed is right to argue that not any growth will do. Short-term growth must not come at the expense of long-term financial stability or social justice.
Labour’s policies on business and the economy must deliver good growth. But what does good growth look like?
1 – Good growth supports delivers better living standards for everyone
Growth in the 1990s and 2000s did not benefit everyone equally. At the top, the exponential rise of the super-rich outweighed the rise in living standards of the middle and the bottom. At the bottom, Labour achieved huge success lifting poor working families out of poverty. But the mechanism was redistribution, such as the working families’ tax credit, not salary. Though it achieved its laudable policy outcome, it left Britain with an economy in which the state in effect subsidised those organisations using low-paid workers. This also entrenches the ‘poverty trap,’ which disincentivises some low-paid workers to increase working hours or move up the scale because their increase in salary would be met by nearly the same reduction in their benefits. Good growth would deliver a fairer distribution of improvements in living standards and wealth across the income spectrum.
2 – Good growth is not overdependent on one element of the economy
Hindsight is a wonderful thing. But it is clear that before the banking crash, the British economy was overdependent on financial services for its growth. Less often admitted, we have also been overdependent on the public sector for jobs, especially in some parts of the country. Labour’s growth must build a sustainable, balanced economy, built upon a number of industries and securing growth across the country.
3 – Good growth creates good jobs, in good organisations
We know that good jobs are those which are paid a living wage, are paid fairly, have decent training, and have prospects of moving to a better job. Labour’s challenge is to develop policies which incentivise companies to be Ed’s ‘producers’ and disincentivise them to be ‘predators’. The use of government procurement to drive an increase in training and apprenticeships – long advocated by John Denham – is a welcome move in that direction. The businesses whose investment we need will require people with the right skills, strong infrastructure, and a pro enterprise tax system to enable them to flourish too. So our science, skills, welfare and tax policies must also attract them.
4 – Good growth creates jobs of the future, in the industries of the future
No economist or politician is agnostic about Britain’s place in the world economy; Labour’s economic policy should not be agnostic either. To compete in the world of the future we must continue to lead the world in high value, high-tech and high-skilled sectors. This is in tune with our aspirations for Britain’s place in the world. We know that the country that solves the challenge of making renewable energy cheaper than coal will be an economic power house of the future. So Labour’s economic policy must use the role of the state intelligently and subtly to encourage companies to build a green economy in Britain.
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Josie Cluer is a former special adviser
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Very good post, particularly the first point where you indicated that the improvements for the low income earners was achieved by re-distribution (ie benefits) and not by increased/better salaries.
The problem is that higher wages makes business less “competitive”. However:
– all British businesses will be in the same boat, and
– the value of the pound can help compensate for lower international competitiveness, BUT
– that is not enough, we need all businesses to work smarter to reduce the “disadvantage” of higher wages that ARE needed.
James
I agree with much of what you say (particularly on the need for business to build a green economy). But there is an argument that in the absence of good growth the best kind of growth is zero growth. A standstill at least halts the damage that is being done to the planet’s life-support system whereas if the world’s leaders are successful in getting the old kind of growth going again we immediatly come up against the problems of resource depletion, global warming and environmental pollution.
Indeed there is almost a self-correcting mechanism at work here in that environmental constraints will lead us back into recession almost as soon as we emerge from recession.
This is the trap we have got ourselves into and so far I do not see any sign of the world’s leaders (including our own party leader) being aware of it, let alone doing anything about it.