Similarities with the 1970s abound. Labour must respond with boldness and radicalism
Approaching the halfway point of the government, a significant political shift is taking place in Labour’s direction. Partly this is midterm coalition blues. But something more fundamental is happening. The Tories promised their economic plan would deliver growth and jobs. Two years on it is producing recession and unemployment, with no end in sight.
If this carries on, a change of government at the next election is more likely than not. A great mistake in politics is to extrapolate iron laws from the recent past. It is wrong to think that the natural life span of governments is two or three terms, and that it takes oppositions at least two terms to sort themselves out, simply because this is what has happened since the 1980s.
When the economy is not working, and confidence in economic management is low, one-term governments are common. Ten European governments have been ejected from office in the last 12 months alone. And there is no need to look abroad. In the 1970s, Britain had three changes of government, and four changes of prime minister, in nine years.
Similarities with the 1970s are accumulating: deep, protracted economic dislocation; a weak government constantly U-turning; no convincing answer to the fundamental crisis: the oil price shock and rampant inflation and unemployment in the 1970s, the 2008 crash, stagnation and unemployment today. Youth unemployment, now at one million, is higher than at any time for a generation, causing untold social damage and misery.
The 2008 crash marked a watershed in western politics and economics. Yet, while few western democracies have yet found a path back to strong growth, Britain has fared worse than most. Increasingly, it does not work for David Cameron and George Osborne to blame this on the rest of the world – or the last Labour government. Britain’s GDP is still four per cent below its 2008 level. And it is not only Germany doing better: altogether five of the other six G7 economies are. Only Italy is doing worse, and Germany, France, Canada and the United States are all now appreciably above their pre-crash GDP levels.
If British GDP only returned to its 2008 level, as in the United States and France, that would put £60bn a year back into the economy, or £1,000 per head. So Labour’s mission is to be credibly ‘anti-austerity, pro-growth.’
In the short term, anti-austerity is the easier bit: cutting less fast and less far. But one-termism requires strong fiscal discipline. New spending commitments can only be at the expense of existing ones, and the numbers have got to add up. However popular it might seem to offer sweeping new commitments, for example on long-term elderly care, if the numbers do not add up without tax rises, a repeat of 1992 beckons.
Pro-growth is, though, more challenging because the script is largely unwritten and the past is not much help.
There is no credible plan for growth without an active state. Labour believes in the active state, and the Tories do not, so there is not much chance of Cameron and Osborne getting there fast, let alone first. And if Boris Johnson is the Tories’ salvation, then his only notable policy statement since re-election – supporting a referendum on leaving the EU – is not a recipe for growth, but a recipe for havoc.
A disposition to be active is not going to magic up growth any more than a disposition to go to the gym makes you fit. And active cannot simply mean ‘more state.’ A growth strategy requires a welfare reform plan, a skills plan, an infrastructure plan and an industrial plan. All of them will involve big reform.
This is the key point for Labour modernisers: you cannot be pro-growth without being pro-reform.
On welfare, work needs to be supported far better – childcare is essential here – while keeping the total bill affordable. Labour is right to accept the principle of caps on housing benefit and total benefits.
On skills, Labour transformed education under Tony Blair. We will need to transform it again. High youth unemployment will never be eliminated until virtually all our young people succeed at school and go on either to higher education or to real apprenticeships providing real training and real work offered by real employers. Of those 16-year-olds who left school last year fewer than six in 10 did so with decent GCSEs including English and maths. In Singapore it was more than eight in 10, and it is the same story in most of industrial east Asia, including China, which this year will produce seven million graduates, nearly one for every school-age child in Britain.
On infrastructure, Britain needs a 20-year plan for transport, energy, housing and public services. Labour needs to say what is needed, how it is to be financed, and how and when it is to be built. In contrast, taking just transport, the Tories have no aviation policy, there was no bill on high speed two in the Queen’s speech – 26 months after Labour published the HS2 plan – and there is no commitment even to taking HS2 north of Birmingham. Nor is there any plan for dealing with congestion on strategic roads and motorways, or for improving bus services outside London.
An industrial strategy is most challenging of all. Nick Comfort’s chilling recent book on British industry since the 1950s, Surrender, is about what he calls ‘the greatest mass extinction since the dinosaurs.’ Alas, the similarities do not relate just to size.
It is surely now obvious that we cannot hope to pay our way by relying on business, financial and personal services alone, particularly outside London. Making things matters. Locating production in Britain matters. Having leading-edge technology and production companies owned in Britain matters.
We need a far more intelligent state – in public procurement, in creating new markets, in backing R&D, in guiding banks and credit institutions, in supporting exports, in forging new and much closer forms of public-private partnership.
A credible growth strategy is a huge job of work on multiple fronts. But in my experience it is crisis that precipitates both boldness and radicalism. The crisis is here. The Tories have not got a clue. Our duty is clear.
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Andrew Adonis is chair of Progress. This article is based on his opening speech to this year’s Progress annual conference
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Andrew writes: “On infrastructure, Britain needs a 20-year plan for transport, energy, housing and public services. Labour needs to say what is needed, how it is to be financed, and how and when it is to be built.”
I agree… as far as it goes. But “infrastructure” goes beyond transport, energy, housing and public services. All economic activities are underpinned by infrastructure – general infrastructure (e.g. transport, communications) and specific infrastructure (e.g. a service industry like tourism needs a network of tourism offices, efficient organisation of shuttles from station/airport to hotel etc).
Britain needs to widen significantly its definition and understanding of infrastructure. Then government needs to ensure that all major stakeholders in all major economic activities can (if they want) coordinate among each other to increase the efficient use of the infrastructure they need and to plan together the development of new infrastructure that they think they will need. This role for government is cheap but its effects are far-reaching.