The Purple Papers are published at a pivotal moment for the British economy, in an unstable world where governments and monetary authorities battle desperately to steer us through the opposing forces of inflation and deflation.
Steve Van Riel’s searching paper on the big growth question suggests some sobering choices for policymakers as Labour aims to for government in 2015. He asks whether we should make a ‘risky’ dash for growth or go for security.
Before we even consider growth strategy, we need to look at the health of the financial system and how we develop our greatest asset, the capacity of our people to discover new avenues of creativity and innovation.
Firstly, in a ‘One Nation’ economy bad decisions by a financial institution should not effectively be rewarded at the taxpayers’ expense. Establishing this as a firm principle, where we seek more transparency and accountability will signal that moral hazard will not be tolerated.
At conference Ed Miliband called for an immediate implementation of all the Vickers recommendations, otherwise Labour would legislate from 2015. The UK is walking a tightrope with its highly leveraged banking system. The late Anna Schwartz, a former American economist (whom Paul Krugman called ‘one of the world’s greatest monetary scholars’) said the error made by the major economies post-2008 was to help specific banks rather than save the system.
Financial reform is absolutely crucial if growth is to be rediscovered and government fiscal policy to be effective and fair. This amounts to an end to financial repression as currently practiced by most central banks.
To secure a viable and strong economy we need to encourage savings, not to destroy them. As Carmen Reinhart and Ken Rogoff set out comprehensively in their tour de force ‘This Time is Different’, negative real interest rates are destroying savings, making current and future pensioners poorer, and starving small businesses, which could create new jobs, of much needed capital.
So we need actively to encourage major expansion in zero-leveraged crowd funding and peer to peer lending, channelling savings to new businesses looking for capital. We also need a British investment bank to support start-ups which private markets may find unattractive, as Peter Mandelson suggests in The Purple Book to ‘pump prime’ early stage technology.
For the second part of the growth strategy, consider for example the potential at air fuel synthesis on Teesside, where enterprising chemists have produced petrol from water and air, and are now looking to up-scale and develop supply chains. In the context of our energy infrastructure challenges today, such initiatives have truly strategic significance and their vision needs government support.
Government must strengthen our science, engineering and technology base so we can compete with the BRICs and other emerging nations who have narrowed considerably the previous value-added advantages of developed economies. Pivotal for a reinvigorated economy will be the flourishing of the gold standard Technical Bacc as outlined by Ed Miliband, along with a science renaissance in schools.
Capacity building with enthusiasm from an early age is critical to empowering individuals as well as transforming our communities to become more resilient in a world of diminishing resources.
We achieve growth when we nurture and inspire our people to make a better world. Positive freedom as set out by Isaiah Berlin is as important in developing talent, as negative freedom is in releasing creative enterprises to fulfil their potential, create more jobs and so growing our economy again.
The challenge for our One Nation vision of opportunity and solidarity is to empower the people in the ways they can turn their creativity into more jobs and opportunities and so achieve that elusive growth we seek. To support this requires a more robust, less leveraged financial system. Government’s role is to nurture, enable, then empower people to create wealth in a world of dispersed, spontaneous knowledge and infinite possibilities.
David Phillips is editor of the Labour Finance and Industry Group. He writes here in a personal capacity.