At 304 pages and 18 months in the making by 22 commissioners — including the Archbishop of Canterbury — the new Prosperity and Justice report by the UK’s Institute for Public Policy Research is clearly intended to be a heavyweight piece of work. And it is.
For one thing, it has pulled off the unlikely trick of uniting both the UK’s avowedly Trotskyist shadow chancellor, John McDonnell, and the Daily Mail — a publication not hitherto regarded as a beacon of progressive political economics. Mr McDonnell referred to the tome as “today’s equivalent of the historic Beveridge report”, the 1942 plan that led to the establishment of a system of social security and the National Health Service in Britain. The Mail, while not convinced of the report’s proposed remedies, found “much to welcome” in it.
When the establishment and the counter-establishment agree, wise people should start to worry. Nevertheless, the report’s early analysis of the ills of the UK economy has much that is good. The second part, some 73 specific recommendations sprawling across 10 chapters is, unfortunately, far less persuasive. A brief note makes conveniently clear that individual commissioners agree with the broad thrust of the arguments, but not necessarily with the recommendations.
Some of the latter bear a striking resemblance to suggestions in the most recent Labour manifesto and potentially includes new taxation of up to £186bn, a clutch of new quangos and the obligatory Gramscian “long march through the institutions”, so perhaps that is just as well.
Let’s start with the good stuff. The report argues, rightly in this age of automation, that we should think of prosperity in terms of “the quality and security of work as well as income; time with family and community as well as money; and the common good as well as individual wellbeing”.
It usefully lays down six “principles of economic justice”, covering poverty, dignity, exclusion, inequality, balance and intergenerational fairness. It adopts the language of rebalancing, industrial strategy, and better-paying jobs. It zeroes in on effective competition and open markets and it recognises the potential for market abuse and rent-extraction in the digital economy. It is not obsessive about Brexit and seems to argue for the reform of capitalism, not its abolition. These are real merits.
But overall, the report is rather less even-handed than it appears. Its analysis is drawn so as to anchor the debate in economic changes over the decade since the financial crisis of 2007-8, focusing on the collapse in productivity. This may be rhetorically useful, but it has the effect of obscuring much of what really happened.
If we widen our focus to the period 1997-2017, a somewhat different story starts to emerge — the explosion in the UK current account deficit began as Labour came to power in 1997; the real wages of the bottom third of the population stopped growing in 2003, at a time of unparalleled economic prosperity; productivity started to fall in 2005; and substantial government budget deficits during the boom years meant that public spending had risen to 48 per cent of gross domestic product in 2010.
Not only that, as the Independent Commission on Banking highlighted, the financial crash was sharply worsened by bank debt that regulators had limited to 20 times lenders’ capital from 1960-2000, only for it to be allowed to rocket upwards to 50 times capital in the seven years to 2007. This should never be forgotten.
If the commission’s analysis has a slant, so too do its political-economic judgments. Amid the talk of market failure, there is little recognition of government failure. The first mention of the cost of living comes a third of the way in.
While recognising many of the UK’s economic strengths and successes — booming levels of employment, scientific research, entrepreneurship, the creative industries, decarbonisation and support for green issues — the report struggles to explain how they occurred independently of government. Yet the truth is every one of these areas and more has been a focus, indeed a progressive focus, of government policy over the past few years.
The recommendations have the sense of a farmer’s market of left thinking about them — a bunch of this, a nosegay of that — and there is relatively little that is genuinely new. It is not hard to trace the lineage of its support for the fall of sterling, for example, or for the German industrial model, or for a mission-oriented industrial strategy.
Many of the saner parts of the agenda have already made their way into the policy mainstream and recent government policy. These include the national living wage and metro mayors and the emphasis on infrastructure investment, economic clustering, and universities as anchors of culture and business activity. The forthcoming Oxford-Cambridge expressway is one example.
To these we might add such ideas as: a national asset fund, used as a transparent source of finance for new infrastructure; a detailed review of executive share incentives; cumulative voting for the election of large public company directors; greater investment in innovative models of higher education; further simplification of the tax and savings systems; and reform of competition policy focused not merely on consumer outcomes but industry structure. These suggestions merely scratch the surface.
Although Mr McDonnell may have forgotten, the Beveridge report was written by a Liberal, framed by a Conservative, and implemented by the Labour party. I doubt this report will have so happy and bipartisan a result.
The writer is a Conservative MP and the author of Adam Smith: What he thought, and why it matters