Report by Prateek Buch
As detailed in a letter to the Observer, the campaigns group Compass has helped piece together a Plan B to boost the stalling economy, having declared the Government’s Plan A to have failed.
I was at the event that marked the launch of the Plan B document, and would suggest that whilst it marks a welcome addition to the emerging discourse on how to spark a recovery from our current economic malaise, much of the detail needs to be scrutinised if it is to be put into practice. Many of Plan B’s measures echo what the Social Liberal Forum have been calling Plan C for some months
and what Vince Cable prefers to call Plan A+ – semantics aside, there is now a pluralist debate on alternatives to the neo-liberal agenda and that is welcome.
The meeting began with a précis of how Plan A had failed from economist Howard Reed, who edited the Plan B document along with Compass Chairman Neal Lawson. Reed detailed how Chancellor George Osborne’s insistence on expansionary fiscal contraction – the hope that cuts to public spending would ignite private investment and growth – had not only failed to drive economic
recovery, it had failed to achieve even its most elementary objective of reducing the government’s deficit.
This was, according to Reed, largely due to the negative effect on demand that austerity measures were having through job losses – the immediate answer to which was to halt the deficit reduction programme in favour of ‘emergency recovery measures’ such as more quantitative easing (QE) directed at a Green New Deal, raising benefits for those out of work, and the implementation
of a financial transactions tax to cover the costs of these measures.
I welcome the forthright assertion that Plan A isn’t working, but would have to question some of the narrative that Reed pursued – not least the simplification in blaming public austerity for depressed economic output when the former has simply accelerated and deepened the latter which occurred for reasons largely independent of the state of the government’s finances. Calling for a complete
moratorium on public spending cuts is ill-advised, although many of the measures (both short- and long-term) that accompany this call are thoughtful, economically and politically sound and should be seriously examined.
Anna Coote of the New Economics Foundation then followed with an exploration of Plan B’s overall aims, which is to foster a Good Economy for a Good Society. This centred around growing what she called the ‘core economy,’ with a particular focus on ‘the human resources that comprise and sustain social life’ such as good parenting, caring for the vulnerable and maintaining social
networks and civil society.
Coote rightly argued that a narrow focus on GDP as the only indicator for economic progress ignored the core economy in favour of a purely financial measure – and that too an aggregate one that doesn’t acknowledge the unequal dimensions of how the proceeds of said growth is distributed. Coote made some welcome proposals around job-sharing and measuring the unpaid work of parents and carers as a valued part of the economy, as well as advocating the fairer distribution of time for people to carry out such functions. As all the speakers acknowledged, there is much work to be done before the principles set out in Plan B can be translated into effective policy.
Will Hutton responded to the Plan B document by welcoming its direction of travel and encouraging its authors to be bolder, to go further and to consider much of what he’s been advocating in both his latest book and his Observer columns. Hutton reasserted that the drive to eliminate the deficit in four or five years was a political aim not an economic one, as was the requirement to have the government’s debt-to-GDP ratio falling by then – he went as far as to say that the Ricardian equivalence between current debt and future tax rises as being ‘for the birds.’
Hutton called for a number of radical measures not mentioned in Plan B, including changing the Bank of England’s remit to focus on nominal GDP growth, creating the institutional conduits to allow QE and credit easing to small and medium enterprises (SMEs), and crucially to encourage equity-based finance for innovative firms and not just debt-driven credit. He also reiterated his support for an innovation strategy through which the State could foster economic dynamism along the lines of what Ha-Joon Chang suggested at the Institute of Public Policy Research recently.
The meeting then split into parallel sessions on various topics, and I took part in one centred around the State’s role in fostering sustainable growth. Mariana Mazzucato emphasised that the State can encourage entrepreneurship and innovation without price-fixing by creating new markets where the private sector can become involved latterly – she gave the example of the nanotechnology sector as how this has been done in the past. Mazzucato warned however of the need to ensure adequate returns on any public investment into such ventures, which in many cases had been ignored in the past. I added that the transfer of public investment into private profit without a return to the
public realm was often replicated in the scientific research and development sector with decades of taxpayer-funded research being capitalised on by private firms and that in the future investment in green technology should proceed such that all stakeholders in get a fair return on their investment. David Hall-Matthews and I both spoke of the need for the welfare state to focus on retraining and lifelong skills acquisition, with David emphasising the role that both the State and trade unions could play in the formation of a ‘flexicurity‘ model of the labour market. Kamaljeet Jandu of GMB said that unions do play something of a role in retraining but could go further.
Finally the meeting ended with a plenary given by Professor David Blanchflower, who started by focusing on the disastrous effects of the depression on the under-25s amongst whom the unemployment rate is 21%. Raising the probability of the UK experiencing a prolonged depression following the crash of 2008 along the lines of Japan’s Lost Decade, Blanchflower attacked the Prime Minister’s insistence that Britain was on the verge of bankruptcy like Greece. He called for a more lucid economic policy that would include a two-year National Insurance holiday for firm hiring young workers (as well as tax breaks for any firms hiring more than they’re firing), investment in infrastructure done in a way that creates jobs, and a massive expansion of university places for science, engineering and technology courses.
Much of what Plan B sets out is to be welcomed, and shares a direction of travel with Plan C as mentioned above. Although Osbornomics has lead us to the edge of a precipice, if we focus on the creation of a sustainable, equitable and flexicurity-based economy we can repair the damage done to date, especially if we acknowledge that economic dynamism and the creation of meaningful work
is a joint enterprise between an enabling State and a fairly constituted private sector. The discourse continues.