Debating Plan B

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.

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4 comments on “Debating Plan B
  1. Paul Hindley says:

    I found Compass’ ‘Plan B’ and your overview of it very interesting and informative. Plan B’s Keynesian undertones were very attractive. It’s unrealistic to stop the cuts although the cuts should be socially just protecting those who are the poorest and targeting those with the broadest shoulders.

    I agree that it is important that we discuss alternatives to the neo-liberal agenda and the Social Liberal Forum has a role to play in displaying the social liberal alternative.

    I agree that the moves towards a more sustainable, equitable, dynamic and a flexicurity-based economy are very welcome.

    Even though the state should be an economically enabling one, it should be so from a bottom-up community basis, as opposed to the traditional top-down basis. Is it time to combine the liberal notion of ‘community politics’ with a type of ‘community capitalism’? A ‘community capitalism’ that focuses on economically deprived groups in our communities along with local SMEs instead of the obsession with big business of the past 30 years.

  2. Prateek Buch says:

    Hi Paul, thanks for the comment. Interesting thought, particularly regarding a social liberal alternative to the current settlement in the political economy.

    I firmly believe that it is up to social liberals on all sides of the partisan divide to present workable alternatives, which is why I welcome Plan B’s direction of travel and commitment to a fairer economic settlement.

    What’s crucial is that the alternatives that emerge should be workable and both economically and politically sound – which is why SLF will continue to work towards the kind of measures detailed in Plan B in as effective a way as possible.

    I like the notion of community capitalism and would welcome some more detail, you’re right to focus attention on those who’ve not benefited from the rather illusory growth in recent years.

  3. Neil Sandison says:

    having lived through 3 recessions i have come to the beleive that national governments dont solve economic crisis .local government and the sacrifices local communities make drive recoveries forward.We need to harness that can do spirit both in terms of local and social enterprize which can work together to bring innovation and new employment oppertunities .We also need to get away from the old models of what is employment .Where are the over 50s going to get secure employment to get to pension age when you have over a million young people seeking a low paid first steps onto the employment ladder ?Can we use their knowledge base rather than write them off .The skills base between senior managers and new employees is widening .How do we enable the mature employee or recently redundant but skilled operative to train the next generation ?
    We must not make the mistakes of the past where we ended up with large numbers of people claiming incapacity benefits to avoid the ignomy of being unemployable
    in a modern jobs market.
    There is a large amount of work out there that needs to be done but is not being tackled because of the economic climate .Lets use those business rates to drive green growth ,social enterprize and re-skilling our work force .
    Plan A ,A+ or B is more about political positioning than problem solving .
    Lets do what Liberal Democrats have always done best .Change the agenda and make it more relevant to the lives of the people we serve and generations to come.

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