Whatever happens after the Brexit process, the UK needs a radical transformation of its economic settlement, write Rachel Reeves, John Tomaney, and Karel Williams. They explain why this transformation should revolve around everyday economics.
Global market forces and national policy have concentrated wealth and political power in the metropolitan cities and major university towns, amongst the asset rich elite and the professional middle class. They have taken the lion’s share of jobs and political and economic power. They monopolise the top of a socially immobile and deeply unequal society in which a multi-ethnic and economically insecure working class provides essential services. In contrast, in the urban hinterlands, rural areas, and ex-industrial and coastal towns the loss of work through new technology and off-shoring have destroyed the collective and political power of the working class and impoverished whole communities. Here society is less unequal, more homogenous, and poorer.
The liberal market settlement of the last four decades has left England deeply divided by class and geography. It has devastated communities and put intolerable strains on social relationships and ties. It has poisoned a relatively benign common view of immigration, and it has estranged Britain from Europe and moved politics closer to a harsh and intolerant nationalism.
In partial recognition of this deep political failure, governments have tentatively reintroduced the idea of industrial strategy. Peter Mandelson, as Secretary of State for Business, Innovation and Skills, took the first step after the 2008 financial crisis. The Conservatives also now accept the need for strategic intervention. Theresa May’s government promises to ‘boost productivity and earning power throughout the UK’. It identifies five foundations of productivity – ideas, people, infrastructure, business environments and places. These underpin its attempt to tackle four ‘grand challenges’ of artificial intelligence and the data economy, the future of mobility, clean growth and an aging society. Central to its strategy are sector deals to drive up innovation.
It is a big step forward, but this strategy continues the discredited policy choices of the past. It relies on wealth trickling down to the majority by high value jobs creating demand for services, and by redistribution through tax-and spend policies. It claims to address regional inequalities, but it focuses on the globally mobile and financially extractive parts of the economy, fuelling the house price bubble in our growing cities. Its sectoral approach is too narrow targeting only 10% of our manufacturing base. And its focus on research and development largely benefits facilities in the affluent South.
Most recently Paul Swinney of the Centre for Cities has defended this approach, albeit with reservations. The purpose of the Industrial Strategy he argues, is to tackle the UK’s lagging productivity, and so an approach based on innovation is ‘pretty fundamental’. Innovative sectors push up demand for such things as bars and restaurants which create jobs. Wages and workers rights, while important, fall outside the remit of an industrial strategy.
We believe this approach is much too limited. The concentration on the cities as engines of growth, on commercial property development, technological innovation and the high-productivity trading sectors ends up neglecting the middle and low paid. It neglects the civic infrastructure required to develop research and innovation across the whole economy, and it tends to exclude rural areas and towns from the wealth creating activity it is promoting. The process of gentrification means that housing becomes unaffordable, pushing out the children of the long settled local population.
By focusing exclusively on Britain’s global competitiveness, this kind of industrial strategy perpetuates the dynamic of social and economic division which has brought our democracy to the brink of collapse. Innovation is vital, but the task is to improve the lives of all our citizens through social and economic innovation. We need to broaden our conception of industrial strategy and include the foundational economy and the everyday life of work and the family household.
Industrial policy to date has had little to say about this everyday economy. It is made up of the services, production, consumption and social goods that sustain our daily lives. Its core activities include transport, childcare and adult care, health, education, utilities, broadband, social benefits and the low wage sectors of hospitality, retail, food processing and distribution. This core employs around 40% of the workforce in England and Wales. Everyone in both our cities and regions, regardless of income, participates in the everyday economy. It is made up of the private, public, and social sectors and is distributed across the whole country.
In mainstream economics it has been dismissed as low productivity activities which can provide low paid jobs for the low skilled. But this low productivity stereotype is empirically unjustified. Productivity levels are not low but variable in different activities. The material utilities have a high Gross Value Added per capita of nearly £70k per annum. Services like health, education, and care are substantially lower but they usefully distribute more than 75% of their Gross Value Added as wages.
The argument about whether these sectors are sources of productivity growth misses the point. In health, education, and care we are concerned with the human emotional and cognitive qualities of flourishing, caring, and learning. These are often not captured by productivity measures. In reforming adult care, our concern is with the needs of our parents and grandparents, not whether their home visits can be done in fewer minutes. The low pay of the home visit workforce simply reflects the low cultural value we attach to care work and so its inadequate funding and poor working conditions.
The utilities, health education, and care are the infrastructure of everyday life that keeps us safe and civilised. They are not sustained by the trickle down of consumption demand from the globally integrated advanced sector. They involve collective consumption, which is a public good. They depend on social investment and their improvement requires good pay and conditions for their workers.
To rebuild the everyday economy we need a place-based development strategy which innovates institutional arrangements to respond to ‘international patterns and dynamics of geographical change’. Centrally-imposed city region devolution with limited powers will have a limited impact. Genuine devolution creates power beyond the town hall, prioritising participatory and deliberative models of decision-taking to give people more control over the places they live, the work they do, and the institutions that govern their lives. Deindustrialised places suffer economic disadvantage but they retain valued community ties and strong social bonds. The kind of everyday economics of belonging we argue for recognises the importance of these relationships. They are a crucial asset in the economic health and resilience of communities. An industrial policy that increases private affluence by focusing on the already wealthy and high productivity areas will only lead to more public squalor, anger, and division.
______________
Rachel Reeves is Chair of the Business, Energy and Industrial Strategy Select Committee and MP for Leeds West.
John Tomaney is Professor of Urban and Regional Planning at University College London.
Karel Williams is Professor of Accounting and Political Economy and Director of the Centre for Research in Socio-Cultural Change at Manchester University.
All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science. Featured image credit: Pixabay (Public Domain).
While agreeing that those who have consistently been employed in secure public sector jobs don’t understand the for profit sector, the influx of highly paid private sector consultants into this sector has done absolutely nothing to improve matters.
It’s my belief that the true difference between public and private is that of doves and hawks. The doves really have no conception of the mentality of the hawks.
And neither do the hawks understand the doves. So bringing in consultants from the private sector just brings hawks into the nest of the doves.
Public sector executives are motivated by the public good rather than by private profit. They don’t get that others don’t necessarily see it that way.
I agree that the global economy market model unfairly favours the rich and powerful, but how is that to be changed in the way that you suggest, while we still have an electoral/governance system that favours the rich and powerful – whether that is right-wing or left-wing? While the system says “we are elected to know what you think” policy will always be socially biased?
A really interesting arictle – thanks very much. I have to say that I’m surprised that there is nothing in this piece about the rising interest in Community Wealth Building and what is sometimes called the ‘Preston Model’ of local economic development. I can’t believe that none of the authors are aware of Commmunity Wealth Building. Is there a reason why it was excluded from this blog?
Actually, it is the endless lobbying habits of big business that is insulating them from being usurped by agile and innovative start-ups which, in turn, is preventing wealth being spread about.
This is further complicated by the fact that, markets in which the Government is the main or only customer are highly susceptible to cronyism – the nexus between the governing elite and the business elite that contrives to put the interests of business first, at the expense of the wants, needs and expectations of ordinary citizens. Not least, because the twin evils of lobbying and corruption rear their ugly heads every time taxpayers’ money crosses the boundary between the Public Sector and the Private Sector.
It is, as the economist Randall Holcombe puts in his book Political Capitalism, a “system in which the economic and political elite cooperate for their mutual benefit.” The political elite tilt the economic playing field in favour of the economic elite, privileging them through subsidies, regulatory protections and targeted tax breaks. In exchange, the economic elite then help to ensure that the political elite remain in power. The rest of us pay the bill for this quid pro quo through higher taxes, higher prices, and a less efficient, less dynamic economy.
In his Spring Statement, the Chancellor of the Exchequer announced the timing of the next Spending Review and implied that there is scope for further efficiency improvements to be extracted from the huge public sector expenditure programme – in other words, getting more for less.
But there remains a major hurdle getting in the way of this aspiration.
The government’s much heralded Industrial Strategy white paper finds that the skills and capabilities of those employed in the Private Sector need upgrading, if the UK is to realise its vision of a Global Britain and pay its way in the world, post-Brexit. But there is no recognition that people in the pay of the State – the other party to this Industrial Strategy, on whom its success is wholly dependent – are equally ill-equipped for their public sector roles. This lack of acknowledgment is not a surprise. The Industrial Strategy was, after all, written by people in the pay of the State!
It would explain why there is very little confidence in the ability of big government to fix market failures, use the instrument of regulation to curb anti-competitive behaviour, manage outsourced public service contracts or secure value for money for investments made in infrastructure.
Indeed, the reputation of people in the pay of the State is further diminished by the fact that their ability to innovate, solve problems, learn from past mistakes and adapt to change, which is a distinctive characteristic of people in the Private Sector, has been erased in the Public Sector due to incessant conditioning of the mind from an early age. And, of course, people in the pay of the State are very good at talking a “big game” but they can’t “do it”.
But, what is especially worrying about people in the pay of the State is that they haven’t got a clue about what it is that drives the behaviour of for-profit organisations in the free market – not least, because they have not spent a single day of their lives in the Private Sector – and yet, they have been put in charge of spending taxpayers’ money to the tune of £284 billion per annum to buy goods, services and labour from non-public sector organisations.
Worse still, in specialised markets such as that in military equipment for the Armed Forces, the role of the regulatory authority and sponsoring agency has been combined in one department of state – the Ministry of Defence – which means that the independent scrutiny function, free from political interference, is non-existent.
So, successful capture of a department of state by the Defence Industry amounts to taking control over both roles!
In no other field of human endeavour are such ill-equipped people allowed to ply their trade as in defence procurement – which would explain why the Government has been getting appallingly poor value for money these last several decades.
Additionally, the culture in Whitehall has always put greater emphasis upon people who master rules, regulations and processes instead of valuing smart working, execution and delivery. What’s more, civil servants have migrated over the years, in overwhelming numbers, to the Private Sector via the revolving door in pursuit of a second career and infected it with these traits. Which would probably explain why the Defence Industry has failed so miserably to deliver equipment to the Armed Forces that is fit for purpose, adequately sustained in-service and constitutes value for money through-life – bearing in mind that 99% of people who work in the Defence Industry right now were previously in the pay of the State.
Instead of doing the decent thing and educating people in the pay of the State about the ways of the Private Sector, defence contractors are busy exploiting their ignorance, for one purpose only – relieving them of taxpayers’ money – which has, in itself, left the public finances in pretty bad shape.
@JagPatel3