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26.03.15

Call to Action

About a decade ago, a Labour member of parliament asked me, ‘What became of Bryan Gould?’ Being too literal, I replied, ‘Is he not an academic in New Zealand?’ The MP looked at me disappointedly, as I had missed the contemporary political point that he was alluding to amid my overly earnest focus on facts.

Gould, one time Labour leadership candidate, has returned from ivory towers to co-author with John Mills, the entrepreneur and Labour donor, a powerful book on Britain’s economy. Their focus on facts is not so much earnest as compelling. Some bracing observations include: there is now no net new investment per head of population in the United Kingdom at all; Britain’s balance of payments – the difference between exports and imports – has not been in surplus for 30 years; the windfall of North Sea oil and gas might have been used, as it was in Norway, to build up a fund worth $857m in September 2014.

It has become Labour rhetoric that the United Kingdom Independence party want a better yesterday, while Labour wants a better tomorrow. This characterisation of Ukip, however, also captures the unfortunate reality of the UK’s economic management, which persistently privileges the past over the future. Instead of financing this better tomorrow, we have an economy that borrows from the future through debt to pay for what we could not afford yesterday and today.

This propensity to consumption drives up imports, as lack of investment restricts exports, explaining the UK’s awful balance of payments. This balance is arguably the strongest and simplest measure of Britain’s ability to pay our way in the world and over the long term, it has persistently indicated that we cannot. It is a record that makes the case for the kind of bold state intervention that saw Norway build up such immense resources for investment through careful cultivation of a sovereign wealth fund.

Of course, if we wanted to get to Norway, we would not start from where we are. We would have started in the 1980s by using North Sea oil and gas revenues to create the fund that Thatcherism debarred. But Mills and Gould are full of optimism that all need not be lost, even if they bemoan much of our economic decision making in the period since Thatcherism became an influence.

Much of their optimism is well grounded. The North Sea oil and gas of the George Osborne era are exceptionally low long-term interest rates, which if the chancellor listened to market signals as intently as he claims to, he would use to generate the investment that the UK so urgently needs. This opportunity will go unused as North Sea oil and gas was by his hero, Nigel Lawson, chancellor in the 1980s. Seizing the opportunity that Osborne has passed up would allow a Labour government later this year to raise the economy’s productive capacity and become competitive enough to export much more, which would, in turn, improve the public finances by reducing dependency on overseas financing.

Mills and Gould give the impression that devaluation of the pound would quickly induce manufacturing and exporting renewal. Yet the pound does not now prevent services ­– not just the financial services acknowledged by Mills and Gould but also the creative industries – from having strong export performance. This implies that Britain’s competitive strengths are more to be found in services than manufacturing and that improvement in manufacturing’s performance will require a more fundamental augmentation to its competitive position than simply a fall in sterling. While I would see the increase in investment that Mills and Gould argue for as being central to this augmentation, they may worry that I have imbibed too much of Thatcher’s legacy in querying whether devaluation is a tool to be as quickly, easily and effectively deployed as they maintain.

Nonetheless, the book is to be welcomed, as it contains much that would enable Labour to move from rhetoric about a better tomorrow to its reality.