Editorial - A new economic consensus

Covid-19 has shaken the UK economy in profound ways but, as we emerge from the crisis, people across the country are clear about their desire for this to be the end of business as usual. The pandemic has exacerbated many of the existing challenges facing the UK economy - but it has also created an opportunity to ‘build back better’.

As the IPPR Centre for Economic Justice highlighted in our report Prosperity and justice after the pandemic, the pandemic has brutally highlighted the structural weaknesses and injustices within our society.1 While small businesses have faced closure, the big six tech firms added more than $4 trillion to their market value (ibid). Those on the lowest wages were most likely to lose their job or be furloughed, yet more billionaires were created this year than ever before (ibid). The wealthiest households saw their homes and financial assets further accumulate value as a direct result of policy decisions made during the pandemic (ibid). And the areas of our country with the highest levels of deprivation, in general, were more likely to see high Covid-19 cases, worse mortality, more people out of work and – perhaps most worryingly – are likely to see slower recoveries too (ibid).

‘Building back better’ after the pandemic must mean creating an economy that delivers both prosperity and justice for all citizens, of both current and future generations. We envision a future better than the past: a society where everyone is able to lead a fulfilling life. Achieving this after the pandemic must mean more than just delivering increases in economic growth. Instead, we must broaden our definition of prosperity to take into account all the dimensions of a ‘good life'

“truly putting people and planet first will require a fundamental shift in economic policy”

In the past 18 months, IPPR has hosted a series of citizen juries across the country as part of our Environmental Justice Commission. We asked people what a ‘good life’ meant to them. They spoke of fundamental goods like health, security, connection to others, access to nature and feeling in control of their own lives. This is what we must prioritise going forward - for all people and places. Doing so is popular. Only 6 per cent of the population want to return to the “pre-pandemic” economy, whilst 58 per cent want to see “changes in the way the economy is run”.²

A NEW ECONOMIC CONSENSUS?

Pandemic measures, from unprecedented stimulus policies to finally turning to challenges in social care and putting in place a plan for net zero, belive the ‘small-state’ reputation of the British Conservative party and self-professed views of the chancellor. Underpinning these measures, and the acceptance of them, is a shift in the economic policy consensus towards an active state and higher spending in downturns (even if still insufficient given economic conditions).³

But truly putting people and planet first will require a more fundamental shift in economic policy. We must move from a model built on consumption, extraction, and concentration, to one that’s built on investment, sustainability, and distribution of the gains from growth. The evidence is clear that so far rhetoric has not been translated into the scale or kind of actions needed to make aspirations reality. To genuinely ‘build back better’, policymakers will have to go further.

“to really ‘build back better’ we will have to do much more than increase investment: we need to challenge damaging concentrations of power”

First, the UK government’s actions have failed to live up to its ambition on investing in a better economy. Longer-term levels of investment in the UK are amongst the lowest in the OECD – in 2019 only Italy, Greece, and Luxembourg invested less as a percentage of GDP.⁴ In light of Covid-19, we urgently need more investment in a green economy, public health, and social infrastructure.

Second, a consensus is emerging on both left and right that state intervention can be good for businesses and workers while also achieving important societal goals. As Martin Sandbu argues, goals such as levelling up and building back better require confidence in the ability of the state to coordinate and steer private sector behaviour and a willingness to establish a desired destination.⁵ To solve the challenges that our society and economy face, we need a state that will work with businesses, communities, and workers to coordinate and direct the economy towards democratically determined societal goals.

And, finally, to really ‘build back better’ we will have to do much more than increase investment: we need to challenge damaging concentrations of power. The question now is not just whether the state should invest, but also how can the economic benefits of that investment be shared in a just way? Of critical importance is how the crisis and the recovery will affect the balance of wealth and power in the economy. The state must act to structurally reform the economy to shift the balance in favour of the majority, not an elite few.

FOUR POWER SHIFTS ARE KEY

IPPR’s Centre for Economic Justice (CEJ) has identified four key power shifts that we believe policy makers should address. We believe that by speaking to people’s concerns and their disempowerment, these shifts have the potential to build towards a better economy that works for everyone.

1. Power needs to be shifted to employees and workers, from employers and shareholders. Remedying the imbalance of power between employees and their employers, will enable workers to negotiate better pay and deliver ‘good’ work. As a first step we propose government should target full employment where employers compete for workers, not workers competing for jobs. We also support sectoral collective bargaining, especially for underpaid and undervalued key workers.

2. Power needs to be shifted to companies that work in the interest of society from those that extract from society. Levelling the playing field between large corporates and local businesses, will help drive productivity, create new jobs rebalance economic activity and ensure all firms pay their fair share. To begin this shift, we propose a windfall tax on excess profits reaped during the pandemic alongside a new industrial strategy – building on the vaccine success – that targets social problems with ‘moon shot’ initiatives.

3. Power needs to shift to those who are locked out of wealth from a system that has locked it up. Wealth is unequally distributed in the UK. Tackling this will help ensure that everyone has the opportunity to thrive and access to the basic goods, such as housing, needed for a good life. To begin to shift wealth from the haves to the have-nots we propose the foundation of a sovereign wealth fund, to invest in and share the benefits of the recovery of the UK economy. To tackle property wealth in particular we propose a new commitment on housebuilding and affordability.

4. Power needs to be shifted to the nations, regions, and towns of the UK from Whitehall. The pandemic has once again exposed how geographically unbalanced the UK is. We need to empower places to fully grasp local economic opportunities and revitalise communities. To do this we propose a plan to transfer tax and borrowing powers away from Whitehall and to commit to matching London’s levels of investment spending across the entire country distributed by a fair formula.

THIS ISSUE OF PROGRESSIVE REVIEW

We believe the priority areas above can shift power in our economy and drive a recovery from the pandemic with economic justice at its heart. They don’t represent the entirety of measures needed to support the recovery, nor are they exhaustive. Moreover, to achieve these changes we need to look at how our political system is realigning, how electoral politics could support or hinder these objectives, and to find new ways of talking about our economy.

In this issue of Progressive Review, we have therefore asked authors from across academia, media, politics, and civil society to reflect on the challenge of how to genuinely build back better. Their pieces demonstrate the sheer

diversity and creativity of thinking on the new economy and political economy today. The articles cover not just the ideas for how a new economy could work, after Covid, but also the strategy behind those ideas, how progressives should talk about them, and how we can ensure they are fair across the whole of our country.

In a comprehensive analysis of new economic perceptions data, Professor John Curtice shows that there is appetite for a larger state – but that this hasn’t yet been impacted by Covid-19. Several articles consider progressive strategy, asking how we can make the case for economic change, in light of the pandemic. Ellie Mae O’Hagan, Sofie Jenkinson, and Dora Meade describe the findings of recent research into how best to frame and communicate the role of public spending in the macroeconomy. Kate Bell discusses the role of trade unions in really building back better. Daniel Clegg, Hayley Bennett, Jan Eichhorn, andElke Heins assess the deep-seated problems facing the UK labour market and set out the policy action needed on both work and welfare to set the UK on a course towards the new ’high wage, high skill’ economy vaunted by the prime minister. They present new evidence that public opinion supports higher welfare spending -- and that increased labour market regulation is seen by the public as a complementary approach, not an either/or.

Rory Ellwood discusses political realignment around the ‘ensconced’ and ‘exposed’, and the implications for Britain’s political left. And Duncan Weldon explores how electoral arithmetic and geography can shift between elections, through the case study of ‘Barratt homes’. Both Ellwood and Weldon make clear that progressives must root their strategies in an understanding of material interests rather than focussing purely on values and culture.

What would the new economy look like, if we got there? Jess Prendergrast writes on the concept of attachment economics, and its practical realisation by community businesses across the country (including her own in Watchet, Somerset). For her, the economy must be re-rooted in community if it is to serve the need for connection that people voice when asked. Two pieces consider the question of whether it is economically and politically feasible or desirable to unwind the ‘asset economy’ – our current political economy of rising house prices that benefit owners and lock out others. Lisa Adkins, Gareth Bryant, and Martijn Konings explore the dynamics of the asset economy that have led to this point and prospects for progressive policy change thrown up by the pandemic. They consider whether extending secure income payments - of the kind offered by governments through the pandemic – could provide fruitful ground for progressive politics and policy given the material realities of the asset economy. Sahil Dutta draws a comparison between the present moment and the shifts in political economy that took place forty years ago, and asks whether a left ‘Volker shock’ to reverse asset price appreciation would really be worth the pain.

The government’s rhetoric on build back better has often intercepted their rhetoric on levelling up. While the ideas are poorly defined – and there is limited appetite from the governing party to fundamentally change the economic status quo – it is right that the economy needs to work for the whole country. But it is unlikely that conditional levelling-up funds, with no transparency or clear basis of allocation, will achieve meaningful change. In this context, Josh Ryan Collins discusses the dynamics of local and city wealth funds.

The editors and authors of this edition of Progressive Review are bound by a belief that a better, fairer, more sustainable economy is possible – and that now is a vital moment to achieve that change. But change won’t come without a whole-country coalition, without the right strategy and frames, or without the right ideas. That is where this edition of the journal seeks to contribute.

Issue commissioning editors: George Dibb, Henry Parkes, Carsten Jung, Shreya Nanda, and Carys Roberts

Journal editors: Chris Thomas, Rachel Statham, and Joshua Emden

1. Dibb G, Jung C, Parkes H and Nanda S (2021) Prosperity and justice after the pandemic, IPPR. http://www.ippr.org/research/publications/prosperity-and-justice-after-the-pandemic
2. Proctor K (2020) ‘Just 6% of UK public “want a return to pre-pandemic economy”’, Guard- ian, 28 Jun 2020. https://www.theguardian.com/world/2020/jun/28/just-6-of-uk-public-want-a-return-to-pre-pandemic-economy
3. Jung C, Dibb G and Patel P (2021) Boost it Like Biden, IPPR. https://www.ippr.org/research/publications/boost-it-like-biden

4. The analysis is based on OECD figures for capital investment as a share of GDP, available on their Annual National Accounts database (http://stats.oecd.org/). ‘Investment’ corresponds to ‘gross fixed capital formation’ (System of National Accounts code ‘P5’).

5. Sandbu M (2020) The economics of belonging, Princeton University Press