Editorial: Economic Alternatives

The UK economy is not working. The IPPR Commission on Economic Justice argued in its final report, published in September 2018, that the UK economy is in need of fundamental reform.¹ It is not sufficient to seek to redress injustices and inequalities by redistribution through the tax and benefit system: instead they need to be tackled at source, in the structures of the economy in which they arise. Economic justice needs to be ‘hardwired’ into the way the economy works.

Looking out to the global economy makes the task of fundamental reform more urgent, not less.² A decade on from the collapse of Lehman Brothers, the UK faces serious risks of instability and potential recession. The global economy is reaching the late stage of the financial cycle, marked by a global slowdown. Rising debt levels threaten financial stability in China, the US and the UK: monetary tightening could increase debt distress. Political uncertainty is dampening growth and weakening investment.

“Business-as-usual is no longer an option: the question is when, not if, we shift to a less extractive model”

Longer term, the very system upon which our economic model relies – the natural system – is increasingly damaged by our activity and systematically unaccounted for in investment decisions across the globe. Climate change poses risks to the stability of our financial system, future economic activity and productivity. On an international scale, we have just 12 years to rein in global warming to 1.5C. Domestically, the UK is failing to play its part in a 2C scenario, let alone a 1.5C one, as it is set to miss its fourth and fifth carbon budgets by increasingly wide margins. Business-as-usual is no longer an option: the question is when, not if, we shift to a less extractive model.

Meanwhile, technological change is changing the shape of production, where it can occur and who captures the gains of growth. While this change presents economic opportunity, it also threatens potential ‘losers’, and, in the absence of policy intervention, is likely to fuel rising inequality.

A critical question to answer before building a programme for reform is how much agency any single country can have in this context. Is our economic path predetermined? Can it be redirected through domestic policy alone?

The contention of the Commission on Economic Justice’s final report is that, while international action is of course important, progressives must not shackle themselves with a limiting and unnecessary pessimism about the ability for one country to change course. We can and must shift the UK economy to one which is supported by investment, rather than debt- fuelled consumption; to one in which power and ownership are more evenly distributed; to a less extractive model that enables us to lead others in the task of decarbonising.

A key premise of the pessimistic view is that many of the changes taking place in our economy originate in the global economy. Naturally, the UK plays a part in generating these global risks and structural changes. We have agency in the global economy, and it is important that policymakers consider the role that the UK plays, particularly given the City of London’s prominent role in the international financial system. Brexit and how it is handled will shape our economy and others for years to come. But many of these shifts are occurring outside the influence of UK unilateral and domestic political institutions. The biggest digital superpowers are based in the US and China. The revenue raising powers of tax policy depend on other countries’ tax rates. Stopping catastrophic climate change and damage to our natural commons cannot be achieved by one country alone.

“Institutions can be changed – but doing so will mean using the power of the state to confront concentrations of wealth, income and power”

But while policymakers may not be able to control the changing global economy, they can choose how to prepare and how to respond. We know that responses to crises and structural change can have vastly different outcomes, and that those choices are political: from the contrast of Keynesian and austerity approaches to financial crisis, to the dereliction of duty by government to forge new livelihoods for those affected by deindustrialisation in the UK, to the deeply unequal impact of climate change around the globe that’s inversely correlated to who has responsibility for the crisis.

It is therefore the response to global changes that mediates and determines the impact on the UK economy. We can choose to decarbonise in a way that creates good and accessible jobs; we can choose to boost demand through investment and spending; and we can choose a future of shared plenty if we accelerate automation but ensure the gains are shared.

Perhaps the most convincing argument that it is possible to choose our path, is that while all countries operate in the same global economy, we see wide differences between countries in economic power, how growth is generated, and who reaps the rewards. We know that in Sweden and Norway, the top 10 per cent take home about 28 per cent of all national income, whereas in the USA it is 47 per cent.³

These differences did not come about by chance. They are, of course, powerfully shaped by history. In his piece for this issue, Ian Bruff sets out the ‘varieties of capitalism’ argument that domestic policy does matter, but through institutions and policies that ‘lock in’ with each other, meaning that once on the path of a particular economic model, it is difficult to switch to an alternative model. But, as Bruff argues, this does not mean that we need be fatalistic. Institutions can be changed – but doing so will mean using the power of the state to confront concentrations of wealth, income and power.

We have achieved this before. Both the 1940s and 1980s saw huge shifts in how the economy was organised and for whom, with the Attlee government’s Keynesian reforms first and the Thatcher government’s free market reforms later. What changed was that each shift was founded on policies that changed who held economic power; that rewired the economy by addressing the relative power of workers to capital, and reshaping economic ownership.

The varying outcomes we see in different economies around the world therefore emerge as a result not just of global trends and history, which contemporary governments have limited control over, but also from responses to externally determined events, and policies designed to change institutions and power structures. These are inherently and deeply political.

What then, might we learn from the choices that other countries have made? This issue looks at how economic policy approaches vary and where reforms that aim to hardwire the economy for justice have been applied. In it, our authors consider what the UK could learn from different approaches, how they could be applied in a UK context, and the determinants of both policy and campaign success.

In her piece, Rachel Statham looks at institutional arrangements to boost worker power in Belgium, and the positive effect this has had on sustained wage growth. Edwin Loo sets out how in Singapore policies relating to land value capture have ensured most of the land is publicly owned and wealth is held collectively. Taxing wealth, given its direct impact on politically powerful groups, is at once both important and extremely difficult. Rajiv Prabhakar writes about the reform of council tax in Wales to see how such reforms can be approached.

Not all countries’ configuration of policies match expectations: even in liberal market economies we see deviations from the neoliberal policy prescription. In their piece, Laurie Macfarlane and George Dibb show how, far from a ‘free-market’ approach, many of the boldest technological advances have come from state-driven initiatives with countries like the US, France and China actively supporting, or owning stakes in, enterprise. Turning to the fast-evolving features of the modern economy, Sara Mahmoud sets out how data trusts can ensure data is treated as a common good, rather than entrench inequalities of power.

“climate change, and the policy urgency brought on by it, can be a vital catalyst to tackle broader inequalities which would otherwise take much longer to correct”

As well as pursuing policies relating to indirect economic power, hardwiring the economy for justice will require adapting governance arrangements so that the economy is democratically organised. As Satoko Kishimoto discusses, municipalisation is one such model which places the local economy under local democratic control. Citizen involvement in the governance of the economy can take many forms: Reema Patel sets out the conditions for effective democratisation of economic decision-making in order to improve feedback loops between politicians, experts and citizens.

Many countries are already grappling with the reality that their underlying economic structures are based on treating climate change as a hidden negative externality. But, as shown by the recent enthusiasm for the Green New Deal in the US as well as the UK, there is also a growing recognition that climate change, and the policy urgency brought on by it, can be a vital catalyst to tackle broader inequalities which would otherwise take much longer to correct. In her piece, Johanna Bozuwa discusses how the US proposal for a Green New Deal will need to fundamentally change the structures of capitalism, build new national institutions and reorganise industry to ensure that economic and environmental justice go hand in hand.

Recent history demonstrates that individual economies can escape path dependency, and can draw on and respond to ideas from other countries without accepting the entirety of the economic paradigm. In her interview with Pandora, Isabella M. Weber describes China’s escape from the ‘shock therapy’ of a sudden embrace of the Washington Consensus, and the different set of institutions that have been created to deliver economic growth in contrast to, for example, the Russian economy.

The UK public are ready for an alternative economic policy programme. Independent polling we commissioned last year showed majority public support for the key recommendations of the final report of the Commission on Economic Justice, and strikingly, few differences between remain and leave voters on these issues.⁴ In his piece, John Curtice looks at how perceptions of the economic impact of Brexit are changing amongst Leave voters, with as many as 25 per cent now believing the economy will be worse off as a result of Brexit – up from 9 per cent. While the Brexit process has had little impact on Brexit views, voters do care about the economic outcomes: it’s still the economy, stupid.

Ironically, three years of wrangling over Brexit has drawn political attention inwards. Resurgent nationalism and British exceptionalism mean we are less likely than ever to look outwards. But as the pieces in this issue show, doing so would reveal useful lessons of how economic policy can be done differently, and how institutions can be reshaped to create an economy hardwired not just for prosperity, but justice too. We have achieved fundamental reform in the past, and we can do again.

1. IPPR Commission on Economic Justice (2018) Prosperity and Justice: a plan for the new economy, IPPR.
2. Roberts C, Blakeley G, Rankin L and Statham R (2019) The UK in the global economy, IPPR.
3. World Inequality Database (2019). Available at: https://bit.ly/2W9iLGn. The figure for the UK is 34 per cent.
4. Colebrook C (2018) Unfair and in need of reform: Public attitudes to the UK economy, IPPR. http://www.ippr.org/research/publications/unfair-and-in-need-of-reform