New priorities for British economic policy
Britain needs a new economic model, one in which government and the private sector work together to address the 'triple crisis' of stagnation, debt and imbalance.
A new form of British capitalism is needed to deal with this crisis, and this paper looks at some of the policies that will be needed to control debt, reform taxes and revitalise Britain's export industries and regions.
Specifically, government should:
- Introduce a new set of fiscal rules that balance real constraint on deficits and debt in the medium term with responsiveness in the short term.
- Review practical hurdles to the introduction of a land value tax.
- Extend the UK's existing transaction tax on shares to include bonds and derivatives as well, following the lead of 11 other EU countries that are introducing a general financial transactions tax.
- Adopt an active industrial strategy to support the growth of firms in areas of existing and potential competitive advantage and areas where global demand is likely to grow strongly.
- Devolve powers and responsibilities from central to local bodies for skills and innovation policies.
- Establish a British Investment Bank, to remedy a long-term lack of infrastructure investment and the lending gap facing SMEs.
The triple crisis of stagnation, debt and imbalance is the consequence of policymakers' adherence to the neoliberal economic paradigm, which has resulted in a bias towards concentration of power and capital, market dominance and short-termism, and ultimately to low investment in the wider economy, increased inequality and higher debt. The onus is now on those who believe a different economic paradigm would produce a better set of outcomes to map out a new economic path.
A new form of British capitalism - one that is capable of reversing the trends of the last three decades - should produce greater investment in the productive capacity of the economy, in infrastructure and in the skills of the workforce. 'Collaborative capitalism' foresees a change in the relationship between finance and the rest of the economy, more long-termist thinking on the part of investors, a better system for developing vocational skills, restraints on executive pay, and a breaking up of concentrations of private power. These changes will be difficult to bring about, but history shows that the best economic outcomes are achieved when the state and the private sector work together. This spirit of partnership should be at the heart of Britain's new economic model.