The politics of embedding a new economic consensus

15 April 2024

Tony Payne - Emeritus Professor of Politics, University of Sheffield and founding Co-Director of SPERI

Rachel Reeves' Mais Lecture charts a new economic course for Labour - but what will it take to embed a new economic consensus?

Rachel Reeves has had a good Mais Lecture.  It’s always a big moment, especially for a prospective chancellor in an election year and, as several commentators have noted, she set out an impressive array of ideas for analysts to chew over.  They included: the case for an active and strategic state; the need for a modern industrial strategy which accepts that ‘a country the size of Britain cannot excel at everything’ and so should acknowledge ‘those sectors in which we enjoy … comparative advantage’; reform of the planning system; a full embrace of active regional policy; new rights for workers; and plenty more beyond these headline items.  It was fairly described in one post as ‘possibly the most social democratic speech since the 1960s by a mainstream shadow Labour chancellor’.

I liked the lecture’s content too, but I appreciated, above all, the boldness of its ambition.  Reeves has been criticised by some for displaying excessive caution, even conservatism, in her approach to economic policy-making, raising doubt as to whether she really grasps how deep is the hole into which the British economy has fallen. Well, listen to these remarks, all taken from the Mais: ‘we are in a moment of flux’; ‘the economic mainstream is adapting, but a new political consensus has yet to cohere’; ‘what is demanded is a fundamental course correction’; ‘a new model of economic management is needed’; ‘the solution lies in … a new economic settlement, drawing on evolutions in economic thought’. 

Politically, all of this is to march confidently to the top of the hill and risk the ignominy of subsequent retreat.  As Will Hutton put it in an important response, ‘Reeves does get it, only is careful and subtle about her response’.  There is no doubt that much more still needs to come from her by way of further detail and about other areas of policy, although some of it, quite reasonably, may have to be held back until she is in office. But the core task ahead for Labour – nothing less than the shaping and embedding of a new economic policy consensus for the second quarter of the 21st century – has now been publicly charted.

As a consequence, I’ve been trying to think through what it is going to be needed to achieve Reeves’s goal of embedding a new policy paradigm.  What can be learned from previous moments, like the 1970s, which Reeves specifically mentioned, but also the 1930s, which she didn’t, when new ways of economic thinking were also being formed and moving towards the status of a consensus?  I suggest there are three essential prerequisites to success.

First, there must exist genuinely a flurry of new insights and ideas in current economic and political thinking that are capable of being pulled coherently into an alternative paradigm.  Reeves stands here on strong ground, for the intellectual elaboration of a new political economy beyond neoliberalism has become ever more explicit over the course of the last decade.  She herself mentions the work of Dani Rodrik and the policies of Biden’s Treasury Secretary, Janet Yellen.  She could also have referenced the academic debate about models of capitalism and the associated attempt to set out new models, such as civic capitalism. She could have drawn as well on the huge body of work produced by left-leaning British think-tanks, like IPPR and the Resolution Foundation. 

In fact, it would take another blog to go through this literature fully.  The point is that different ideas are definitely out there and relate to each other in helpful ways.  They are all modern variants of an old theme in political economy, that of ‘national developmentalism’, extensively deployed by countries keen to catch up with the industrial achievements of Britain, which, as the first developer, was able to rely more or less wholly on dominating global free trade.  Such thinking goes back to Alexander Hamilton in the United States in the late 18th century, runs on to Friedrich List in Germany in the early 19th century and flowers fully in the East Asian developmental state in the second half of the 20th century.  Today, it is still very much alive and well in intellectual circles in many parts of the world.

Second, the ideas that roll around inside this alternative paradigm, however well founded historically, must still be reframed politically in a compelling way for contemporary acceptance and usage.  This is crucial.  The key players here are not the economists and political economists who work up these ideas, but the political leaders that alight upon them and run with them.  Good politics always involves persuasive story-telling.  Notwithstanding some evidence to the contrary, it is the case that voters can be reassured by the claim that there is a consensus amongst experts about how to direct the economy.  However, they need to be brought on board by arguments that resound with them emotionally as well as rationally.

Reeves unquestionably senses this.  She has lately started to label her approach as ‘securonomics’.  This focuses, she said in an earlier speech in Washington DC in May 2023, on ‘the economic security of a nation, prioritising economic strength and resilience in the face of our uncertain world’.   She returned to the concept in the Mais lecture, asserting that ‘securonomics’ was about ‘providing the platform from which to take risks’.  This is sound, but also somewhat unbalanced.  It gives appropriate emphasis to the issue of security, but, in so doing, it neglects the other side of the coin, namely, the urgent and vital need to get the British economy moving, investing, making things, catching up.  Does something more dynamic need to be added into Reeves’s sloganising of the national developmentalism that she argues is needed to secure a brighter and more productive future for stagnant Britain?  I think perhaps so, but unfortunately I don’t have the required adjustment to the sound-bite to hand.

Third, the new economic consensus needs to be protected politically.  A Biden/Harris administration re-elected in the US this November would constitute the best form of ideological support.  Trump would be a serious threat, although he might quite conceivably ridicule ‘Bidenomics’ and then adopt elements of it.  The leading EU countries and the core Brussels economic-policy apparatus also operate in broadly national developmentalist mode, especially in relation to the climate.  As we know, there is work for Labour to do after the election to re-align key parts of British economic policy with EU norms.  Reeves will certainly need to travel to Europe just as regularly as to the US.

That said, the new consensus from 2025 onwards won’t be a Washington consensus or a Brussels consensus.  It won’t be the consensus of any single place.  In the new age of insecurity during which Labour will necessarily come into office if it wins the election the best news might be that every country is having to catch up in some way in order to re-position itself economically in the global order.  Britain is not an exception.  Truly, these days ‘we are all national developmentalists’!

This blog was originally published on Renewal and has been reposted with permission.

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