Editorial - Building the New Economy: Paradigms, Policy, and Politics

Our economy is failing to deliver. Growth is anaemic and real earnings remain below their pre-crisis peak; inequality is stark, multi-faceted and reinforcing; work is insecure and poor quality for many; investment is low and debt levels high; and our net trading performance continues to disappoint, reflective of a lack of international competitiveness. These aren’t passing problems but the outcomes of longstanding structural weaknesses in how we organise our economy and for whom. Indeed, despite the importance of our future relationship with the EU, the energy and attention that Brexit demands risks obstructing arguably an even more vital political task: the fundamental reform of our flawed economic model. This issue of Progressive Review turns to that challenge, setting out the key junctures for a departure from our current track, and how we can find our way out of our current stasis to build a new economy.

Of course, the British economy - still the world’s fifth largest - has important strengths and endowments, and creates and will continue to create good, well-paid jobs in some areas of the economy. Yet an honest assessment would recognise its longstanding failings; the economy simply doesn’t work for most people. In the long wake of the financial crisis, workers have endured the weakest wage growth the UK has seen in two centuries. In 2018, average (median) earnings remain 2-3 per cent below their level in 2007/08; indeed, they are not much higher than as far back as 2002 and are not forecast to recover to their 2008 level until 2025.

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Critically, this has happened despite economic growth and the extraordinary and unprecedented set of monetary policy interventions that followed in the wake of the financial crisis, from near-zero interest rates to the £445 billion of stimulus in the form of ‘quantitative easing’. In other words, while the economy has grown, most people in work are no better off. Indeed, large parts of the country have yet to see a meaningful recovery. The UK has the richest region in Europe – inner London – but most other areas are now poorer than the European average, with poverty rising. The UK’s productivity performance has been abject for a decade, while finance remains over mighty and too distant from production.

Young people for the first time are set to earn less over their lifetime than the generation before them. Housing is costly and inadequate for many, and underpins a dysfunctional and debt-driven growth model. We face a mounting crisis of care, with unpaid and gendered labour subsidising waged economic activity. And power has shifted from labour to capital, leaving many places and communities behind and weakening the ability of collective democratic agency to shape the economy. Overarching this, an extractive model of development is driving us beyond the planet’s ecological limits as we move deeper into the Anthropocene, our humanmade era of mounting environmental crisis.

Unsustainable, inequitable and undemocratic, our economic model is broken. The UK’s pre-crisis growth model was not sustainable, ending in recession following the largest financial crisis in a century. But since then we have failed to increase our exports to the rest of the world and continue to rely on domestic consumption to drive growth, despite significant falls in the value of sterling. With household debt and asset prices returning to pre-crisis levels, driven by excessive financialisation, and fiscal and monetary policy working against rather than with one another, we remain stuck in a debt-fuelled, consumption-driven economic model.

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Moreover, we are ill-equipped to confront a coming decade of disruption. Future trends, from the rise of the data oligarchs and the disruption of automation, to an ageing society and environmental collapse, threaten to deepen the inequalities and inefficiencies of neoliberalism. Those same trends also offer opportunities, if approached wisely. Managed well, for example, growing technological capability could create a future of shared plenty. Managed poorly, it could create a ‘paradox of plenty’: society would be far richer in aggregate, but, for many individuals and communities, technological change could reinforce inequalities of power and reward.

In the face of an underperforming economy, and the challenges to come, tinkering won’t suffice. Our future will depend on our capacity for institutional reimagining, on our ability to rethink and reshape how we produce and distribute wealth in more democratic and sustainable ways than present. There is much work to do. From reimagining the firm, scaling alternative models of ownership and developing new ways of financing investment, to an industrial strategy that serves the everyday economy and addresses deep inequalities, the institutions that underpin our economic lives and possibilities are ripe for transformative change. For politicians and parties, this demands both hard work on technical policy development as well as the political agility and strategic skill needed to match an ambitious policy agenda to social and economic constituencies capable of powering change.

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We believe change is possible. More than that, it is urgently necessary. The economy belongs to all of us, and is not immutable. Politics can, and has, shaped and remade how the economy operates and in whose interests. After all, whether in the construction of the post-war settlement, or the counterassault that led to neoliberalism, major shifts in economic thinking and
policy have happened in the past, and transformed the shape and structure of the UK economy. Today, a decade on from the financial crisis of 2008, we are at a comparable moment of potential change. It is not just that for most people the economy is failing in multiple ways. It is that the policies that governments have been using to get us out of the crisis have not been
working. The conditions are ripe for change. Crucially, shifts of the required magnitude have been achieved before and we believe are possible to do again.

IPPR’s landmark Commission on Economic Justice is an attempt to outline how we can begin to transform our economy towards one where prosperity is matched with justice. This issue opens with a series of reflections from leading economists on both the commission and its themes. Dani Rodrik argues that the UK has to return to the fundamentals, and work out what type of economic model we want. Carlota Perez stresses the need to put sustainability at the heart of
economic transition, while Laurie Macfarlane rightly stresses the centrality of ownership as a hinge towards a new type of economy. Don Harris argues for industrial policy as a necessary condition for economic justice, through strengthening and expanding human capabilities, while Anastasia Nesvetailova makes the case for nuanced policies for a finance sector that supports investment in the future today. Diane Perrons identifies the challenge of crafting a politics to match the commission’s ambition. Tom Kibasi, IPPR’s director, sets out the case for change, as developed in the IPPR Commission on Economic Justice.

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Constructing a new economic common sense capable of durably transforming Britain’s political economy will be difficult, but absolutely necessary. Christine Berry’s essay sets out how this can be achieved through the creation of a supportive intellectual infrastructure, and ‘battle-planning’ with the same rigour Thatcher and her acolytes applied to the task. She argues that a new common sense is emerging – rooted in a story of ownership and power. In his piece, William Davies stresses the fictive quality of capitalism, its reliance on narratives and utopias of the future that can drive action in the present. Yet when those stories no longer hold true – for instance if growth no longer delivers wage increases, or pension returns are undermined by climate risk – the opportunity to tell different narratives and build different futures arises. The challenge for progressives, according to Davies, is to incubate and expand what the American sociologist Erik Olin Wright terms ‘real utopias’, enclaves that prefigure systemic alternatives. Meanwhile, Duncan Weldon’s review of David Edgerton’s monumental history of 20th century Britain does full justice to the book, stressing the complexity and ruptures in the UK’s political economy. It also offers a bracing challenge to hopes of mission-oriented ‘innovation in one country’ strategies, stressing the interconnectedness and international turn of the UK’s economy.

What are the key features of our economic model that must be examined, recrafted, and collectively rebuilt? Our authors consider this question from a range of perspectives.

Capitalism, and indeed all states, markets, welfare systems, and major religions came about in a uniquely stable epoch geologists call the Holocene. This era is now over. In its place comes the Anthropocene, the name being used to describe the overwhelmingly negative aggregate impact humans are having on the environment. Simon Lewis, the UCL geographer, is our guide to this new and unstable world. As he shows, from biodiversity loss to climate change, systemic degradation of our natural systems is already destabilising economies and societies and is likely to drive rising inequalities and conflict in the years ahead. To avoid this fate,
we will need to build a politics holistic and ambitious enough to face the challenges of the Anthropocene, moving away from extractive models of development toward a generative and sustainable economics.

Elizabeth Anderson, one of the world’s leading moral and political philosophers, seeks to historicise neoliberalism in her essay. She argues that neoliberalism inverted the original meaning of liberalism: that the founders of liberalism from Tom Paine to Adam Smith sought to advance ideals of private property and market exchange precisely to vindicate the claims of workers against passive private property owners. Yet today, those same ideals are invoked to put the interests of capital owners ahead of workers. She explores why this reversal took place, the contradictions in neoliberal ideology it generates, and how it helps us understand the ‘populist’ political crises confronting liberal democracies.

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In their conversation, renowned theorist Nancy Fraser and economist Ann Pettifor explore and upend many of the commonly held assumptions about capitalism: what it is, how it operates, and what institutional separations it continues to rely upon, between production and social reproduction, between human and non-human nature, and between economy and polity. It is, they argue, precisely in these complex and contradictory boundaries that crises arise and opportunities for transition emerge.

These are just some of the highlights. We also have Will Stronge and Danielle Archela exploring the politics of post-work, and an examination of the history of managerialism and its relationship to neoliberalism from Sahil Dutta and colleagues. Claire Ainsley assesses the nature and political impulses of the new working class, and in an era where traditional forms of authority and hierarchy are breaking down, Eliane Glaser calls on the left to defend its political ideals, democracy and the role of the state. And in his regular column, John Curtice breaks down the latest British Social Attitudes data, arguing that Labour cannot win through ‘one more leftwing heave’, but must pay due attention to the pro-Remain liberals who brought the party unexpected success in the 2017 general election.

Though the Parliamentary arithmetic and technical challenge of Brexit continues to dominate political debate, it is critical we think more deeply about our economic future, about the type of economy we want to build, and the institutional turns that can help us find our way to a future of shared plenty. We hope this issue contributes to that conversation.

Mathew Lawrence and Carys Roberts