Modern supply side economics: A new consensus?

A new consensus is developing in economic policymaking. After decades of market-based neoliberalism, this fresh consensus – variously described as modern supply-side economics, productivism, or ‘securonomics’ – is taking root on both sides of the Atlantic.

Supply-side economics has been traditionally dominated by the right, with a focus on boosting economic activity through market deregulation and tax cuts for the wealthy. Defined in opposition to this logic of ‘trickle down’ economics, the modern supply-side approach recognises that our economic problems are caused by over-reliance on market mechanisms and argues for greater use of the powers available to the state.

Its advocates articulate how the levers of supply-side economic policy can be pulled to achieve progressive ends. US Treasury secretary Janet Yellen has outlined how modern supply-side economics “prioritises labour supply, human capital, public infrastructure, R&D, and investments in a sustainable environment”. Harvard economist Dani Rodrik describes how productivist policies “emphasise the dissemination of productive economic opportunities throughout all regions and all segments of the labour force”. Instead of ‘trickle down’, Biden proposes to ‘rebuild our economy from the middle out and the bottom up’.

Biden’s administration has adopted modern supply-side economics and has put in place an industrial strategy with the potential to transform America’s economy. Three core legislative pillars – the Infrastructure Investment and Jobs Act (IIJA), CHIPS and Science Act and Inflation Reduction Act (IRA) – are set to direct more than a trillion dollars of public and private investment into transport, healthcare, clean energy, and infrastructure.

Progressives in the UK are taking inspiration from Biden’s approach. Shadow Chancellor Rachel Reeves outlined her vision for ‘securonomics’, a modern supply side approach tailored to Britain, in a speech delivered in Washington D.C and a pamphlet for Labour Together. Reeves stated that Labour is ‘on the same page on economic policy’ as their American counterparts. Parts of the Conservative Party have also supported a mission-based industrial strategy approach.

Despite this growing alignment, the modern supply-side agenda remains in flux as it takes shape in different contexts. Where ‘Bidenomics’ has been framed in the language of national security as an opportunity to boost American competition with China, such a framing is unlikely to be politically effective in other countries. Contributions to this edition show that approaches to this agenda are not uniform: some argue that productivism should encompass healthcare and education, as well as industry and production.

There is still debate on how modern supply side economics can best be prescribed in the UK to achieve prosperity. Putting modern supply side economics into practice in the UK will call for a party able to craft an electoral vision to marries it to the specific economic and social conditions and existing electoral coalitions in Great Britain. This edition therefore seeks to explore the new transatlantic consensus on economic policy contributions from politicians, academics, commentators, and policy practitioners.

Rachel Reeves MP, shadow chancellor of the Exchequer, outlines how ‘securonomics’ can address the profound challenges that face the British economy. Through an assessment of the challenges posed by a new age of insecurity, she makes the case for giving the state a strategic role in the economy and putting ‘security’ at the heart of economic policy.

Greg Clarke MP, chair of the Commons Science, Innovation & Technology Select Committee and former secretary of state for business, energy and industrial strategy, makes the urgent case for cross- party consensus on industrial strategy to ensure it is stable and dependable, and therefore effective. Combining his experience developing and implementing the UK’s last serious attempt at industrial strategy with the emerging global case for action, he argues that there is more prospect for consensus between the parties on specific policies than at a headline level.

Dani Rodrik, Ford Foundation professor of international political economy at the Harvard Kennedy School, and Huw Spencer, research assistant with the Reimagining the Economy project, set out a vision for ‘productivism’ in the UK economy with a focus on good jobs. They argue that this has the potential to put the UK on a path to a more inclusive, prosperous future.

Rose Khattar, director of economic analysis for inclusive cconomy at the Center for American Progress, explores how the Biden administration is putting modern supply-side economics into practice. Through an analysis of its core legislative pillars she argues that Biden’s approach has the potential to make the American economy stronger, more equitable and more resilient.

Anna Valero, distinguished policy fellow at the Centre for Economic Performance (CEP) and Jon van Reenen, Ronald Coase chair in economics and school professor at the London School of Economics and Political Science, set out to define what specific green industrial policy should look like and how it can meet the threefold challenge of productivity growth, boosting resilience, and meeting net zero targets. They set out how investments into clean technologies are justified on their own economic grounds, such as delivering greater ‘knowledge spillovers’ than their ‘dirty’ counterparts, while noting how, amid rising global competition, the UK must develop a clear understand of the clean technologies in which it can have, or create, a competitive advantage.

George Dibb, associate director for economic policy and head of the Centre for Economic Justice at IPPR, looks at the challenges for progressives in winning public support for a modern supply-side agenda in an era of multiple, overlapping crises. From this challenge he draws two conclusions; first, progressives in the 21st century should prioritise addressing insecurity alongside addressing inequality to build public support, and secondly, that a bold policy agenda of transformation will be needed to deliver on this in practice.

Melanie Brusseler, senior researcher at Common Wealth, and Mathew Lawrence, founder and director of Common Wealth, outline why policy tools like public ownership and coordination are crucial to achieving progressive political goals, from growth to decarbonisation and resilience. Using the example of Labour’s proposal for Great British Energy, they argue that successful supply-side reform depends on building the ‘mixed green economy’ with public ownership and coordination at its heart.

Laurie Laybourn, associate fellow at IPPR, visiting fellow at Chatham House and Visiting Fellow at the Global Systems Institute and Joseph Evans, researcher at IPPR, outline an often-overlooked aspect of Biden’s economic agenda: that his administration now considers climate change to be a pre- eminent national security risk. They explore how this evolving ‘climate security’ agenda could be seized for progressive ends.

Graeme Cooke, director of insight and policy at the Joseph Rowntree Foundation, outlines the need for modern supply side economics to speak to the sense of insecurity felt by individual households. He argues this is not just the right policy approach but has political benefits too, framing progressive economics in terms of tangible benefits: a secure job, reliable income, a place to call home, care for loved ones, something put aside for a rainy day and security in retirement.

David Edgerton, Hans Rausing professor of the history of science and technology and professor of modern British history at King’s College London, compares an industrial strategy approach to meeting the challenges of improving the lives of people and decarbonisation to a foundational economy approach. He argues that a ‘foundational economy’ approach opens a new way of understanding the world, and a new way of acting, based around a more realistic and modest politics rather than one based on delusions.

Alex Williams, economist for Employ America and founder and co-editor of Continuous Variation, explores how an approach of “macroprudential fiscal policy” is needed to boost investment and production, and avoid recessions. Taking inspiration from macroprudential monetary policy which considers the stability of the system as a whole, Alex sets out an institutional set-up that would use anti-recessionary fiscal policy to intervene on the demand side, while at the same time using industrial policy to intervene on the supply side.

Craig Berry, editor of Renewal Journal, explores how, even while supply-side industrial policy is welcome, demand-side fiscal policies are also crucial in securing productivity-enhancing investment. From his own research he notes how operational cash flow driven by demand is a bigger determinant of whether a firm will invest in improving productivity than low-interest rates. To stimulate demand, he advocates for public expenditure which addresses regional and income inequality and in doing so creates stable investment conditions for businesses, as well as an end to monetary policy solely focused on curbing inflation by controlling demand.

Sarah Longlands, chief executive of the Centre for Local Economic Strategies, emphasises the role of local places in creating wealth that stays within communities and supporting people to live better quality lives. She argues that any government serious about bringing about economic change and greater security for people needs to move on from an austerity mindset and invest in local councils, public services, and communities.

Tony Wilson, director of the Institute for Employment Studies, sets out a vision for employment support system that works fairly for everyone. He tells the story of declining standards of employment support over the past hundred years and the impact this has had on the labour market and economy. He uses local-level examples of how services could be improved on a national scale by being; more accessible and inclusive, giving power to people, tailored and responsive, and sustainable.

Andy Westwood, professor of government practice at the University of Manchester and a director of the Productivity Institute, Jeffrey Anderson, professor at Georgetown University’s Walsh School of Foreign Service and its Department of Government, and John Austin, director of the Michigan Economic Center and a senior fellow at the Brookings Institution, the Chicago Council for Global Affairs, and the Upjohn Institute consider the lessons that can be learnt from the US approach to ‘securonomics’ when it comes to regional policy in the UK. They highlight the importance of investments at scale, a ‘place-based’ focus, the need for efficient ‘multi-level governance’, and the role that other non-government organisations can play as crucial partners in economic renewal.

This issue was edited by Dr George Dibb, Joshua Emden, Joseph Evans, Ellie Kearns, Lucy Mort and Ryan Swift.

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