And how afraid should business really be?by / April 2, 2015 / Leave a comment
We always knew that Ed Miliband would have his work cut out convincing business leaders that the economy is safe in his hands. So the letter signed by 103 “business chiefs” and published in yesterday’s Telegraph didn’t tell us anything we didn’t already know, though it did set the Labour leader a political challenge that the party has tried to meet with a letter of its own, signed by businesspeople, writers and low-paid workers. Much more interesting is the suggestion, made by John Gapper in an essay in the Financial Times earlier this week, that “suspicion” about Labour’s attitude towards the private sector is not “confined to outsiders.”
Gapper says that the “policies articulated by Mr Miliband and crafted by Stewart Wood, a former university professor who sits in labour’s shadow cabinet, horrify some on the party’s right.” He quotes an unnamed “former Labour cabinet minister” who accuses Miliband and Wood of not knowing “what a market is” and of seeing capitalism as something to be “tolerated”, if not “controlled,” by government. This is nonsense, as Gapper knows. After all, it’s not as if Wood, who has done most over the past four and a half years to shape Labour’s message on “responsible capitalism” and the reform of misfiring markets, is calling for the revival of the autarkic “Alternative Economic Strategy” that Labour flirted with in the early 1980s. A better parallel, Gapper suggests, is Harold Wilson, who “Wood cites as the inspiration” for Labour policies on bank regulation, energy prices and for “fixing broken markets” more generally.
A more plausible target for internal party misgivings is the influence on Miliband and Wood of a school of thought in political economy associated with David Soskice, Wood’s PhD supervisor, which searches for remedies for the chronic short-termism and excessive financialisation of the British economy in continental Europe—particularly in Germany, with its regional banks, worker representation on company boards and co-ordination between firms. Gapper says that Soskice “is now sceptical about whether the UK can usefully follow the German model.” That scepticism is not new, however. Writing in Prospect in 1996, and questioning the enthusiasm then shown by the nascent New Labour for the model of “stakeholder capitalism” developed by Will Hutton in his book The State We’re In, Soskice argued that “transplanting institutional policies from one type of system of advanced capitalism to another has seldom worked. Just as attempts to copy French planning mechanisms failed in the 1960s, so did social contract corporatism in the 1970s.”
In short, and to adopt Soskice’s own nomenclature, you can’t turn a “liberal market economy” into a “coordinated market economy” overnight. In fact, what economists call “path dependence” might actually be destiny. “The German system is different to ours,” Soskice told Gapper. “I think we’re much more like the US and that’s the direction we should go in, rather than trying to counter it.”
As Gapper acknowledges, this is something Wood recognises, too. In 2001, he contributed to Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, a collection of essays co-edited by Soskice and Peter Hall. Wood’s contribution, entitled “Business, Government and Patterns of Labour Market Policy in Britain and the Federal Republic of Germany,” deals with, among other things, the kind of failed transplants of foreign models identified by Soskice nearly 20 years ago. “The period 1961-79,” he writes, “is… littered with failures to entice business into replacing liberal with coordinated governance structures.”
Some of those CEOs worried by what Labour is planning might be a little less alarmed if they were to read Wood’s conclusion, in which he rejects the “dirigiste conception of policy-making” and says that the state’s role in a liberal market economy like the UK’s is to “restore and ‘sharpen’ market mechanisms.” They might also allow themselves a smile at what he says—in his defence, this was 2001—about the “vast constitutional power” that the Westminster system and first-past-the-post confers on British governments compared to their counterparts in Germany, the “most severe political constraint” on whom is “that imposed by the necessity of coalition with other parties.”