We have to set about rebuilding our country's institutions for the globalised ageby Liam Byrne / July 21, 2016 / Leave a comment
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Labour’s leadership battle is on. What is vital now is the battle of ideas. Real ideas. Not old slogans. But new solutions for Brexit Britain. For this could be a progressive moment—if we have the ambition to seize it.
If there are prizes for chilling lines in the post-Brexit debate, surely Lord Lawson must win a medal. His crie d’guerre (from his French chateau?) for the new Tory prime minister “to finish Thatcher’s work” unencumbered by Social Europe is a warning that the old New Right, vanquished in the ‘90s, is now vampire-like returning from the grave.
So now is not the time for Labour to march our battalions into fighting the last war. Britain has voted out. Our job now is to crack on with designing a centre-left “new order” to finally make globalisation work for the working class voters who resolutely rejected Europe last month.
Our starting point must be this: we have to recognise that we know how to globalise. But we don’t know how to make globalisation work for the majority of voters.
I remember watching the fall of the Berlin Wall on a rubbish telly in a university common room. Since then, we have created an extraordinary world. The doubling of Europe’s size after the fall of the Soviet Union, the creation of the North American Free Trade Agreement, the admission of China to the World Trade Organization together has connected seven billion people in a marketplace, where an $8trn corporate merger and acquisition wave has now created companies bigger than countries.
Just 1,400 companies now control half of global research and development. In sector after sector, a handful of firms now dominate. But they are rewarding those at the top, driving down wages, and failing to invest in the jobs of the future. The result? The top one per cent now control over half of global wealth—85 families own more than three billion of the world’s people do. The price and the prize of globalisation are out of balance.
Why have we failed? Quite simply because we have failed to build the institutions needed to democratize this new global order—and make it work for ordinary working people.
As the late, great Nobel economist Douglass North proved, institutions are the key to economic progress. Look at Britain. As I show in Dragons, my history of British capitalism, down the ages there would have been no British miracle if it wasn’t for great national institutions like Parliament, the Royal Navy, the Royal Exchange, the Royal Courts of Justice, the Royal Society, and the welfare state first pioneered in places like Bournville, Port Sunlight and the board rooms of John Lewis.
This insight is vital if there is to be new order for tackling inequality. Once upon a time, Labour’s account of inequality was based on what economists called “skill biased technical change.” We believed, simply put, that what you learned dictated what you earned. It inspired a revolution in education spending, a radical expansion of universities and colleges and ground-breaking new ideas like UnionLearn. We set course to create a country where half of young people went on to higher education.
But, as Joseph Stiglitz argued more recently, this is no longer enough. The challenge for the new global order is bigger: our challenge is that the rules of our institutions work for the few and not the many.
Look at the deficiencies of our institutions today. Globally, we’ve got institutions, the legacy of Bretton Woods, that can help reflate growth—but we’ve not found ways of taxing the new wealth of nations. Globally, $7.5 trillion is now stashed in tax havens, $6 trillion of which has never been taxed. Nor do we have in Britain a fiscal watch-dog that can effectively forecast the tax-take, something which is fundamental to getting fiscal policy right. In fact, George Osborne missed his tax targets in eight of his eleven fiscal statements. This hurts our ability to use fiscal policy to foster demand.
The Bank of England’s monetary policy mandate fails to require the Bank to balance job creation with price stability, and our capital markets—and company boards—are no longer investing for the long-term to create the good jobs of the future in industries of the future. In fact, UK corporates are now sitting on an incredible £522bn in cash—and that’s after paying out £100 billion in share buy-backs in 2014. Worse, the hig-tech economy is under-powered because our science base is weakening as Britain only spends 1.3 per cent of GDP on science—that’s less than half what our leading competitors spend. In fact, we’re now 23rd out of 33 in the OECD global science investment league. Together, all this means there are fewer good jobs than there could be.
Our public investment institutions do not work effectively in building new infrastructure, and our housing market is fundamentally broken—indeed, David Cameron built less houses than any prime minister since 1923. So housing wealth is beyond the reach of many.
Our child-care system effectively shuts out thousands from the labour market. Our technical education system is in a state of collapse so people can’t access the great skills needed to unlock great wages, and our social security system doesn’t reward those who pay in with any help for retraining when technology changes and they lose their job.
Our immigration system commands little trust from voters, and just to cap it all, our democracy seems powerless in creating new answers, so voters are turning in unprecedented numbers to new parties.
Look at the challenge and Labour’s new agenda becomes obvious. We have to set about rebuilding our institutions for the globalised age with a radicalism that matches our ambition in 1945. We need new global institutions to help us tax the globalized wealth. We need new rules for fiscal and monetary policy. We need new institutions to build homes and infrastructure. We need a technical education system, a transformed science base and a return to a contributory social security system with lifelong learning at its heart. Above all, we need to show democracy can work for working people.
It was Nye Bevan who once said that “progress is not elimination of struggle but rather a change in its terms.” Labour’s new leader must grasp the challenge. The terms of politics have changed. Brexit Britain now needs new answers.