I know a party conference isn’t the place for clear thinking about fundamental issues. But even so, Ed Balls’ speech contrives to miss the basic challenge facing policy-makers.
His five point “plan for growth“ consists mainly of temporary tax breaks and the pulling forward of public investment. This would be OK(ish) if our problem were merely a cyclical one of temporarily weak demand.
But it is not. We also face the problem that a combination of slower productivity growth and the investment dearth mean that might well face years of sluggish growth - and the “tough fiscal rules” Balls advocates would merely exacerbate this.
Balls, though, gives little hint of being aware of this. He seems to be in a pre-crisis mindset which imagines that economic growth can be achieved if only policy-makers do the right thing. But what if it can’t? What does a leftist economic policy then look like. As Hopi asked:
What is a progressive social democratic party actually for, if it is not able to spend more money than in the past?
I’d suggest four possibilities:
1. Given that investment opportunities are scarce, we must make the most of the few we have. This means investment mustn’t be held back by red tape or by a lack of finance; Adam Posen’s call (pdf) for a state bank is thus worth considering. But we shouldn’t be too optimistic about what these can achieve.
2. There’s a case for limiting top pay. The point here is not merely about fairness. One lesson of the collapse of the banks is that high pay doesn’t work. It doesn’t call forth “talent”, but rather destructive rent-seeking and risk-taking.
3. There’s also a case for more redistribution to the lower-paid and unemployed. It looks as if the main problem for coming years will be a lack of demand for labour more than a lack of supply. Worrying about blunting work incentives in this context is silly.
4. Workplace democracy. Again, another lesson of the banking crisis is that top-down organizations can fail badly; naturally, given his Brownian managerialism, Balls cannot see this. Managers should be seen not as superheroes capable of transforming organizations but rather as custodians and administrators, and be selected and paid accordingly. Note that I regard worker democracy as a means of increasing equality in part by curbing top pay.
What’s more, with public spending likely to be squeezed, it is vital that we make the most of every pound that’s spent. This requires that public sector workers have more control, as it is they more than managers pursuing vainglorious strategies who know the detailed nitty gritty of how cash is wasted.
Now, you might object here that I’m seeing my favourite hobby-horses here. Maybe. Please suggest alternatives. The key point, though, is that Labour must ask what social democracy looks like in hard times.
Not only did Balls not answer this question, he didn’t even ask it.