Tony Blair's speech this week, paradoxically, reminded us of the need for new, radical economic policies. He said:
The most important characteristic of this world is: the scope, scale and speed of change. Change defines it.
Let's leave aside the obvious snark that one thing that hasn't changed is Blair's talk of change. He was talking about the "breathtaking pace of change" 20 years ago*. As Alan Finlayson wrote (pdf), the rhetoric of modernization has been a key element of Blairism.
Instead, my point is that it is because the world has changed that New Labour is no longer relevant. For example:
- New Labour worried that the "bond market vigilantes" constrained fiscal policy. That was a reasonable concern when real interest rates were four per cent. But now they are negative a loose fiscal policy is more feasible.
- New Labour thought that if governments could provide the right conditions - such as macroeconomic stability - then businesses would invest. But (nominal) investment-GDP ratios have fallen since then. This suggests governments need some other policies to raise investment - perhaps more more interventionist ones.
- In the 90s, labour productivity was growing nicely. Now it's not. Productivity policy is thus more important.
- The sort of inequality that troubled New Labour was the gap between the moderately well-off and the poor; it thought increased education was one way of tackling this. This gap, however, has declined recently. Instead, the most salient inequality is now the income share of the top 1%. This requires different policies.
- The Great Recession has reminded us that recessions are unpredictable. This means that macro policy cannot adequately stabilize the economy and that we need instead a generous welfare state as an automatic stabilizer. As Blair says, it is a means to protect those "disadvantaged by the changes whirling round them."
However, party politics has changed as well as the economy. The left-centre-right dichotomy might no longer be so important. Ukippers, for example, want immigration controls but also nationalization and price controls: are they rightists or leftists, or do the old labels no longer apply? And the wipe-out of Lib Dems and rise of Ukip and SNP might suggest that those who claim to be centrists fare badly against those who attack, or pretend to attack, the centre.
Now, I'll concede that Blair might have a point when he says that some forms of radical leftism can be reactionary. Sometimes, I fear that some leftists' demands for high corporate taxes and nationalization are a relic of the 1970s beliefs that capital is immobile and top-down hierarchy desirable and feasible.
There is, though, another form of leftist policy - one that recognizes the need for a generous welfare state, worker empowerment and well-functioning markets. This requires that Labour abandons not just relics of the 1970s, but relics of the 1990s too.
* New Britain: My vision of a young country, p203