Prosperity and Justice: a review

I confess I approached the IPPR’s report, Prosperity and Justice, with low expectations. I feared it would be yet more bland technocratic centrism. I was wholly wrong. It gets to the heart of our economic problem – that inequalities of power are impoverishing millions of us:

We have to rebalance the relationships of power which currently exist between different actors in the economy. A major part of the sense of injustice that is so widely experienced across the UK today is the lack of control people feel they have, both their own economic circumstances and those of the country as a whole. That sense of powerlessness reflects something real. Within firms, too much power is concentrated in the hands of management, and too little is held by workers. Hierarchical governance models hold back productivity improvement and the spread of workplace innovation, and hold down wages and working conditions.

This is wonderful stuff. And there’s so much more to love: the stress upon the need for stronger trades unions; the correct claim that a fairer economy is a stronger economy; the stress placed upon bad management; recognition that redistribution of income is not enough; calls for a land value tax and tax on lifetimes gifts; and demand for stronger competition policy.

That said, there are some things I don’t like. I’m not sure that short-termism in boardrooms is a problem (I’ll say why tomorrow); or that monopoly power really has increased as much as they claim; and I’m wary of giving the Bank of England a dual mandate to target both unemployment and inflation.

Also, I’m not sure the report is sufficiently awake to some trade-offs. For example:

 - Between stronger competition policy and investment. The “open markets” the IPPR rightly calls for conflicts with its desire for higher investment. Why should firms innovate and invest if they fear their profits will be driven down from competition from new entrants?

 - Between worker say and automation. Greater worker voice might create opposition to labour-saving innovations.

 - Between a higher minimum wage and incentives. A higher NMW would further squeeze differentials between the low-paid and the slightly better-paid, which might deter some from incurring the expense and hassle of training or changing job.

None of this is to say the IPPR is wrong – just that there are conflicts between good things.

There are also at least a couple of areas where we need more detail.

One concerns fiscal policy. The report says:

Higher wages prompt improvements in productivity. When workers are cheap, firms have little incentive to invest in new technology or innovate in workplace organisation: it is simpler to meet additional demand with more labour.

This is right. One way to achieve these higher wages is to ensure lasting full employment: it is no accident that productivity growth was strongest in the 50s and 60s. How can macroeconomic policy achieve full employment? (The IPPR omits mention of a job guarantee). And if it can, will firms really respond as they did in the 50s and 60s by investing more? Or might they instead fear a profit squeeze and invest less. Will we return to the 60s, or the 70s?

A second issue is worker control. This can occur at different levels. Workers can help set overall corporate strategy at board level. Or they can raise productivity by deploying their detailed but fragmentary and dispersed knowledge of inefficiencies in production and procurement. For me, the IPPR understate the latter.

But of course, the truth here varies from firm to firm. Which means we need a diversity of modes of worker control, depending on how this can best raise efficiency.

These, however, are quibbles and footnotes. Overall, this report is a very great achievement. Mrs Thatcher, reportedly, once banged a copy of Hayek’s Constitution of Liberty onto a table, declaring “this is what we believe.” I hope Jeremy Corbyn does the same for this report.

Comments

[Dave Timoney]

The IPPR report certainly marks a step-change away from the usual technocratic pabulum, and its focus on genuine tax reform is significant, but I suspect in this it is merely reflecting the shift in public opinion over recent years, and no doubt anticipating Labour's programme.

It is (for the left) essentially comforting rather than challenging, and even a bit nostalgic (e.g. the fetishisation of exports and R&D is reminiscent of David Edgerton's histories). That said, it's recognition of the importance of power in the economic sphere is welcome, though it has perhaps pulled its punches by not extending that analysis to the social sphere (e.g. education, the professions, the media etc).

[Scurra]

On one point: the big tech firms now just buy up the innovators, which is surely a worse solution than addressing the market problem?

Ultimately, for me, the issue is still one of individuality. We are all different, and have different needs and problems, but we are still all forced into the same boxes - at all levels. When the system starts to understand that, then I'll believe there's hope. This report seems to circle around the edges of that, which is a good thing, but it's still not really radical enough for me. Then again, I ride unicorns.)

[Mike W]

'This is wonderful stuff. And there’s so much more to love: the stress upon the need for stronger trades unions; the correct claim that a fairer economy is a stronger economy; the stress placed upon bad management; recognition that redistribution of income is not enough; calls for a land value tax...'

Agree with all of that :) My first thought was in regards to the LVT discussion in the report.It was still a little shy of stating Georgism's real power for social justice (not simply a smallish tax reform issue). Indeed, in the LVT introduction in Chapter 13 pp. 210-213, they move from a good general discussion of the merits of LVT, to quitely only proposing LVT for 'commercial property'. I recall, that the Mirrlees Report had a section on LVT that was tucked away too. I agree with our blogger here, this is what I suspect Labour starts with in this context. Fair enough.

But I thought, where is the rest? They have in fact put 'Land': ,'House Price Inflation', in the Finance Chapter 11. They think Bank of England can impose stricter loan to value ratios on banks if given the teeth to do so. Mmmmmmm.

From my perspective, I support this report as an example of progressive political economy, slowing moving us in the right direction.

[Luis Enrique]

"A major part of the sense of injustice that is so widely experienced across the UK today is the lack of control people feel they have, both their own economic circumstances and those of the country as a whole"

I don't know where evidence of variation over time regarding this experience of control comes from. When did people ever feel they had more control over the "country as a whole" than they do now? Personally, I don't recall ever feeling I had that. And - outside of unions, where I can see members had some degree of control that might now be lacking - how does one distinguish between reduced 'control' over ones own economic circumstances, and deterioration in the choice set - the jobs on offer being worse? (I don't hold much store by these questions and they are not a criticism, I am just curious is all).

on the competition an investment thing, there's room for it to cut both ways perhaps - a firm may invest to fend off new entrants, or maybe investment rises because new entrants are investing, and that outweighs effects in the other direction.

[Ahmed Fares]

[[ "This is wonderful stuff. And there’s so much more to love: the stress upon the need for stronger trades unions;"
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"Higher wages prompt improvements in productivity." ]]

Did anyone else notice the contradiction? Stronger trade unions means higher wages which means more improvements in productivity, another way of saying more capital-labor substitution.

In other words, the trade unions price themselves out of work. And this is supposed to be taken as good news for the trade unions?

[Dipper]

Jeremy won't even read it.

[Dave Timoney]

@Dipper, but John McDonnell already has.

[Dipper]

@fromA2E. My conservative mates universally despise Corbyn and fear John McDonnell.

The Corbyn-McDonnell split is one a lot of folks are watching. The view is that Corbyn's 'man of principle' routine gets him elected by lots of people who think that his vagueness means he agrees with them, but soon after he is elected a Corbyn government fails because Corbyn is manifestly an incompetent idiot and at that point McDonnell takes over.

McDonnell is dangerous because his Uncle John routine sounds so reasonable. He claims he has costed his budget, but what we all know is that Corporation tax take has increased as the rate has gone down. Uncle John is doing the dumb thing of saying £xBillion per percent, so if i increase by Y% I get £XYBillion extra revenue, but the actual trajectory means he will lose money if he does that, and at that point a massive hole appears in government finances and its all hands to the pumps to print money to give to his supporters in the NHS and elsewhere whilst the collapsing real economy is blamed on evil capitalists and international finance attempting to overthrow the will of the people rather than the obvious that people who can add up have worked out his plans are flawed. But at that point its too late as the nutters have taken over and are confiscating everything they can get their hands on and imprisoning anyone who complains.

[B.L. Zebub]

@Dipper

It didn't happen last time, but this time the prophecy will come to pass for sure, with absolute certainty, because so said the Prophet of Profit. The dread Road to Serfdom: it's in the Bible, people!

Holy Mary, full of grace! Run for the hills!

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However, you forgot to mention the Commie-Nazis, the Number of the Beast, and the reptilian aliens from Nibiru. Oh, well. Next time?

XXOO

:-) (That's not a LOL smiley, mind you, but my nicest, friendliest, most politest one)

[Dipper]

@ B. L. Zebub all you have to do is look at what Corbyn, McDonnell and the people associated with them actually see, the people they appear alongside.

In order think Corbyn is some nice genial Scandinavian Social Democrat you have to firstly ignore most of what he has said and done and secondly invent a whole load of things he has never said.