Before coming up with an industrial strategy for Britain it is helpful to ask what the problem is. We need to know more about the situation we find ourselves in today.
Broadly speaking big businesses have unprecedented levels of liquid assets. The problem is that they are not investing a sufficiently large share of those financial assets into physical capital.
Due to poor levels of investment labour productivity in Britain is low relative to that of our trading partners. If productivity is low the only way to remain competitive is for wages (and other costs) to be low. Under the Tories we have a low-wage, low value added growth model.
Why are businesses reluctant to invest in physical capital? Any investor will immediately answer quite simply that the expected return on such investment is not high enough to justify the risk.
So what do big businesses do with their accumulated profits instead? They make financial investments in i) property ii) commodities and iii) hostile takeovers of smaller companies. Hence we have seen a boom in property prices, a sharp increase the prices of things like gold, and also in other stores of values, such as rare artifacts and works of art, and a steep rise in the number of hostile takeovers by hedge fund managers. In these areas the returns on investment are quite good, but it all looks suspiciously like a bubble so investors are concerned.
Always on the look out for better, safer returns on their capital big businesses lobby the government. The Tories are keen to respond to these demands in their industrial strategy. What might the Conservative Party choose to do to appease the lobbyists and to raise the return on physical investments in the British economy?
There are a variety of ways the government can respond. The government might seek to lower corporation taxes, or to make it even more easy to escape paying corporation tax. The government might reduce regulations, such as regulations on environmental protection, or on green belt restrictions, or in granting business licenses, for example, for fracking operations.
The government might subsidise corporations for the inconvenience of having to comply with regulations, so that the incidence of the regulations falls on the public and not on profits. The government might reduce the power of the trades unions, thereby reducing the likelihood of strikes, the terms and conditions of work, and the overall wage bill. The government might also subsidise that wage bill with apprenticeship inducements and tax credits to workers. Workers and taxpayers are thereby, in effect, subsidising profits out of wages and taxes. These things might all be part of a Conservative government’s industrial plan.
Privatisation is another response by the Tories to the lobbyists. Privatisation opens up new outlets for the funds of private investors. This amounts to selling off ‘cash cows’, businesses that are essential to society, such as water and energy supply, and ‘natural monopolies’, such as transport services, and businesses that are ‘too big to fail’, such as banks.
In many such industries there will no choice but for taxpayers to subsidise failure, including failure that results from excessive greed in the pursuit of profits, whether it be taking excessive risk in banking practises, cutting back on investment in water supply, putting profits before customer and worker safety, or covering up malpractice. Privatisation also includes selling off public land and council housing to private property developers, and offering opportunities for private investors in other sectors such as education and health.
Lastly, and most horrifically, it would be foolish to ignore the fact that war, in many ways, is very good for business. War leads to expansion in the weapons industry. It also leads to a greater demand for services in the intelligence, security and communications industry, and in engineering and reconstruction services. This fuel to demand, backed up, of course, by a strong military presence at home and abroad, is an industrial strategy with its roots in our foreign policy decision-making.
Britain’s days of empire were extremely profitable and they would not have been possible without strong military backing from the government. The business of war is always conducted hand in hand with the foreign office. BAE Systems could not sell one aircraft or one missile without the backing of our government. It is an Orwellian truth that Britain’s highly lucrative weapons trade in the Middle East has increased exponentially since the former Prime Minister took up the role of Middle East Peace Envoy.
Our Ministry of Justice, under Chris Grayling, unprecedentedly set up a ‘for-profit’ business inside the Ministry, to assist nations such as Saudi Arabia and Pakistan with their detentions services, responsible for overseeing institutions which include imprisonment of political prisoners, inflicting torture on detainees, stoning and beheadings. This private venture, called Just Solutions Inc, has since been shut down. War is business. Business is all about making money. In the business of war, money is made out of human misery. The ‘Business of War’ is embedded in the ‘Business of Government’. There is no getting away from it, but it is a matter of shame that it is so.
None of this is what a Labour Party Industrial Strategy should look like. What are the better options that belong in the Labour Party manifesto? The first plank of Labour Party policy should rest on better macroeconomic management. Since the financial crash the Tories have adopted expansionary monetary policy and contractionary fiscal policy. The two instruments of macroeconomic management have, thus, been working against each other, undermining the likelihood of success.
Neoliberal reasoning has been pushing out free-market propaganda for decades, making arguments in favour of wholesale deregulation and privatisation, promoting continued cuts to government spending even as an economy faces recessionary pressures. Monetary expansion offers credit on easy terms to investors, but as outlined above, shortages of funds to invest is not the problem, so offering more funds on easier terms can hardly be the solution. Keynesians would argue that a policy of monetary expansion in a recession is a policy that amounts to ‘pushing on a string’. The string collapses upon itself. There is little or no effect on the economy.
Using monetary policy has clearly failed to stimulate private investment. Interest rates at unprecedentedly low levels is, in itself, becoming a problem rather than a solution. Keynesians would argue that this is precisely the time for the government to hold its nerve and increase public spending. The government should act as ’employer of last resort’ having a number of ‘shovel-ready’ projects to step in with to employ workers at the minimum wage, in order to boost public investment, wages, demand and output to counteract recessionary forces. In this way monetary and fiscal policy work together and not against each other and welfare spending is put to good effect through providing both investment and wages. The resulting expansion of the economy increases tax revenues to fund the expansionary programme.
Beyond this the government might look at ways to address what might be called structural constraints on economic performance. These would include skills development, regional development, and infrastructure development. In particular the government needs to make sure that there is a properly functioning housing market, so that workers can find affordable accommodation where the new jobs are. Easing these constraints increases the mobility and flexibility of the labour market, making it more responsive to economic change.
Rapid changes in technology, in communications, in mechanisation, robot technology and artificial intelligence are obvious features of the twenty-first century economy. In order to embrace these changes, rather than fear them, skills development, education and retraining should be seen as lifelong opportunities for the individual, rather than something confined to an early age.
One way to achieve this is through Universal Basic Income payments to each and every household. At minimum administration cost, Universal Basic Income affords individuals the opportunity to take career-breaks which, as well as allowing for illness, caring, child rearing and so forth, accommodates time to undertake retraining in order to respond to new opportunities in the economy.
In its Industrial Development Strategy the Labour Party should consider ways to improve macroeconomic management of the economy by having ‘shovel-ready’ projects to step up, acting as a ’employer of last resort’ in order to support fiscal expansion, thereby counteracting recessionary forces. The Party might also support bringing in Universal Basic Income as a means of achieving better distributional outcomes for society, while also encouraging continuous retraining to meet the needs of a dynamic, twenty-first century world.
This strategy does not involve ‘picking winners’ so much as allowing individuals the means to respond more rapidly of their own volition to new opportunities in the economy, by equipping themselves for changes in the marketplace as they occur.
One might do well to ask more broadly what an Industrial Development strategy is for. Technology that replaces manual labour should lead to better lifestyles not fear of unemployment. Mechanisation should permit a shorter working week for all, rather than luxury for some and destitution of others. Living longer, healthier lives should permit greater opportunities for family and friends to care for one another, rather than a crisis for paid and unpaid carers. Retraining should be seen as a widespread, creative response to change rather than the last, desperate act of displaced, ‘left-behind’ workers in declining industries.
Growth is not desirable if it damages the environment or if it reduces health and happiness. The objective is peace, stability and improved welfare right across society. A strategy that fails this test is a poor strategy. It is time to be creative as well as compassionate. It is time to reject the neoliberal arguments and formulate an industrial strategy that succeeds in responding to the needs of the twenty-first century while nurturing every man, woman and child and preparing them for a brighter future.