The economics of Tony Blair

by Jonathan Todd

Tony Blair, according to his economics advisor as prime minister, isn’t much of an economist. In contrast – the only leader to take Labour to three general election victories – Blair is a politician par excellence. While others are better on economics, what Blair says and doesn’t say on the economy is politically insightful.

Let’s take four points made in his speech and the Q&A at a recent Progress event.

First, Labour should focus more on microeconomic debates and less on the macro-economy.

This seems an oddly technocratic point but reminds me of the view of Douglas Alexander and Jim Murphy that “Labour needs a draw on the deficit and a win on growth”. I suspect I took Alexander by surprise when I asked how we achieve this at a CLP dinner earlier this year.

I also suspect that Blair is giving his answer. We get a draw on the deficit by maintaining a strong line that closes it on the trajectory first specified by Alistair Darling. We get a win on growth not by making arguments about the economy as a whole but by crafting a series of bespoke policy offers sector by sector.

The combined impact of these offers would enable a win on growth and creates a series of talking points with business, which, as Blair stressed, matters because we won’t have this win until we have a phalanx of leading business people prepared to back us.

Second, these are distinct questions:

–          How do we make sure the crisis never happens again?

–          How do we get the economy moving again?

Separating these questions misses the golden thread of confidence. The economy won’t be moving again until we have confidence in a brighter future. We won’t have this until steps are seen to have been taken to mitigate the risk of the crisis of recent years repeating. Rock bottom public confidence attests that this isn’t coming from government.

There is opportunity in this for Labour. But we would create problems for ourselves if in reaching for this we undermine our deficit closure strategy or underplay the emphasis placed upon the tailored microeconomic offers suggested above. The priority should be these offers, rather than grasping for an elusive confidence bullet. As we roll out these offers, though, we should be thinking hard about what mix of financial, trade and fiscal policy that bullet might be composed of. We would be better placed to argue that our bullet is real on the back of some winning microeconomic arguments.

Third, the UK should join the euro when the economic conditions are right.

He’s been saying this for years. Yet the euro, at least as currently constituted, seems in contradiction with reality. As Italy looks ever more like a larger Greece, it threatens to make Lehman Brothers look like a tea party.

Blair, nonetheless, maintains that the geo-political clout of the UK would be maximised by euro membership. While this may or may not be true, euro membership now seems so far from the UK’s economic interest as to beg the question: What steps, if any, can a UK that remains outside the euro for at least the foreseeable future take to maximise our geo-political influence?

Targeting euro membership seems as 1990s as Britpop. Redolent of a time when BRICs were things you built housing bubbles with. Labour should, of course, continue to play a constructive role in the EU. However, we should also more strongly stress our support for updating the institutions of the global economy (e.g. the World Bank and IMF, including the global reserve currency advocated by Roger Bootle). Such reform would contribute towards minimising the chances of the crisis of recent years repeating. Labour advocacy would have us be the internationalist, far-sighted party that we should be.

Fourth, he rightly trumpeted his many achievements as prime minister.

While his government was characterised by much needed increases in public spending, unsustainably high tax revenues from the city afforded a large chunk of this. This un-sustainability goes a long way to explaining the deficit. These tax revenues were recycled through tax credits and similar but the distribution before this secondary redistribution was so skewed that many could only have the lives they wanted through accessing easy credit. This built up a stock of private debt that households are now struggling to pay down.

If a more equal distribution of income and wealth could be achieved without resort to secondary redistributions, these problems would be more containable. And Labour would have achieved its historic purpose. To serve this end, though, we need to return to government.

If done properly, thinking through and taking forward the ideas suggested by the economics of Blair can both make ourselves more electable and better able to realise our historic purpose in government.

Jonathan Todd is Labour Uncut’s economic columnist


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10 Responses to “The economics of Tony Blair”

  1. MattT says:

    ‘While his government was characterised by much needed increases in public spending, unsustainably high tax revenues from the city afforded a large chunk of this. This un-sustainability goes a long way to explaining the deficit.’

    True and that is in large part Blair’s economic legacy. It was not sustainable and its internal contradictions mean that much of Blair’s achievements in public spending are going to be dismantled. So EdM needs to be publicly attacking Blair for promoting (even if he did not devise it) an economic strategy that was flawed from the get-go.

    I wish Blair hadn’t gone into Labour politics. And Brown had become a star rugby player (and been happy!). And Mandelson a little known TV producer. Sure Labour would have probably become dominated by some sort of charisma free Margaret Beckett/Jack Cunningham axis, but I bet they would still have won in 97, and 01, and I bet they would have remembered some of those unfashionable Old Labour lessons about not trusting the city and investing in manufacturing and stuff.

    Forget Blair! Remember Bryan Gould!

  2. Achieving a more equal distribution of wealth without adjusting taxes and transfers is achievable but requires rebalancing the employer/employee relationship, particularly at the lower end of the labour market.

    One of the good things that the last Labour government did was introducing the minimum wage, which helped here, but it mistook increasing the market power that employers had with increased competitiveness. The UK labour market is uncompetitive, but it’s oligopsonistic at the lower end.

    It’s important to ensure that UK exports are competitive with our competitors but that can be achieved by other means than driving down pay and conditions for the least well off.

  3. iain ker says:

    Fourth, he rightly trumpeted his many achievements as prime minister.

    *******************************************************

    Yeah, you can always rely on Tone to do that.

    Did he trumpet his many failures too thoughtnot.

    There’s a nice long list; headed up by the biggest bust this country has seen in three-quarters of a century.

    Let’s hear it for, Tony.

    Nah… let’s not.

  4. A fine article, Jonathan. The politics of the economics is absolutely crucial, you cannot just come up with it in academic, wonkish style and hope it will work in practice. This is a lesson Ed Balls seems to be learning, but slowly.

    You are particlarly spot-on with point 1: I argued for sector-by-sector policy ideas in another Uncut piece here.

    My only caveat is with point 4: I worry about income redistribution as an end in itself. I think if you get the rest right, it will happen. But we should not look to tinker artificially with it at either end, either by limiting high salaries or by raising minimum wages past the point where they will affect inflation and unemployment.

  5. Boursin says:

    “the only leader to take Labour to three general election victories” – yes, if we count a hung parliament as a victory, I guess it makes four then for Harold Wilson.

  6. Boursin – Good point. I would have made myself clearer if I’d included the word “consecutive”.

    Rob – Thank you.

    Re: point 4, perhaps I didn’t make myself clear enough here either. I think we are saying similar things. Let me put my point thus: I have an ideological preference, other things being equal, for a more equal distribution of income, wealth, power, opportunity, health and happiness than currently prevails in this country. I think most Labour Party members do. And I think you are tacitly asserting such a preference when you say: “I think if you get the rest right, it will happen”. What tends to happen, however, is that because Labour favours a more equal distribution, we put a lot of emphasis on secondary distribution through the tax system to try to achieve this. There are limits to what this can achieve, though. I suspect we might achieve more, certainly over the longer-term, by thinking more deeply about what drives the pre-tax distribution of income and wealth, etc. Essentially, Labour can’t achieve our goal of more equality through secondary means; we need to address the primary causes of the distribution. To me, this means creating a prosperous economy and healthy society in which all are able to make their fullest contributions to this economy and society. This is what Blair always stood for. But to make real these commitments now requires very different policies from those which Blair advocated to return us to government in 1997 and policies that are much more profound in their impact than that which secondary redistribution alone can achieve.

    All best, Jonathan

  7. @Jonathan: yes, I think we are saying fairly similar things (it’s getting quite philosophical but hey!)

    I am quite a fan of the reworded Clause 4: “power, wealth and opportunity”, as it talks about wealth rather than income. Now clearly that doesn’t mean we are going to do lots of Robin Hood transfers of capital from rich to poor: I interpret this as power and wealth will end up better distributed because we do the opportunity thing better (although that’s just me).

    On income, I guess my point is that we have sometimes viewed things from the point of view that we need to tinker with tax for reasons of redistribution, rather than to create opportunity or nudge the economy through the economic cycle (including, on occasion, facilitating more investment). Eq. of opportunity vs. outcome. I think this is largely what you mean about what drives the pre-tax distribution of wealth: we get to the optimum distribution (and, for that matter, optimum wealth) when everyone fulfils their potential and produces to the best of their ability.

    Although redistribution is almost certain to be a long-term by-product, I believe it should never be the *objective*, because that implies economic agents get richer or poorer by government-controlled transfers, unlinked to their actions. Where we adjust at the high end of the spectrum it should be because we are not getting efficiency and value-for-money in return for the high salaries. Where we adjust at the bottom it should be to prevent entrapment in a cycle of poverty. But not just “because”. Btw, part of the necessary reform of public sector must be to make incomes

    Although we can get into quite complex discussions, in electoral terms I also think it’s remarkable how well the opportunity/outcome “dividing line” is understood by the man-in-the-street. If we ever allow the Tories to skewer us again on this dividing line (as they did in the Eighties), we’re in deep trouble.

  8. Sorry last bit of penultimate para got cut off, should read:

    Btw, part of the necessary reform of public sector must be to make incomes less sclerotic and more related to whether or not people do a good job. Outside of economic crisis, still too many salary increases or promotions happen because of years of service, rather than performance as they tend to in the better-run companies of the private sector. Incentives again.

    Good to debate this with you.

    R

  9. Rob,

    Some reactions:

    First, for the avoidance of doubt, the absolute key thing that I think Labour needs to do to win again is show that we understand why we lost and have learnt these lessons. Most fundamentally, this means not threatening to tax punitively to spend wastefully, especially on people who are not contributing as others are, e.g. some welfare recipients. These are the hard realities that we have to show we have accepted and fully responded to. In this sense, therefore, what we are discussing is somewhat removed from the central strategic priorities of Labour.

    (Although, as an aside, I agree with your point about how instinctively in tune with the opportunity/outcome debate the man in the street is. A politics based on passive equalisation of outcomes offends popular values – and, actually, I think popular values are right to be offended. A politics based on active citizenship and equalisation of opportunities does much better in this regard. Lessons I take from this: a.) People are not stupid. And they have decent values. Politicians are failing when they take them to be stupid, which in various subtle and not-so-subtle ways politicians can be guilty of doing; b.) Politicians are most effective when they remain in touch with popular values. And if we accept that people are not stupid and have decent values isn’t a constraint on their ability to do progressive things, but a highly complementary force. Bill Clinton better understood and was more able to put this into action than anyone else on the left).

    Second, while accepting this as something of a side issue from what Labour needs to be focusing on, Labour is, in my view, fundamentally about equality. Not exclusively. Not to an extent that causes us to do damage to other important values and virtues. But what sets us apart from others is our concern with equality. I do think that not losing sight of your fundamental purpose and USP is, ultimately, vital in politics. A big part of Cameron’s weakness, which I think is being increasingly exposed, is that he doesn’t really have either of these, because he doesn’t really believe in anything other than being PM for as long as he still can be bothered. His uber-pragmatism and stripping out of any sincere principle has come to be un-pragmatic.

    Third, while I do believe it is in relation to equality that Labour derives its defining purpose, there are certainly many debates to be had about what kind of equality we are working towards and how best to do this. I deliberately referred earlier to “a more equal distribution of income, wealth, power, opportunity, health and happiness”. I’m appealing to a much broader and richer sense of equality than one that is simply defined by income measures or the gini-coefficient alone. I agree that the revised Clause 4 does a decent job of capturing this – but I’d think more broadly still than power, wealth and opportunity.

    Fourth, once we look at equality in such terms, it’s completely obvious that secondary income redistributions from government can only take us so far. Indeed, they arguably shouldn’t even be the primary focus of Labour policy and campaigning. What is much more important is whether we are contributing towards the creation of a citizenry with the capabilities required to make the biggest contributions that they can to their economy and society. I feel we are using different words to say the same thing here and, therefore, we agree. The only thing I’d add is that once equality is conceived of in broader terms, rather than simply being about income, it becomes even more obvious that government alone is not the answer to every problem – a position that some on the left can seem to default to – and the necessity of thinking truly imaginatively about the roles of government, markets and civil society is more apparent. This imagination has never been more needed, in my view.

    Thank you again, Jonathan

  10. Jonathan,

    Better respond to you today as just handed in my last Uncut piece before I go on holiday!

    Yes, I think we largely agree: learning lessons of why lost on tax-and-spend – yes, Labour is about equality in a broad sense – yes. I think perhaps the fundamental reason why I could never be a Tory is the values thing: they fundamentally think that some level of inequality is inescapable and acceptable. We don’t. Historically, it showed in not just their economic thinking, but they could happily fight against policies for liberalisation amongst women, gay people etc. Nowadays they’re more liberal on the latter, but I doubt their sincerity on the former.

    And government not being the answer to everything – absolutely. I feel that the current climate in the party is backlashing against New Labour – who admittedly didn’t get everything right – to an extent that it’s in danger of returning to a very old-fashioned statism. Which will help no-one.

    I’m off now, but if you’re around at Conference, let’s have a beer.

    Regards

    R

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