by Jonathan Todd
Yesterday, we had a look at the Prospect big ideas for 2014 that will impact domestic policy. Today, it’s the turn of international arena; Prospect identify 3 key challenges.
1. Secular stagnation
What if Larry Summers is right? And what if he is wrong?
The global economy has, according to Gavyn Davies’ summary in Prospect of the argument recently made by the former US Treasury Secretary, been grappling with problems of excess savings and under-confidence for well over a decade, raising profound questions about monetary, fiscal and exchange rate policy in the US and the rest of the world.
In lay terms, Summers is saying that this recovery from recession is different and will not kick in as recoveries from previous recessions have done. Gloomy days are here to stay. If he’s right, it will be harder for Osborne to say in May 2015: “Haven’t I done well?” Equally, the obstacles between an incoming Miliband government and securing its economic objectives may be insurmountable. Still, if this is hand that Miliband is dealt, he should reflect how he’d play it.
Secular stagnation is a term usually associated with the 1930s depression and was revived by Summers. His argument that this is caused by a dearth of investment opportunities reminds me of the latest Robert D. Atkinson and Stephen J. Ezell book, which provides an original and convincing analysis of the failings of western capitalism.
But Summers stretches credulity in the incredibly basic sense that the 1930s ended and the post-war boom arrived. It need not take another world war for a similar cycle to occur. The digital revolution and the rise of the rest create tremendous opportunities. While they also pose challenges, their potential and inherently cyclical nature of capitalism makes Summers seem too downbeat. Labour should focus on overcoming these challenges – which may require the slaying of some Labour sacred cows – and not presume that we are stuck in an inescapable secular stagnation.
2. The new Cold War
How does Labour see the future of the Middle East?
Beyond the Arab Spring, it seems ever less likely that we shall arrive at a Middle East of liberal democracies and ever more likely that we’ll confront a region polarised between Shia Iran and Sunni Saudi Arabia. This is the new cold war, which is as hot as hell in Syria. If Labour wants to confront the Middle East as it is, rather than as we would wish it, we need to think through the implications of the ever more encompassing and visceral rivalry between Iran and Saudi Arabia.