Labour has big ambitions for a crisis-ridden economy

by Jonathan Todd

The British economy, which Labour intends to make the fastest growing in the G7, confronts major and interlinked crises.

The immediate crises of our crumbling public realm. Schools that do not open. Prisons that do not contain terror suspects. Councils that do not balance their books.

Spent 5 hours at Homerton hospital A&E,” a friend messages. “The state of the NHS is just terrifying. Many people were there not because of accidents, but rather long-term health conditions. They turn up at A&E because other parts of NHS and social services (e.g., mental health) are so diminished.”

Our workforce is reduced in size by a health and social care system that fails to keep us fit and firing and in efficiency by other features of our dysfunctional public realm, such as closed schools, late trains, and unsafe streets.

Emma Duncan also linked the public realm and economic performance in the Times this week.

The squeeze on local government services is making Britain look and feel poorer and uglier. Councils have a more immediate and visible effect on people’s lives than anything national government does, and because care swallows up most of councils’ spending, the funding for mending potholes, cleaning off graffiti and clearing up rubbish has been slashed. A grimy, depressing environment is not just bad for morale: it’s also bad for our economy if Britain looks like a developing-world country that’s not worth investing in.

We also act, beyond our vapid bluster of “Global Britain”, like a developing-world country in being unsure of our international position. Britain, to paraphrase Dean Acheson, has lost a tailored and privileged membership of the EU and not yet found a role.

In a sign of how this will evolve, the UK has rejoined the EU science research scheme Horizon. Chief Executive of Universities UK, Vivienne Stern, told the BBC there would be a “unanimous sigh of colossal relief” from scientists.

“The Horizon deal again shows the inexorable logic of closer relationships with the EU over time,” as Sam Freedman tweeted. “We’ll keep rebuilding things that Brexit broke – the only Qs are how long it will take and will we end up all the way back where we started.”

A Starmer government will fix more of Brexit’s breakages than a Sunak government. But resolving the crisis of the UK’s relationship with the EU will not suffice to rebuild our public realm or fully reboot our economy. The UK economy, sadly, faces even more fundamental crises.

The Crisis of Democratic Capitalism, a weighty tome published by Martin Wolf this year, traverses these underlying crises.

In a country with stagnant productivity (such as Italy over the last two decades or the UK over the last one and a half decades), the standard of living can rise for some only if the standard of living of others falls. This then becomes a zero-sum economy: if A wins, B through Z must lose.

The combination of this poor productivity and the failure of the Tory government to transfer from A (more well-off people and places) to B (less well-off people and places) via Z (redistribution) means that some extraordinarily troubling statistics now characterise our economy:

  • GDP per head in the UK outside London is lower than Mississippi, the poorest state in the US.
  • Income inequality in the UK is so wide that while the richest are very well off, the poorest have a worse standard of living than the poorest in countries like Slovenia.
  • This parliamentary term is on track to be by far the worst for living standards since the 1950s. Typical working age household incomes are on course to be 4% lower in 2024-25 than they were in 2019-20.

Wolf identifies productivity challenges across many economies (average productivity in the 2010s (between 2010 and 2019) became dismal in all high-income countries). But the UK is doing particularly badly (at the bottom of the list for rates of productivity growth after 2010 were the UK and Italy).

We can blame the false economies of austerity and the barriers to trade and collaboration of Brexit for some of what has happened over this period. But the heart of our productivity problem is deeper still.

There is,” Wolf laments, “little sign of the sorts of innovations that would generate an explosion in high-wage, rent-sharing jobs for less-skilled people … The decline in productivity growth is deep and structural.”

We now lack technologies as game-changing as, for example, electricity, the internal combustion engine, and pharmaceuticals over the second industrial revolution from 1870 to the mid-twentieth century. Wolf offers a chink of light:

The possibility of an energy revolution, with limitless supply of cheap renewable energy (perhaps including energy from nuclear fusion), as well as further development of artificial intelligence and possible revolutions in material and life sciences.

Labour’s ambitions for the UK demand a step change in productivity. That means dispersing the best of these technologies across our economy and being at the vanguard of further innovation in them.

In the run up to Labour conference, we will assess Labour’s economic policies, explore these technologies, and scrutinise the potential for a Starmer government to unlock the productivity growth needed to make the UK the fastest growing economy in the G7 and move beyond our current era of crisis.

Jonathan Todd is Deputy Editor of Labour Uncut

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