The London Stock Exchange has a story to tell the left about responsible capitalism.
It was a lovely late Autumn morning as I walked through Paternoster square on the way to Policy Network’s “Quest for growth” event, which was held at the London Stock Exchange, yesterday.
As people sipped coffee and walked past statues of cordwainers and shepherds, it occurred to me that the the city is built on on the accumulated understanding, refinement and development of perhaps the most comprehensible of human desires – the desire to exchange something you possess for something you desire.
So far, so obvious. You start with wanting to swap your sheep for a pair of shoes to help you get about more easily, and before you know it, you’re issuing gilts, inventing a banking system, building Stock exchanges and creating credit default swaps.
But alongside these ever more refined ways of meeting the desire to exchange what you have for what you would like to have, we also find a history of the need to regulate these interactions.
The city has its current form as the result of many oscillations between two conflicting needs for functioning markets. First, the need for an exchange to be free, so that those who wish to buy, to sell, to lend, to borrow, can find each other, can find the best way to meet each others needs.
Second, to need to protect traders and the public, both from less noble instincts, and, less judgmentally, from the consequences of the failure of attempts to create new ways to benefit from the need to trade.
The Stock Exchange itself, after all, is a story of regulation, of the need to keep order, of how to allow structured freedoms.
From the Royal exchange, to Coffee Shops, to the unregulated traders of Change Alley, to the always amusing tale of how the Stock Market itself was formed by those thrown out of the Royal exchange the story of the Stock Market is a story of experimentation and the refinement of regulation, as much as it is a story of the development of finance, commerce and wealth.
So in one sense, there is nothing new under the Sun, even at left of centre Conferences.
Want to tell a story of the dangers of unbridled capitalism? Well, Change Alley was witness to the South Sea Bubble long before it served as a thoroughfare for the Masters of the Universe.
Want to talk about how over regulation of markets creates space for an alternative market? Well, The London Stock Exchange is the inheritor, not of Gresham’s regulated Royal Exchange, but of the vagabond traders who gathered at Jonathan’s coffeehouse.
Want to talk about how markets and morality and governance are inextricably interlinked, well, just cast your eyes up, and see the Guildhall, St Paul’s, the Royal Exchange, the markets, the churches and the wards.
So even before you step into the Stock Exchange, the city of London is trying to tell you a story, a story perhaps, it doesn’t want to hear itself.
Why, when I was supposed to be reviewing a one day conference on the Centre-left’s mission for Economic growth, and more particularly, to tell you how I feel about the import of Ed Miliband’s embrace of Predistribution, do I take this historical, psycho-geographical detour?
Mostly because what gnawed at me all day was a sense that although the left is currently extricating itself from what speaker after speaker described as the consensus, or the orthodoxy, or the neo-liberalism of the last thirty years, the story of markets, of capitalism, of trade goes much much deeper than that.
Equally, so do the failures and collapses and control of each of these phenomena.
Finally, so does the nature of our response. Sometimes you get the sense that for the left, responsible capitalism began with Keynes, and ended shortly afterwards, the idea of regulating banking or markets is an innovative heresy, that we are in the middle of a starting over, a new beginning, an ab initio of Social Democracy.
I suspect we’re in nothing of the sort. We want to be new, when we are just putting a shiny new badge on old products. If that’s right, and it is what we are doing, then my concern is that we understand exactly why we are thinking about the badge, rather than the product.
Running through the speeches yesterday was an assumption, possibly a correct one, that we are living in a profoundly new and different moment, one that requires entirely new and different solutions.
Odd then, that most of the solutions offered had a fairly familiar ring to them.
So for example, the living wage is a minimum wage with nice manners. The desire to lift the skills, human capital and employability of all our citizens has been a centre left theme since at least the advent of feminism and -shorn of the gender innovation- since well before that. I suspect Lloyd George was for higher wages, for better technical education and for greater skills. He was certainly for redistribution.
Moving closer to the present day, I find it hard to tell the difference between Gordon Brown’s Endogenous growth theory and much of the description of of a Centre left “quest for growth” given yesterday. If Innovation policy, Small Business support, regional policy, improved technical education, infrastructure spend, investment in human capital is where the centre-left action is, well, I doubt you’d find much disagreement from the Policy meetings of the IPPR in the early nineties that Ed Miliband half praised, half mocked in his speech and the policies proposed yesterday.
The leader’s slight cuttingness prefaced the suggestion that now was the time for more radical solutions. Yet if we are overthrowing the neo-Liberal consensus, why was the most innovative proposal I heard yesterday the creation of a British version of the Small Business Innovation Fund, an idea which began in the famous left of centre haven of the United States, signed into law in 1982, under the auspices of that arch-leftist, Ronald Reagan?
“The Small Business Innovation Development Act recognizes
that we in government must work in partnership with small business
to ensure that technologies and processes are readily transferred
to commercial applications”
Ronald Reagan 1982
Why do we discuss things like supporting Small Business investment through equity and income contingent loans, without discussing how the failure of the US Small Business Investment Company equity programme a decade ago cost the US taxpayer over two billion dollars in written off investments, and led the Government to halt the entire venture capital style programme? (It’s not that SBIC was in and of itself a terrible idea, -after all, the debenture programme has long been a success- but the state loaning money and taking equity stakes in start ups at the height of a boom probably is.) So should we be doing such things for a strictly limited period, or forever? Suddenly, radicalism becomes a discussion of technical growth instruments, not so much ending the neo-liberal consensus, but seeking to slightly refine the role of the state in market management from a fundamentally technical perspective.
So, in terms of the “Quest for growth”, there was little startling yesterday, much that was worthy and important, and where the devil will lie in the detail. From investment banks to Regional development, the real innovation lay not in the big sketches, but in the precise design of programmes and choices for funding.
That said, two things stood out to me.
The first is that the left is, in the short term, in danger of confusing, or linking in an unclear way, two separate concepts and leaving the most difficult part of each concept opaque.
The first concept is policies that deliver short to medium growth.
Here, the economics, if not the politics, is relatively straightforward for the centre left. Short term demand stimulation, followed by extended fiscal restraint, coupled with a change in the emphasis of state spending towards supporting private sector economic growth, creating jobs and creating demand, mostly through the type of industrial, innovation, regional, education, skills and infrastructure support that would probably gain the assent of people from Michael Heseltine leftwards. Think of it as FT socialism.
The hard part for the left here will obviously be the extended fiscal restraint part. Labour speakers confirmed our support for this, made it clear that there was little extra resource we could promise, but perhaps wisely, did not spell out the type of choices about current spending this would force our government to make, if it sought to invest for the future. This is nothing new, and anyone who knows me, knows what I think about that.
The second concept is the equity of the consequences of that growth.
You can tell that Ed Miliband is genuinely excited and motivated by the possibility of being transformative. The bit of Predistribution that I suspect excites and unnerves Miliband says that the way to ensure a rising tide lifts all boats is not only to invest in human capital so that all boats are sea worthy (endogenous), but also to manage the incoming flow of water (and I guess, the location of sandbanks) so some boats aren’t left stranded by the incoming tide.
It strikes me that there are several ways to approach this task.
One obvious one is good old fashioned redistribution. There is a bit of lack of clarity about this in Jacob Hacker’s paper. In seeking to attack the previous thirty years of US policy, Hacker repeatedly invokes changes in Tax policy that favour the wealthy as an example of how things have gone wrong. He even says that they have played a useful role elsewhere : “Moreover, in many nations where wage inequality has risen, policymakers have pushed back through active labour market policies and through taxes and public spending that are designed to reduce the remaining income gaps“. Yet then, in introducing Predistribution, he talks about acting before the tax and benefits system operates.
If, as he says, the evil of inequality was successfully remedied thirty years ago by higher tax rates, the obvious question is why not simply increase taxes today? This would be the classical left approach, and I confess I’m a bit unclear about why it is ignored by Hacker as a significant part of the solution.
While I don’t know why Hacker seems less concerned by tax rates than by structure of markets, I can see why a political idea that avoids taxation is attractive to politicians. After all, raising Taxes is often unpopular, while reforming markets may not be. But again, here we run into difficulties.
Take Rail fares, as these are often used as an example of how predistribution and market rules can impact living standards. The fundamental truth about rail fares is that they are heavily subsidised by the tax payer. Fares may indeed be too high due to inefficiencies which can be altered,or reforms that will make the trains more cost effective but until that happens fares are only as low as they are due to taxpayer subsidy. Cap Rail fares therefore, and before you know it, you’re back to the redistributive politics of tax and spend (or alternatively, back to lay offs and cuts by rail companies).
Next, If you’re accepting that endogenous growth policies are nothing new, and excluding redistribution through tax, tax credits and welfare spending, then it rapidly becomes clear that unique offer of “predistribution” lies in utilising the power of the people to raise wages through collective political action*.
In other words, unions, minimum wages and the like. Like I said at the beginning, there’s nothing new, whether in the City or the workplace.
But here, in the interesting, radical part of the idea, it seems like the new soft left backs away from the consequences of their own rhetorical radicalism. There is something of a gap in the policy agenda, as if more union power is to be cheered on, not delivered by any particular government action. Notably, in the examples that have been given before of how the state might act – whether in minimum wage enforcement, or regulation of the intensity of foreign Labour, the voice of unions seems minor. Nor does the government seem to have more than a championing and encouraging role in delivering the living wage.
It’s not hard to see why. I doubt the Labour party would feel comfortable going into the next election demanding a mandatory significant increase in the minimum wage. The reaction from business would likely be extreme.
Equally, I don’t believe that a position that could be parodied as “give Len more power” is one the Labour party really wants to run on. The reform to Union recognition laws that might give more power to Trade Unions (such as support for Secondary action, and anything beyond minor change to industrial ballot legislation) would, I think be politically toxic.
Further, I’m skeptical that the reason trade union membership steadily declined in the private sector in the few years is due solely to anti-union legislation. After all, the trade Union laws are mildly more pro union than they were a decade ago, public sector unionism is up, and yet the private sector decline continued until last year, when the overall increase in Private sector jobs saw a small uptick in private sector Union membership**.
Ironically, I suspect the one thing that would make such proposals less toxic would be a type of “Community Unionism” that most Union leaders appear deeply suspicious of.
So it seems the rhetoric of “predistribution” hints at a greater emphasis on correcting income inequality, on strengthening unions, on using legislative and regulatory power to force wages upwards.
Yet in the midst of a recession, these would be deeply controversial. So instead, we get hints of positive but likely ineffectual amendments – such as worker representation on Boards, publication of pay ratios, and so on.
I can’t help but rid myself of the suspicion that the phrase “Predistribution” is used to persuade the Labour movement, and perhaps even the speaker themselves, that a combination of third way growth policies and equality by exhortation represents a much more radical policy departure than it really is.
To return where I began, I’m not sure why such a radicalism by badges is attractive.
After all, there is nothing new in needing to correct market failure, nothing new in seeking to develop the talents of all more effectively, and nothing new in seeking to balance both the creative, and destructive capabilities of free markets.
Nothing new, and nothing to be embarrassed about in the gradualist and long term nature of such reforms. What’s more, by emphasising the limitations and constraints we operate under, the very carefulness of our ambition could be re-assuring evidence of the restraint and lack of over-confidence we expect of others.
After all, it would be an odd sort of politics that was irrationally exuberant in the belief it had solved irrational exuberance.
*OK there’s stuff like publishing pay ratios and other “shaming” techniques, too. I’m cynical about these measures, because I would endure a considerable amount of oublic opprobrium in order to live in a house made of gold.
**Don’t cheer, fellow union members. Union density still fell, so we got a pretty small share of the new workers to join unions.