Long-termism: Family, Hold back – priorities and choices are everything

Today, Labour has published Sir George Cox’s review into how to create a long-term culture in British Business. It’s well worth a read, as is Ed Balls’ speech in response at today’s EEF National Manufacturing conference.1.

Alongside the LSE growth commission, the Heseltine review and similar interventions such as the Dyson report for the Tories in opposition, you can begin to see the outlines of a post-crash British approach to long-term growth.

This consists of restructuring the financing system to better support growing small to medium businesses via industrial banks and/or regional banks, major infrastructure programmes, an emphasis on skills, vocational educational, and apprenticeships, local Business led (or partnered) economic development agencies with interventionist clout, a sectoral strategy to support key growth technologies2 and fiscal encouragement for Business investment (especially in plant and machinery), increased R&D spend, and long-term share holding.

As Ed Balls said today:

“…from skills and transport to energy, planning and infrastructure, and the case for a British Investment Bank, it is a modern partnership between business and government that is vital if we are to rise to the competitive challenge. And at a time like this, when we need to rebuild our economy for the future, that partnership is needed more than ever.”

I like this agenda.

It contains practical solutions to genuine problems in British capitalism, has broad cross-party support (so stands a chance of being sustainable beyond one or two governments) and offers something to many of the key parts of the UK political economy – Business will benefit from more investment, workers from increased private sector employment and better skills, while our financial institutions get a clear sense of direction and purpose and a sense of being a valued and needed part of our economic future : all in the service of solving a sustained British economic problem.

At a metaphorical level too, the Cox report is helpful,  drawing a parallel with the role of the Government in supporting British Olympians – providing the infrastructure, skills networks and the institutional structures that support individual success. While industry policy is not a sexy, doorstep issue, this sort of explanation helps provide the sort of conceptual framework that industry needs to make its case.

Now, I don’t intend to get into a debate about the individual merits of the Cox report proposals, as like many people involved in this sort of policy minutiae I have my favourite and less favourite policies, but they are less important than the thrust: a broad recognition that we need more business investment, R&D, infrastructure and capital spend, skills, vocational and post-graduate applied education, alongside Banking structures that are more accessible to  firms likely to require long-term capital investments with less immediate financial upsides. Oh, and that a lot of this support needs to be of a pretty green hue.

A diversion on specific likes and dislikes, for those who care:

I’m a big fan of reducing complexity in the R&D system for small business through mechanics like innovation vouchers to fund research and the Small Business Research innovation fund, policies I don’t really like so much – I’m sceptical about the role of Chambers of Commerce in the Heseltine review -, and whole areas where I simply don’t know enough to have a meaningful opinion. For an example of the latter, one of the Cox review’s big proposals, creating a taper on Capital Gains on shares, has a long and storied history, and I will merely mildly remark that the last government both introduced and abolished a Capital Gains taper, – as we did with the 10p tax rate!- and so there must at least have been some reason for doing so if it really did encourage investment, and that more generally trying to understand the practical impact of changes to the taxation treatment of capital gains makes my head hurt, which is one of the very many reasons I am not rich.

As ever though, there’s a catch.

Much of this costs money.

Now, not every proposal does, and there are many useful reforms3, that could be applied with minimal cost.

Ed Balls today invited the government to “Shoot Labour’s fox” on these this morning, and he’s right to do so –  I’d be surprised if the government didn’t try to do much of the relatively easy stuff over the next few years, and where they don’t -for example on infrastructure – the political limitations that apply to the government also apply to Labour.4

However, once you get past the structural and institutional and process reforms, valuable though they are,  many of the proposed reforms have a significant price tag.

Taking a few almost at random, there’s a National Industrial bank, changes to tax relief on dividends, abolition of stamp duty on small business shares, increasing R&D spend, whether by tax or direct spend, tax loss for enterprise zones, tithing government procurement to support British businesses and so on.

Each of these would make a Chancellor of any party gulp, because they promise a future indefinite reward through growth at the price of an immediate income hit.

Even forgetting the current Chancellor’s stupidity, a perfectly Keynesian chancellor might think they’d get a more politically popular and a better short-term growth boost by plowing any spare funding into the pockets of the populace. That’s if there is going to be any spare cash, which there probably isn’t. This raises the question of how such measures interact with proposals for a short-term fiscal stimulus – a sort of public sector deficit version of crowding out!

So whatever precise policy mix we choose to embrace from the cornucopia offered to us by Lambert, Cox, Dyson, Heseltine et al, there’s a bigger, over-arching question.

How do we make fiscal space for these choices, and how do we explain why these priorities matter?

Essentially, that is a question of political and economic strategy. The possible answers include borrowing, taxation, long-term spending restraint. Most likely they involve a mixture of all three – some short-term borrowing to fund immediate expenses, funded by a combination of public sector restraint and taxation increases ((See the SMF proposed cuts package for some examples)) once short-term growth is established. I

t’s perhaps ironic, that this long-termist industrial policy is precisely the sort of “Family hold back” politics all British political parties have struggled to deliver over the years!

To change that, then to pursue such an industrial policy agenda, the challenge for the left might be to explain, even to ourselves, why an emphasis on long-term industrial investment is worth the pain it will create elsewhere.

I believe it is, and suspect it can’t succeed without that clarity of priorities.

This is not sweet medicine, and we don’t have much sugar to coat it with, so people really need to know why it’ll be good for us.

One final Diversion: Somewhere, Correlli Barnett is laughing. Our choice between industrial investment and welfare is an echo of the one he accuses Labour’s 1945 government of fudging with disastrous consequences. Mind you, Jim Tomlinson argues that Barnett is plain wrong about Labour’s postwar disinclination to invest. Personally, I’m not sure which is worse: Did Labour fail to support investment due to social spending, or support investment over welfare, only for the economy to fail anyway? Both options feel unpleasant. Either way, this time, there’s no Marshall plan.

  1. Quick disclosure – I work on some of the issues discussed as part of my day job, and so know Sir George a very little []
  2. though I swear, if one more report mentions Graphene… []
  3. like quarterly reporting, an infrastructure commission, tighter rules on executive remuneration through share bonuses, creating a single economic development pot locally []
  4. I’m not convinced we’ll go into the next election with a firm pledge to send bulldozers into a specific corner of SouthEast England to build a new runway! []

6 Responses to “Long-termism: Family, Hold back – priorities and choices are everything”

  1. Alex

    Indeed. I korls it the radical consensus: http://www.harrowell.org.uk/blog/2012/08/23/the-radical-consensus/

    also, it doesn’t do to rely on Corelli Barnett too much for reasons set out in Lund, Erik. “The Industrial History of Strategy: Reevaluating the Wartime Record of the British Aviation Industry in Comparative Perspective, 1919-1945.” The Journal of Military History 62.1 (1998): 75-99.

    (shorter: if you think there was no British heavy electrical industry in the years the National Grid, as the first national grid in the world, was being built, you probably shouldn’t write a book about the history of technology.)

    Reply
    • hopisen

      Yes, it strikes me that the whole problem with Barnett is that his is a seductively plausible narrative which falls apart on contact with the facts of what the government actually tried to do. Though, as I mention I’m not sure if that actually makes things better or not – if the British economy was so structurally incapable of delivering investment then National Investment Boards and the like are probably only a sticking plaster, if not distorting and harmful, and we’re all straight back to where we started!

      Reply
  2. Brian Hughes

    I haven’t read Sir George Cox’s review or Ed Balls’s speech (I’m waiting for them to be turned into Hollywood blockbusters).

    Do either of them say anything much about changing company law to encourage longer term thinking? Apparently in Germany the number of votes shareholders get increases if they hang onto them for a few years which tends to help in this regard. Our stock-market and hence our CEOs, by contrast, mostly seem geared up to making quick bucks.

    Zero cost to HMG but howls of rage from some in the City no doubt which is probably why neither the Tories nor Labour would dare do it. Vince Cable might talk about doing something like it but, as all but his most besotted fans at the Guardian and elsewhere must by now know, poor old Vince’s talk is rarely matched by poor old Vince’s actions.

    Radio Three’s night waves on 12th Feb included a discussion on the theme “is the way in which today’s corporations are run now obsolete?”. The podcast is still available, confusingly it’s called “A Life Of Galileo”.

    Dangerously wide-ranging and occasionally rather radical is Radio Three, I’m amazed it’s allowed to continue…

    Reply
  3. Jas Weir

    As long as we cling to the ludicrous “joint stock”company with its prime (sole?) obligation to “shareholders” we won’t overcome shortermism and the many other ills of our divided and increasingly unequal society.

    Reply
  4. crossland

    what are your objections to using QE created money ?

    ie give it to the national investment bank rather than the current set up. or even in competition with the current banks. – whoever lends the cheap money gets more of it

    Reply
  5. crossland

    Its also by no means certain that what is currently seen as ‘the industrial private sector’ is where future economic development will happen. I guess this is where your irritation with ‘graphene’ stes from ;-).

    However while that normally gets turned into ‘you cant predict the future so let the market do it’ whats often overlooked is that spending on welfare,education, NHS etc is Infrastructure spending, and could be where future ‘investment’ occurs because those who have been holding onto capital recognise it as an increasing market.
    Presumably thats why they want to privatise it ?
    E.g an aging society is also a society thatwill spend resources on care and services and less on youth orientated consumer products .
    The US model of health funding is a ‘drag’ on the US economy etc

    Reply

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