A strategy for long-term, sustainable growth
Transforming the Market: Towards a new political economy, by Patrick Diamond
Britain is at risk of a return to the unsustainable debt-fuelled growth that left the economy so badly exposed during the 2008 financial crisis. While recent growth figures have been encouraging, little headway has been made in the more fundamental task of rebalancing the economy and tackling the chronic short-termism which has held the UK back.
In Transforming the Market: Towards a new political economy, Patrick Diamond warns that the prevailing debate between the main political parties is failing to address the problems that exacerbated the depth and duration of the most recent recession. Rather than simply focusing on a rapid return to growth to the exclusion of wider considerations, policymakers need to end the over-reliance on financial services and the enormous regional imbalances between the South East and the rest of the UK.
Diamond, a former Downing Street adviser to Tony Blair who later helped write Labour's 2010 manifesto, calls for a new economic model which is less susceptible to global shocks and in which the rewards of growth are more fairly distributed. Pulling together a wide range of strands in current centre-left thought about the future of the economy, he sets out a "market-transforming" strategy to encourage new institutions that would inculcate long-term commitment and trust. His central recommendations include:
• Greater diversity in the economy, using public procurement to promote SMEs and giving councils more powers to build local economies from the bottom-up.
• More regional economic autonomy, including regional banking, and the development of infrastructure such as the expansion of regional airports.
• Better quality of apprenticeships and a renewed emphasis on traditional craft skills, adoption of the living wage and a more equitable distribution of wealth through pay packets ("predistribution").
• Reform of corporate governance, including making predatory takeovers more difficult, and extending employee ownership with partial remuneration through shares.
The approach he describes requires a shift in emphasis from the short-termist pursuit of growth that is the hallmark of contemporary Westminster politics. Politicians must look beyond simply winning the next general election and think strategically about the long-term prospects for the economy.
"An explicit focus on the goal of rising national income and Gross Domestic Product (GDP) as the primary goal of economic policy risks repeating the policy errors that led to the 2008 crisis. For one, the danger is that policy-makers are attempting to resuscitate a flawed economic model, an asset-based 'balloon' economy, instead of creating the conditions for the transition to a more durable and substantive economic model based on a fundamental rebalancing of the British economy."
Diamond explores the shortcomings with free market capitalism that have become evident since the financial crisis and suggests an alternative which avoids reverting to excessive reliance on the state. Instead it requires the redistribution of economic power and opening up of monopolistic markets to greater competition and contestability from a wider range of public and private sector institutions which are less vulnerable to global shocks and instability.
"The capitalist system does not produce an acceptable distribution of outcome and opportunity; nor do free markets create an adequate supply of collective public goods; product, capital and labour markets are imperfect and can fail, occasionally with catastrophic consequences; and there are always incentives to promote beyond self-interest and rational market exchange.
"For much of the last two decades, Whitehall and Westminster were prone to uncritical 'pro-market' thinking, including now seemingly erroneous confidence in the self-regulating capacities of financial market... In the new century, Britain needs an approach which restores the role of public institutions in building an economy where as far as possible, social justice, personal liberty, economic growth and ecological sustainability can be judiciously combined."
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