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Politicians Back to ‘Business As Usual’ on the Economy – Ex-No 10 Adviser

  • Neither Labour nor Tories have faced up to UK’s economic challenges
  • New super-ministry of economics needed to devolve power to regions
  • British Museum and Royal Opera House should be moved to Northern cities

Westminster politicians are reverting to “business as usual” on the economy, putting the UK at risk of a return to the unsustainable debt-fuelled growth that left it so badly exposed during the 2008 financial crisis, a former Downing Street adviser warns in a new Civitas book.

Patrick Diamond, who worked under Tony Blair and Gordon Brown, says both Labour and the Conservative-led coalition seem more interested in “shoring up the old economic model” than tackling the chronic short-termism which exacerbated the last recession.

Rather than simply focusing on a rapid return to growth to the exclusion of wider considerations, politicians need to look beyond simply winning the next general election and think strategically about the long-term challenges facing the economy, he suggests.

“Most politicians are apparently content to operate within familiar territory of ‘business as usual’, returning as quickly as possible to the pre-2008 growth model which is most likely to achieve immediate political and electoral success,” he writes in Transforming the Market: Towards a new political economy.

“As a consequence, there has been too much emphasis on the self-correcting properties of markets on the right, and the magical powers of government intervention on the left.”

Diamond says there has been too little clarity from the major parties about the scale and nature of the reforms required to develop a new growth strategy for the UK.

“The Coalition government has emphasised its pursuit of economic orthodoxy, prioritising low inflation and public debt, ‘sound money’ and loose monetary policy as the primary levers facilitating a rapid return to British prosperity.

“In contrast, the opposition Labour party has sought to promulgate the Keynesian alternative premised on aggressive monetary and fiscal policy interventions designed to bolster aggregate demand.

“The emphasis within both approaches is on shoring up the old economic model, despite evidence that a more fundamental crisis of the ‘mass production paradigm’, which until recently defined Western market capitalism, is underway.”

Calling for a “national economic strategy”, Diamond urges a massive shift of power to the regions that would that would put communities, councils and other civic leaders in charge of a localised economy.

This would involve giving councils and other regional bodies more powers to support businesses and local infrastructure projects – including the expansion of regional airports – and using public procurement to support small firms.

He says major cultural attractions like the British Museum and the Royal Opera House should be re-located to Northern cities and that the House of Lords should be given a regional base.

A new “super-ministry” of economics – taking powers from existing government departments including the Treasury – would also be needed to drive such a redistribution of power away from Whitehall and encourage “bottom-up” growth with a new emphasis on community-based SMEs, mutuals, co-operatives and social businesses.

The proposed new department, taking powers from the Treasury, the Department for Business, Innovation and Skills (BIS) and the Department for Communities and Local Government (DCLG), would provide a powerful counterweight in Whitehall to the Treasury’s traditionally short-termist pursuit of growth – which has tended to marginalise coordinated industrial strategy and structural reform.

“Key public institutions ought to be dispersed outside London. For example, the House of Lords ought to have a regional base; cultural institutions such as the Royal Opera House and the British Museum ought to be re-located in Northern cities,” he writes.

Diamond, who helped write Labour’s 2010 manifesto, also proposes:

  • 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

Diamond identifies the weakness of BIS (and its precursors) vis-a-vis the institutional strength of the Treasury as a longstanding obstacle to securing the kind of reforms that the economy needs.

“There is a strong case for creating an economics ‘super-ministry’ incorporating the Department for Business, Innovation and Skills, the Department for Communities and Local Government, and the productivity functions of the Treasury,” he writes.

“This would provide a real locus for economic and political decentralisation, alongside stable relationships of trust and commitment between the public and private sectors which Britain has lacked throughout much of the post-war period.”

Faith in the traditional remedies of both main parties – Keynesian stimulus and market fundamentalism – is “rapidly receding”, he says.

“The sense of a deepening crisis in political economy and the suspicion that neither of the conventional ideological approaches in British politics holds water has grown deeper since the crisis broke five years ago … neither of the dominant intellectual paradigms in British economic debate – Keynesian stimulus nor market-centred austerity – offers a viable political economy strategy for the United Kingdom over the decade ahead.”

Notes

Patrick Diamond is Lecturer in Public Policy at Queen Mary, University of London, Vice-Chair of Policy Network, Gwilym Gibbon Fellow at Nuffield College, Oxford, and a Visiting Fellow in the Department of Politics at the University of Oxford. He is also an elected member of Southwark Council. He spent 10 years as a special adviser in the last Labour government, including as Head of Policy Planning in 10 Downing Street and Senior Policy Adviser to the Prime Minister.

For further information and interview bids contact:

Daniel Bentley
Director of Communications
T: 0207 799 6677
E: daniel.bentley@civitas.org.uk

Civitas: Institute for the Study of Civil Society is an independent social policy think tank that facilitates informed public debate on important issues of the day. It is not affiliated to any political party and receives no state funding


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