Building foundational Britain: from paradigm shift to new political practice?
| Author | Calafati, Luca |
We need a paradigm shift in economic thinking, rejecting the idea of a unified national economy and thinking in terms of different economic zones. Government should be less concerned with the tradeable, competitive economy, on which most government policy currently focuses, and should be centrally concerned with improving - and decarbonising - the foundational economy, which employs 45 per cent of the UK workforce providing goods and services essential to daily wellbeing.
What should we do about 'the economy'? This is a question we can no longer avoid - and not just because of Brexit. In British general elections for the past fifty years all the parties have made a generic economic offer: 'vote for us and we'll make the economy work better for you'. The objectives of growth and jobs stay the same, as the policy-fixes change with intellectual fashion and political context. Monetary policy, briefly centre stage in the 1980s, is now delegated to the Bank of England, whose currently loose monetary policy combines low interest rates and quantitative easing. The corollary - tight fiscal policy - has been hotly disputed by the left, which in recent years has protested against the invidious effects of post-2010 austerity. Where structural reform of labour markets has failed to transform the economy, centrists now recommend industrial policy, and regional policy continues in the form of city deals.
The results, in recent years, have been disappointing. Policy-makers restate their economic objective as inclusive growth, as they fear disgruntled electors left behind by 'uninclusive' growth. Keynesian economic management to prevent unemployment and business failure in recessions has mutated into buying growth by bringing consumption forward through debt, which has the effect of driving up asset prices. Growth excludes many because a deregulated labour market creates low quality jobs, and income inequalities are reinforced by wealth effects from rising house prices. Regional policies have completely failed to close the gap between the South East and the deindustrialised North and West on the standard gross value added (GVA) measure. Industrial policy promotes high tech which creates few jobs, and disinvestment offsets inward investment even before Brexit.
At the next election Labour and the Conservatives will argue that they can get different and better results on growth and jobs by pulling on the right economic policy levers. But, given the record of the two main parties, it would be safer to conclude that, in mainstream economic policy, reach exceeds grasp. Worse still, on recent British poll evidence, the growth and jobs objectives are meaningless to a substantial group in the electorate: only 39 per cent of those polled on the meaning of GDP can define it correctly, with 25 per cent ticking 'don't know'. Meanwhile 37 per cent of respondents think their jobs 'make no meaningful contribution to the world' and 71 per cent support the introduction of a four-day week. (1)
It is time for a paradigm shift in policy. We argue that should start by setting aside the idea of 'the economy' as a manageable entity and separate domain. The separation of the economy from other policy areas is a relatively recent invention, dating from the introduction of national income accounting, and we argue that what was thought in the 1940s needs to be unthought for the 2020s. (2) This article explains how foundational thinking has begun the work of paradigm shift by breaking with the concept of the singular economy and proposing a plural concept of economic zones. (3) The intellectual shift is to reunite the economic and social domains of policy around the objective of wellbeing. The article then takes up the question of whether and how this new intellectual agenda can be turned into political practice so that Britain can build and rebuild the foundational zone.
The zonal shift
The economy frequently figures in the media though stories reporting the latest quarterly GDP figures for the national economy. The national GDP aggregate (as with regional GVA) is constructed by adding up everything consumed or produced which has market value - or cost, in the case of the public sector. This additive method is contestable and we have challenged it by developing a zonal concept of the economy: this highlights how what we call the 'foundational zone' matters, and why it should be fundamental to government policy.
The additive method denies the apples and pears heterogeneity of consumption. This is important: wellbeing-critical outputs like health care are not like fast fashion; equally, some parts of consumption, like housing, transport and utility bills, are inescapable, regular, first charges on income. Insofar as policy recognises sectors, the emphasis in current government industrial policy is on tradeable and competitive activities like cars, aero, bio-tech, and the creative sector, after the loss of heavy extractive industries and light manufacturing.
In an earlier period, before national income accounting, the heterogeneity of consumption was a major consideration for liberal collectivist social...
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