Laurie South: Why Labour’s Industrial Investment Strategy is Vital for our Future
After 7 years of a failed austerity programme, the Tories and the Lib Dems are still landlocked in the thinking of the economic “la la land” which is austerity.
In 2008 we witnessed a global bank crash. Banks had wrapped up insecure loans and sold them to each other as solid investments. They proved as worthless as a chocolate tea-pot. The resulting recession meant that 2009 was a very poor year for government income. But, of course, no government can instantly rescind committed expenditure without exacerbating the recession. However, by 2010 the economy was beginning to grow. Refusing to slash public expenditure and borrowing to ensure the economy did not collapse had proved the right strategy. The UK economy would be OK.
Well yes, except that the Tories and Liberal Democrats were elected in 2010 on the false premise that the economy was doomed and our grandchildren would be indebted paupers unless we cut public expenditure and attracted investment by cutting taxes for corporations and wealthy individuals.
The austerity programme meant cuts for local government, squeezing education spending and cutting resources to the NHS, all at a time when these services were coming under pressure from an increasing birth-rate and an ageing society. The cuts in public spending, of course, put pressure on the welfare services as unemployment and low pay increased so that many hard-hit or disadvantaged people could just survive.
Another tool in the austerity programme armament was to transfer as much public debt into private debt as possible. The classic example is the Tory / Lib Dem tripling of university fees and making students take out loans, but this was one example among many.
Inevitably the Lib Dem / Tory government found itself in a vicious circle. The more cuts that were made to public expenditure the more tax income fell whilst the demand for public services increased. Their answer was still further public service cuts and as much transfer of responsibility for public services and welfare from the state to the individual as the government could get away with. We therefore see, for example, increased homelessness and requests from schools for large parental contributions to make ends meet. But despite this cutting of public expenditure, we have a near tripling of the national debt (money borrowed by this government to make the books balance) and nothing to show for it.
The problem is that both the Tories and the Lib Dems are repeating the same old nostrum in this election. They claim that public expenditure must be reined in: that we cannot afford a properly resourced education, health or welfare system. They fooled the voters before so why not try the same old slogans again.
So, what has happened to our economy?
Economies change and adapt to, amongst other things, government policies and pressures. They are not totally immune from the direction a government takes and are not subject only to their own laws, though they might have us believe that.
The UK economy has adapted to the austerity programme by
(i) Becoming a low wage economy with insecure employment practices (zero-hours contracts, under-cutting by migrant labour, hire and fire practices, public sector pay-caps)
(ii) Relying on the growth of individual debt to enable goods to be sold (we max out our credit cards to buy goods or, in many cases, just to survive)
(iii) Demanding lower and lower corporation tax and attracting impatient capital (often foreign investors) that demands higher dividends and threaten to move abroad to ensure it can maximise profits
(iv) Lowering investment in research, modern plant and machinery, innovation and skills: these combine to give UK industry a very low productivity quotient
On top of this the pound has fallen in value to a 30-year low as a result of the international money market’s assessment of the British economy in the post-Brexit era, looking at the above factors. While this fall in the value of the pound gave the UK an initial advantage in international trade, the UK is a country that has to exploit natural resources for manufacturing or rely on the export of high tech products that have multiple added value. The trouble is we have few natural resources and have allowed our skills and knowledge base to decline. We already boast the lowest growth rate amongst the G7 countries.
Our Tory government has adopted a laissez-faire attitude to the economy which is mirrored by the Liberal Democrats. There is no industrial strategy from either the Tories or the Liberal Democrats which is worthy of the name.
Is the prognosis good for the UK economy?
No. We will slide further behind the G7 countries in terms of productivity and growth if we continue along the same path. There will be a continued downward pressure on wages but foreign investment, upon which we are so reliant, will flee as we find ourselves competing unsuccessfully with other low-wage, low-tech countries.
So what is the answer?
By now it must be obvious. A government driven industrial strategy which invests in creating a high-tech, high-productivity, high-skill, export driven economy is essential. Laissez-faire economic and industrial strategies will not enable the UK to become a valued trading partner with the rest of the world as some in the Tory and Liberal Democrat echelons fondly believe.
Only the Labour Party has an industrial and investment strategy which includes:
(i) A £250 billion capitalisation for a National Investment Bank with regional branches to invest in skill development, research, and patient development capital for large and small companies alike
(ii) A £250 billion programme of infrastructure development including ultra-broadband, Crossrail 2, renewable energy
(iii) Business rate relief for companies investing in innovation and new plant to improve productivity followed by a change in business rate that takes account of changes in industrial structure
(iv) Investment in supply chains and industrial boards for sector advice
(v) Creating a strong export support infra-structure for large and small industries
(vi) Putting utilities such as rail, water and electricity on a reliable footing by taking away licences held by foreign countries and running them by and for the UK
(vii) Waging war on the late payments culture that holds back SMEs and drives them into bankruptcy
(viii) Increasing apprenticeships and life-long learning
(ix) Ensuring we have a degree class workforce by removing barriers to university study
(x) Stimulating a loyal and committed workforce by legislating for a minimum wage and thus creating security
(xi) Restricting the obscene pay levels and bonuses offered to senior managers
(xii) Increasing the amount of childcare so that a lack of it does not prevent women from returning to work
But can we afford to do this?
We have discussed the implications of not doing this and they are dire. Laissez faire economics is not an option if the UK is to remain a major economy in the world. The idea that taxing to invest in the economy is an expense that takes money from the pockets of individuals is, frankly, nothing more than “crazy talk”: we are all – government, individuals, employers and employees - partners in wealth creation: we all contribute and we all benefit.
Borrowing to invest in an industrial strategy will:
(i) Ensure we have a secure economy for the future unlike our present unstable economy
(ii) Increase the resources accruing to the government (it is calculated by economists that every £1 million pounds of public investment results in a £150,000 return to the Treasury through taxes)
(iii) Create an economy which grows and creates wealth for us all, enabling borrowing to be paid back and opportunities for all to be developed
The truth is that those who say we cannot borrow to secure our industrial and economic future when interest rates are at their lowest, have in their hearts neither the interests of the UK and its many and diverse peoples, nor the interests of their children and grandchildren.
Only Labour has an industrial and economic strategy to secure the wealth and economy of the UK. Voting tactically in Kingston and Surbiton for the Liberal Democrats is only adding another austerity minded MP to the House of Commons. It will do neither the country nor Kingston and Surbiton any good whatsoever in the medium term.