Labour Party Policies
Britton, Andrew, National Institute Economic Review
Labour's Economic Approach
The general philosophy is set out in the introduction of the report. The key themes are investment, partnership and social justice.
The call for more investment may seem uncontroversial, but it fails to make an essential distinction between investment by Britain and investment in Britain. In practice the main concern of Labour policy is to make British firms invest more, taking a longer-term view of their opportunities for growth and accepting a lower prospective rate of return. Labour would also like to see British shareholders, especially British pension funds and insurance companies, accepting lower current income from their financial stake in British business in the expectation of growth in the value of that stake in the longer term. However, British firms and British financial institutions, taking a long-term view of the global economy, may well decide to locate production or financial assets overseas. There is nothing wrong with that, but it will not of itself contribute directly to the growth of output or employment in the British economy.
To promote investment in Britain it is necessary to make this country an attractive location for production, whether for British or for foreign firms. This means competing with other countries, especially other countries in Europe, in terms of infrastructure, education and training systems, industrial relations and labour market regulations. It also requires that taxation and social security contributions compare well with those of our competitors. This approach to investment is not seriously incompatible with the Labour policy agenda as a whole, but it suggests a rather different emphasis.
The concept of partnership is very difficult to define and the word is often used very loosely in the policy document. Two very different models of economic policy need to be distinguished. One sees the State as an active agent in the economy, seeking to maximise some measure of national economic well-being, using the structure of its own revenue and expenditure as well as its influence on particular private sector decisions. The other sees the State as providing the framework of law and regulation within which firms compete with one another. If the main role of the State is to act as umpire, then conflicts of interest will arise if it intends also to enter into partnership with some of the players.
For some, the word 'partnership' will revive memories of the old days when government was involved in a process of bargaining with representatives of industry and trade unions, about taxation, about industrial policies and of course about wages. This is not the sense in which the word is used by the Labour Party now. To judge by the document as a whole the main concern now is to ensure that a Labour government would have the necessary support from industry and commerce to be able to carry out a specific programme of reform. In particular it would need the co-operation of the private sector in its plans for public investment.
Beyond that there is at least an expression of hope that employers and employees, borrowers and lenders, within the private sector itself may see their roles in terms of partnership rather than conflict. Of course this is an attractive idea, but it is not so easy to see what government can do to encourage a spirit of co-operation if it does not already exist. Nevertheless, even if it is only rhetoric, it should be welcomed as a necessary corrective to the overdose of the rhetoric of competition which we have been given under the present government.
The Labour Party's position is that the objectives of economic prosperity, and social justice do not conflict. They are 'two sides of the same coin' - a very optimistic view of the market economy. The more orthodox position would be that inequality of income is inevitable if there are to be incentives for hard work, for saving and investment, for risk-taking and for training, all of which contribute to economic growth and prosperity. …