Magazine article Soundings

A Social-Democratic Sheen on a Neoliberal Core

Magazine article Soundings

A Social-Democratic Sheen on a Neoliberal Core

Article excerpt

Peter Mandelson's speech to the Work Foundation, Going for growth: building Britain's future economy, January 2010

Lord Mandelson's speech to the Work Foundation in January 2009 (available at www.theworkfoundation.com/) began with a bold claim that the Department for Business, Innovation and Skills (BIS) was breaking with previous New Labour traditions in industrial policy: 'how we create future jobs won't be the same as the past ... other governments are actively investing in their industrial strength. We have to do the same'. This review seeks to establish how, and to what extent, Labour's new industrial strategy differs from its previous approach.

The speech begins encouragingly, with the recognition that the present economic slump demands deficit spending to kick-start growth. David Cameron and George Osborne's plans for quick and far-reaching fiscal retrenchment are characterised, correctly, as 'dangerous nonsense'. Mandelson is surely also right to argue-in response to Conservative claims that cutting the deficit would enable lower interest rates which could drive growth-that 'low interest rates in themselves are no guarantee of economic growth ... you also have to have policies that build capabilities and incentives that mobilise investment and create business and employment opportunities'. However, after beginning with these promising insights, the speech then fails to deliver on the details.

A central flaw with the 'new New Labour' approach is that-as ministers have been at pains to point out to the financial markets since the December 2009 pre-Budget report-the fiscal retrenchment that Labour promises by 2013-14, while not as draconian as the Conservative alternative, is still very substantial. Outside of health, education and policing, the PBR estimates imply average cuts of around 15 per cent in each department. It is hard to believe that cuts of this magnitude can be achieved without jeopardising Britain's future productive capacity. Higher education and science spending is an obvious case in point. Mandelson claims that 'a decade of sustained investment by this government has rescued British science from its desperate straits in the 1990s and secured its position of global excellence, second only to the United States'. But it is not clear what empirical evidence this claim is based on; certainly, in terms of the practical application of scientific knowledge, the UK has no room for complacency. UK business R&D spending as a proportion of GDP is only at the EU average, significantly below that of France, Germany, Japan and the US.

Meanwhile, the recent first report of the government-sponsored UK Commission on Employment and Skills predicted that, based on planned spending as of 2009, the UK would be ranked tenth among OECD countries in terms of the proportion of the population with degree-level academic or vocational qualifications. This is above average, but a long way from world-beating performance; and these estimates do not take into account the substantial cuts in higher education spending announced in January 2010. It will be impossible for UK higher education policy to achieve world-leading results if we are not even spending enough to maintain our position in the chasing pack.

The reduction in capital spending implied by the public spending cuts in the years to come also runs the risk of depressing even further business investment-which has already dwindled in the wake of the 'credit crunch'. Banks are, for the most part, failing to lend to businesses which need funds for investment, meaning that once the Bank of England's quantitative easing (QE) programme is withdrawn, UK output growth is likely to be anaemic at best. BIS has announced [pounds sterlling]150 million of additional public funding for small businesses in the wake of the Rowlands Review of Small and Medium Enterprise (SME) finance, but this is nowhere near enough to maintain investment for innovative small firms at pre-2007 levels, given the collapse in private sector investment in SMEs that has occurred since the 'credit crunch'. …

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