The new centre-left economic consensus

By Richard Lane

There is little doubt that the recession is having a deep and sure to be lasting impact on every aspect of our lives. Interest rates are at an historic low, the Bank of England is printing £75 billion of ‘quantative easing’ and it was reported this week that unemployment across the UK is likely to reach 3.2 million – or just over 10% of the workforce – by the second half of next year. Our politics has been in a polling limbo for much of the last year as voters settle on which party they deem to be best able to lead the nation out of the recession.

Recessions are painful times for society as a whole and daily we hear of stories of redundancies, business failures and rising rates of repossessions as the impact hits the daily lives of people up and down the country. This is the terrible human face of the downturn and the stark reality for many beyond the theory and the political debate; this cannot be dismissed lightly.

Beyond the harsh reality it is the responsibility of politicians to look to the future and the lessons that can be learnt from the recession. Of course there is enormous sympathy for those who have lost their jobs and their livelihoods following the failure of businesses. Recessions are painful times for society as a whole. Unemployment and bankruptcies sky rockets just as wages and profits plummet. These factors cannot be dismissed lightly.

However, there is a compelling case to be made that suggests what we are witnessing is in fact a generational structural realignment of the global economy that will prove to be crucial if we are to adapt to a new economic world reality and in the longer term bring benefits that will strengthen the economy.

By taking just a passing look at the big businesses that have failed since the onset of the credit crunch it is hard to argue that any could have looked forward to a competitive future on the High Street – recession, or no recession. Woolworths, even it’s greatest admirers would admit, was an icon of another era and had simply not adapted to the modern market; the music, DVD and games retailer Zavvi, the descendant of the not-much-loved Our Price, was made obsolete by iTunes and cheaper online retailers. Adams kids clothing? Cheaper at Tesco. MFI? Go to Ikea. The Internet and the influx of cheaper products from Asia have given consumers unprecedented choice in the market meaning retailers who do not provide affordable, quality goods are superseded.

Of course this is a simplistic look at what is a vastly complicated global financial problem; but the stark fact of this recession is that consumption, whether the take up of available credit or subsequent purchasing on the High Street, has been above sustainable levels for decades and would inevitably need to adjust down. The recession has been the terrible, overdue wake-up call that as a society we need to begin to live within our means – a fact that gains new urgency as consumption, fuelled by easily available credit, must alter to ensure a sustainable environmental settlement.

Additionally, the recession will purge bad investments and excessive spending from the economy, freeing up capital to spend on new innovations and enterprise making Britain more competitive, inevitably bringing growth and new jobs – plus hope and opportunities to those currently suffering the consequences.

For those on the left there should be optimism taken from the growing left of centre economic consensus that is replacing the Thatcherite economic model; the new consensus now welcomes a greater role for the state in economics and a wider awareness of the inequalities in society.

There has been widespread popular outrage against obscene city bonuses paid out to top executives while those at the bottom of the ladder suffer the consequences of their mistakes. According to polling figures (Fabian Review, Winter 08/09) 56% of the public are in favour of making executives of failed companies pay back their bonuses from the last two years. Furthermore, a massive 76% support the new 45% tax rate for the highest earners in society. In contrast, just 19% support the idea that taxes on the highest earners should be kept low to benefit economic growth. 70% of the same respondents believe that those at the top of society are failing to pay their fair share towards investment in public services.

The left should use this crisis as an opportunity to forge a new economic consensus that places equality and fairness at the heart of proactive and progressive government policies.

It is all too easy to become addicted to endless growth, buoyant share prices and perpetually promising business prospects. It takes courage to call for restraint and regulation. As a party and as a government Labour should not shy away from these challenges. With a Labour government we can weather the hardship by supporting those who are hardest hit and ensuring we emerge at the end of the credit crunch ready to compete in the new economic world order.

Richard Lane also blogs at www.politicana.co.uk.