‘Plan B’: A new Alternative Economic Strategy?

Introduction

The crisis that has engulfed us since 2008 has certainly given new confidence to the left and centre-left in challenging the neoliberal orthodoxy. Given New Labour’s wholehearted commitment to that orthodoxy, the present Labour leadership has been hampered by the government’s success in blaming it for the supposed debt crisis, and has struggled to give voice to a coherent alternative to austerity. It has been left to progressive think-tanks, unions and left academics to fill the gap, and to try to shift the economic policy debate towards a genuine alternative to the coalition’s austerity programme, which at the time of writing (February 2012) is leading Britain steadily back into recession.

In October 2011, the pressure group Compass launched an alternative economic programme entitled Plan B: A Good Economy for a Good Society at a meeting in the UNISON headquarters in London. ¹ The document, edited by Howard Reed and Compass secretary Neal Lawson, was put together between March and September 2011. Contributors were recruited from the Compass-based New Political Economy Network ² and other think-tanks such as the New Economics Foundation. Some 25,000 words in length, Plan B seeks to provide both a critique of the coalition’s economic policies since the 2010 election, and alternatives for socialists and centre-left progressives. It was especially intended to influence policy directions in the Labour Party, and thus has no pretensions to being an anti-capitalist or ‘transitional’ programme. It covers fiscal and monetary policy, banking and finance, taxation, industrial strategy and business regulation, together with economic aspects of policies on the environment, welfare, jobs and workplace management. Given this extensive scope, most of the policy proposals were written as platforms for further detailed development.

In some respects, this initiative harks back to the Alternative Economic Strategy (AES), which was advocated by the left within the Labour Party and the unions after the election defeat of 1970 (London CSE Group, 1980; Aaronovitch, 1981). The end of the postwar boom saw the return of mass unemployment, rising inflation and the start of deindustrialisation in Britain, in the global context of the breakdown of the dollar–gold standard and the wider Bretton Woods order of fixed exchange rates. These developments broke apart the postwar ‘Butskellite’ consensus, based upon Keynesian demand management and the mixed economy, leading to sharp confrontation between a resurgent right-wing monetarist orthodoxy, and the AES seeking to extend public ownership and economic planning (Gamble, 1981).

Within the Labour Party, this was central to an equally sharp divide: the left in the party, eventually led by Tony Benn, won control of the party’s policy-making process on the basis of the AES, with the support of the still-powerful trade unions. However, the 1974-9 Labour cabinets of Wilson and Callaghan were dominated by social democrats such as Crosland, Healey and Williams, and consistently adhered to orthodox policies rather than the AES (Wickham-Jones, 1995). This ideological divide was broadly matched by the divide over the referendum on EEC membership in 1975. Following the formation of the breakaway Social Democratic Party in 1981 and Thatcher’s second electoral victory in 1983, the Labour Party began the rightward shift that culminated in New Labour, while the trade unions withered under the onslaught of mass unemployment and anti-union laws. While left economists tried to sustain a radical policy alternative to neoliberalism (Cowling, 1990; Michie, 1992), they were marginalised within Labour and the TUC, eventually settling for advocacy of a ‘social market’ capitalism along German lines (Hutton, 1995). However, even the watered-down version of ‘stakeholder capitalism’ (Kelly et al., 1997) was far too left-wing for Brown, Blair and most of the New Labour leadership, dazzled as they were by the wealth and power of the City and its media champions.

It remains to be seen whether Plan B will lead to an alternative as detailed, coherent and hotly debated as the AES, but the latter provides a good point of reference, while taking due account of the very significant changes in British capitalism since the 1970s. Perhaps the most important change is that, as a result of the complex developments summed up in the word ‘globalisation’, it is even less likely than it was then for an ‘alternative in one country’ to succeed. ³ Equally, there has been a massive decline in trade union membership and political influence, and in the Labour Party’s internal left wing. These issues are examined below, after an outline of the present Plan B document and comments on some of its main strengths.

Plan B in outline

The introductory Section 1 (pp. 9-18) opens with a direct attack on the coalition’s austerity policies, which are based on the firm belief that the UK’s public debt and deficit are at unsustainable levels, requiring a drastic programme of cuts to restore economic and financial stability. On the contrary, the stock of public debt is low both historically and in comparison with other rich economies. Deficit-cutting undertaken mainly through deep and rapid spending cuts risks shrinking employment and GDP, which automatically worsens the deficit by cutting tax revenues and increasing welfare payments. In so far as the deficit needs to be cut, the process should be gradual, with government spending used to stimulate recovery. Meanwhile, there has been no sign that slower deficit-cutting would spook the bond markets, which are much more concerned about instability and uncertainty in the global economy. These conditions require radical collective action at the international level to build a secure system of financial regulation and adjustment, as well as agreed programmes to tackle economic inequality and insecurity. But Plan B also needs to look ahead towards looming environmental constraints, and policies aimed at increasing sustainability and well-being rather than growth at all costs.

Section 2 develops these themes to put forward concrete policy proposals under eight headings. The first four of these (pp. 19-30) address demand stimulation, the tax and benefits system, business investment and the reform of the City and banking. Quantitative easing should be expanded, but geared to green investments in energy efficiency and renewables, which would give an immediate boost to jobs and incomes. Benefits cuts should be restored for lowest-income families who would spend rather than save, while a financial transactions tax would both raise revenue and curb speculation. In the longer term, tackling tax avoidance can make the system fairer while boosting revenues to fund redistribution through benefits; and in addition, inequalities in wealth need to be cut by taxing land values, making inheritance tax more progressive, and limiting tax relief on private pensions.

The key proposals for boosting business investment and innovation concern the need to develop effective public–private innovation networks, and to launch a British Investment Bank (BIB) offering a mix of loans and guarantees to fund growth in production and jobs. Investments should be focused on housing, transport and renewable energy, where shortages and poor quality are widespread, with the BIB as the ‘investment hub’ of a Green New Deal. On finance and banking, reforms need to be much more radical than has been proposed by the Independent Commission on Banking, with full separation of retail and investment banking, bans on excessive pay and speculation, and new local institutions to provide ‘utility’ services to households and social enterprises.

In its remaining sections (pp. 30-37), the report sets out a vision of a ‘social investment state’ centred on social justice and well-being. Within a conventional monetary approach, applying social concepts to costs and returns reveals the potential for substantial improvements in health, educational performance, crime reduction and life expectancy, which can offset the unavoidable extra costs of an ageing population. But it is equally important to move beyond an economy of need, in which work is seen as a burden only undertaken under the stimuli of reward or deprivation, towards one aimed at improving the quality of work; that is intrinsically satisfying because it is creative and meaningful. Increases in productivity should be used to reduce working time, rather than for the consumption of more goods. Linked to this are programmes intended to eliminate low pay, increase the share of wages in national income, restore trade union rights, cap executive pay, and give workers a voice in designing and running their workplaces at all levels. In the public sector, the traditional model in which clients passively receive services from state providers should be replaced by a co-production model, giving communities a real say in service delivery in social care, housing, public health and education.

Key issues

As the authors make very clear, the purpose of Plan B is to expand and enrich the policy debate on tackling the crisis, drawing on and encouraging a wide range of initiatives and proposals across the UK and the world. In this section, I look at three issues that are highlighted in the programme.

The first of these is the obvious one of alternatives to the coalition’s flagship policy of cuts in public spending (Radice, 2011). As of February 2012, the Labour Party leadership has moved significantly towards accepting the narrative on the absolute need for cuts by stating categorically that the party cannot commit to reversing any cuts should it return to office in 2015. Yet if the Plan B alternative has thus been rejected by the shadow cabinet, it has been implicitly endorsed by a growing number of mainstream economists (including many in the City, as well as think-tanks like the Institute for Financial Studies), commentators such as Martin Wolf of the Financial Times, and institutions both private (ratings agencies) and public (IMF, OECD). In this respect, the present situation is very different from that faced by supporters of the AES: unable to come up with a convincing explanation of the stagflation that plagued the advanced industrial economies, Keynesianism was in full retreat before the new orthodoxy of monetarism, while the IMF inaugurated its long campaign against government deficits in its notorious 1976 intervention in the UK (see e.g. Rogers, 2009).

A key role has been played in the coalition story by one particular concept: the ‘structural deficit’. In mainstream theory, the government deficit can be divided in principle into two components: a cyclical one that reflects the waves of economic acceleration and deceleration, and a structural one which, put simply, is the average over the cycle. At the bottom of the cycle, while the cyclical deficit will by definition correct itself, the structural deficit should be restricted so that the stock of debt is a stable proportion of GDP: if trend growth is 3 per cent per annum, then it should also be 3 per cent. As Plan B points out (pp. 11-12), critics argue that the methodology used for measuring the structural deficit is seriously flawed, and is leading to an exaggerated pessimism about the recovery and therefore much deeper cuts than are necessary (see also Wolf, 2011). This crucial point appears to have totally escaped Labour’s Treasury ministers.

The second key question concerns state industrial intervention, and especially the central proposal of a British Investment Bank. The BIB proposal reminds us that state intervention to reverse industrial decline was at the heart of the AES, especially during Tony Benn’s tenure as secretary of state for industry in 1974-5, and the Industry Act of 1975, which envisaged an extension of public ownership, enhanced national planning and industrial democracy. This strategy was roundly defeated by an alliance of big business, the City and senior civil servants, leading to Benn’s ouster, and the industrial strategy was reduced to the single innovation of a National Enterprise Board as a catalyst for firm-level restructuring, alongside a revamp on sectoral lines of the tri-partite National Economic Development Office set up by the Tories in 1962. ⁴ Here again, Plan B is in tune with current mainstream concerns about the long-term prospects for growth and employment, and the potential benefits from state-led investment: as Martin Wolf (2011) puts it, ‘It remains difficult to understand why the government cannot take advantage of today’s low interest rates to expand investment in income-generating assets’. However, presumably in deference to the extent to which the field of debate has shifted, Plan B does not attempt to revive the other elements of the AES’s industrial strategy, namely public ownership, planning agreements and industrial democracy.

By far the most innovative proposals in Plan B, certainly when compared to the AES of the 1970s, are those centred on alternative forms of work and enterprise, which draw on earlier studies from (e.g.) the New Economics Foundation and the Work Foundation. ⁵ A serious attempt is made to break with the left’s traditional commitment to economic growth, with the argument that this conflicts not only with environmental sustainability, but also economic and social well-being. The AES was primarily concerned with restoring full employment and with industrial democracy along the lines of the Bullock Committee Report (1977), but in some versions also espoused workers’ alternative plans, the best-known examples being those of Lucas Aerospace (1978) and Vickers (Beynon and Wainwright, 1979). Plan B, implicitly recognising the retreat of trades unions from such radical initiatives, focuses instead on job satisfaction, employee ownership and the nature of public service provision. On this last it puts forward the idea of ‘co-production’, which ‘seeks an active input from those who are the intended beneficiaries alongside front-line staff’ (p. 37). This provides a way of responding to the coalition’s rhetoric about the ‘big society’, citizen volunteering and localism, while also answering criticisms about the so-called ‘dependency culture’ of the traditional welfare state.

What’s missing

If Plan B offers seriously alternative thinking in these areas, there remain some major analytical gaps. The first of these concerns the real extent and consequences of globalisation. Section 1 refers (pp. 14-16) to the need for an international Plan B, but treats this in the conventional terms of ‘global governance’, i.e. better coordination of policy and regulation between governments (both within and beyond the Eurozone and the EU), although support is given for the more radical – but now mainstream – idea of a financial transactions tax. The discussion of the reform of banking and finance, however, (pp. 29-30), makes no mention of the fact that the City is the largest provider of financial services to global capitalism: its significance as measured by the ratio of UK financial assets to GDP is roughly ten times that of Wall Street’s in relation to the US economy. It operates in the interests of sovereign wealth funds, financial asset traders, the global super-rich and their hedge funds, and for the last two centuries at least (with the partial exception of the period from the 1930s to the 1960s), City interests have dominated British economic policy. Furthermore, in this most open of national economies, there is no discussion of the acute vulnerability of British workers to the vagaries of international trade and of decision-making by transnational corporations, issues that were much more visible in the 1970s AES. At the very least, future work on Plan B needs to be closely coordinated with that of networks outside the UK such as the Transnational Institute, the EuroMemorandum Group and the US-based Economic Policy Institute. ⁶

Second, apart from two short paragraphs about encouraging union membership and union engagement in workplace issues (p. 36), trade unions are accorded no active role in debating the alternative policies envisioned, let alone in implementing them. Given the revival of trade union activism during the crisis – the early wave of occupations against closures, the fight against public spending cuts, and the continuing resistance to the forced imposition of poverty pensions – this is extraordinary, and seriously weakens any chance of Plan B’s achieving wide popular support.

Third, there is the broader problem of political voice and engagement. The Labour Party is a shadow of its 1970s self, with far smaller membership and a policy-making process that, since Blair’s accession to the leadership, has been strictly controlled from the top. Unions, too, have become more remote from their members as a result of mergers, while their role has shifted towards the provision of services to individual members. More broadly, our political culture has moved from one of party meetings and street-level campaigns to focus groups and lobbying, while MPs have long been recruited from the resulting pool of ‘professional’ politicians: skilled at the functional requirements of the system, but lacking roots in specific constituencies and organised interest groups. Plan B needs to engage with proposals for radical change in that system, starting with mainstream initiatives such as the Power Inquiry (2006) and the work of Democratic Audit. ⁷