Pay attention to Rachel Reeves: her economic thinking is a return to sanity
Martin Kettle/ The Guardian:
The mythology of political history insists that politicians’ speeches are important. A lifetime in political journalism tells me different. Political speeches have got to be made, and some politicians are good at them – Michael Heseltine, the best I have ever heard – but most speeches are events of the moment. They are decorative, not determinative. Most do not matter much and are rightly forgotten, even the good ones. There are, though, occasional exceptions. Rachel Reeves’ speech to the Peterson Institute in Washington DC on Wednesday has a claim to be one of those with a longer shelf life. Not because it was an oratorical tour de force stuffed with smart lines. It wasn’t. Some of Reeves’ terminology, such as her embrace of what she calls “securonomics”, is a distracting barrier to understanding what is otherwise a key idea. But that’s a small point. This speech matters a lot. It matters because the ideas and commitments it contains are serious – and because it addresses something indisputably important.
What it addresses is the long-term dysfunction of the British economy, now accentuated by Brexit. Inflation may have dropped to 8.7%, but it is still higher than expected – and food, services and underlying inflation are all still growing. Interest rates may rise again and are unlikely to fall soon. Britain’s economy is walking wounded.
The cost of living crisis remains acute for millions. Optimism is in short supply. Reeves’ speech was partly a response to the national imperative to put that right. But it was also about Labour’s familiar need to prove to voters that it can be trusted with the economy. Unsurprisingly, support for the Tories as the best party for the economy has tanked. But economic confidence in Labour, though greater than for the Tories, still remains low. The issue is Labour’s achilles heel.
With an election now possibly less than a year away, the shadow chancellor needed to make a seriously big pitch. Hence the journey to New York and Washington DC for her keynote speech. That speech, which also marked the publication of a Labour pamphlet titled A New Business Model for Britain, repays careful reading. It does so because it contains a structured – and, in significant respects, new – argument about the British economy. As such, it lays out Labour’s direction of travel on the dominant issue now facing Britain, and the one by which a future Keir Starmer government will ultimately be judged by voters. Such is the depth of mistrust in politics today, it is tempting to say it makes an argument by which the very future of credible democratic government of any kind in Britain may stand or fall. It’s as important as that. At the heart of the shadow chancellor’s argument are four core principles. The first is that the rules of the global economy have changed because of repeated shocks since 2008. The second is that government has to be more proactive in order to establish the economic order that is so conspicuously under threat from those shocks. The third is that liberal economies must work together to do this, not against one another. And the fourth is that all this must happen within effective national fiscal rules – and not by allowing debt to balloon.
In the wake of the economic and political tumults of the past seven years, this reads very much like a return to sanity. Some of the building blocks that Reeves proposes may have been touted occasionally during the Conservative years, as when Theresa May argued for more active government, for instance. But they remained words not deeds, not least under Rishi Sunak, who is opposed to the idea of industrial strategy. But what Reeves now advocates is definitely not a return to the past. Her long-term aim is to restore growth to the UK economy.
But Reeves’ approach is a world away from Liz Truss’s slash-and-burn dash for growth. It would also propel a Labour government into a very different place from that adopted after 1997 by New Labour. In some ways it would be more New Deal than New Labour, and the whole project owes a lot to Joe Biden’s administration in Washington and the government-led investment that marks Bidenomics. In Reeves’ strategy, the state would play a more overarching role and would not vacate the territory of decision-making to the banks and to business. An industrial strategy – focused above all on the green investment programme, worth £140bn over five years – would dare to speak its name again for the first time since the 1970s. And supply chains would be made more secure, even protectionist in some respects, by lessening dependency on China, and by a more active, pragmatic alignment with Europe. Reeves is traditional in one sense.