Building blocks for a new politics of production

„In the immediate aftermath of the 2008 crisis, it was right for progressives to concentrate on classic Keynesian measures to avert depression on the scale of the 1930s; now, however, we need to combine credible advocacy of sustainable deficit reduction with a new politics of production. This should be based on a broader and more challenging critique of our pre-crisis political economy, with the explicit aim of fleshing out a new, progressive “variety of capitalism” which combines economic dynamism with new policies for inclusion and security in the labour market.

We have argued for years that progressives must not succumb to protectionism. This is still right in terms of both morality and self-interest. The dynamic of globalisation lifts millions every year out of dire poverty. For all the huge problems of urbanisation, environmental degradation and climate change that it brings in its wake, globalisation opens up possibilities for human self-fulfilment that were hitherto closed. And the maintenance of open trade is the most likely means of ensuring peace and stability in a world where the balance of power is changing at breathtaking speed.

Yet the growing polarisation in developed societies between “winners” and “losers”, particularly the declining position of the lower skilled, creates a new imperative for the left to develop a less rose-tinted response to globalisation than the stance of the Third Way in the 1990s. Social democrats have to come up with new answers to the challenge of socially inclusive growth.
New thinking is needed in three areas:
1) a progressive approach to securing more balanced global trade;
2) a domestic political strategy that puts as much emphasis on developing dynamic new sources of more evenly distributed growth as it does on redistributing the increasingly inegalitarian proceeds of our existing growth model; and
3) a new social democratic theory of what makes firms innovative and successful in place of a discredited myopia on the maximisation of shareholder value.

1. A first step is much deeper thinking about our global trade policy. In Europe, this is conducted exclusively on member states’ behalf by the European Union, which gives Europe enormous trading clout. So far, however, we have used this clout – rightly in my view – to advance our direct commercial interests through promoting wider market access for our goods and services. This is good for domestic growth, but primarily benefits the corporate elite of highly skilled “winners” in our societies. If we want to do more to help the potential “losers”, then, we must in addition press harder for emerging country adoption of our rules and values. Three points are crucial:

• Stronger dialogue with emerging countries (drawing a distinction with the very poorest) about how their manufacturing processes live up to minimum standards of decency in terms of health and safety, environmental protection, hours and minimum wage regulation. No one can expect easy or quick results, but the existence of the International Labour Organisation gives these issues a legitimacy which our pre-crisis mindset was too reluctant to build upon.

• Shifting the debate with China on macroeconomic imbalances in the G20 and IMF from a sterile stand-off over exchange rate manipulation to the encouragement of surplus countries to expand public expenditure, build their own welfare states and thereby stimulate domestic consumption with lower need for savings. Countries like China have much to learn from European social models’ experience and expertise in universal health, education and welfare.

• Recognition that we are trading with huge economic powers pursuing a “state capitalist” model of economic development – most notably but not exclusively in the case of China. Of course, there is nothing new about this – and it should not be used as an argument for national protectionism in Europe and the United States or blanket opposition to inward investment. Governments must, however, exercise discretionary judgment where inward investment would de facto lead to foreign government control of key strategic industries. The European Union needs to develop clear rules on these issues, otherwise member states, in the face of acute economic and financial pressure, will compete against each other to be the softest touch in detriment to the collective interest.

2. Progressives need a strategy to develop new sources of more evenly distributed economic growth. While no one should argue for a return to the failures of the industrial interventionism of the past, governments need to think strategically about how to develop the key competitive strengths of their economies. Several issues need more thought:

• The need for smarter government. It is self-evident that markets operate within a framework of regulation which only governments can shape, which is especially relevant in the provision of key aspects of modern competitive infrastructure such as digital access and high-speed rail. But how does government get this right? How can competitive public procurement be planned and managed? How best can a forward view be taken of the skills and competences an economy needs in the medium to long term, rather than leaving matters to the lottery of individual and company choice? What regional policies work best?

• Make investment in science work for the economy. Markets left to themselves cannot ensure that public support for research is concentrated on sensible strategic priorities, but how does government best organise itself to do better? How can we succeed in securing wider and more commercially successful exploitation of the developed world’s remarkable scientific and technological base? How can Europe pool its presently inadequate R&D efforts to mutual advantage?

• Recognition of the new “commanding heights”. We should not abandon high-tech manufacturing to China and other emerging countries. But the sectors with the greatest global potential also include universities, healthcare, creative and cultural industries. These are all hugely dependent on good public policy and sensible, non-ideological public spending priorities. Not to develop a strategic view of key sectors of the economy is attachment to free-market dogmatism of a high order and progressives should not allow themselves intellectually to be so cowered.

• Accelerate low-carbon transition in the face of climate change. We should aim to set a long-term economic and regulatory framework across Europe that will call forth a transformative wave of private cross-border investment in energy and transport as well as wide-ranging innovation in construction and hitherto undeveloped low-carbon goods and services.

• Create national investment banks. Finance should be the handmaiden of industry and commerce, not its master. Research studies have repeatedly shown the existence of a funding gap in the development of growing small- to medium-sized firms. Another need is finance for high-tech start-ups. Another is to provide initial project finance, with the private sector, to cover the construction risks of large infrastructure projects such as carbon capture power stations and high-speed rail development.

• The European single market’s rules need to be flexible enough to allow for a legitimate new wave of industrial activism while maintaining firm control of state aid that is simply a way of avoiding necessary restructuring. In simple terms, progressives should reject a neoliberal ideology of markets, but not markets themselves.

3. As part of this process, progressives should also embrace a new “stakeholder” model of business, based on a new social democratic theory of the firm. We have to ask ourselves what kind of firm is going to be most successful in meeting the competitive challenges of the globalised world and think through what this means in terms of corporate governance rules, employee relations structures and the future of trade unions.

• Companies should be seen as vital human organisms of commerce to be developed in the interests of long-term growth and profitability, with boards that recognise a duty of stewardship, and manager and employee obligations of partnership, engagement and mutual commitment.

We should reject the free-market right’s conception of the business corporation as a bundle of short-term, disposable contractual commitments to be chopped up and traded at whim.

• Incentives within the firm should favour its long term development, not be related to short-term share price performance and quarterly reporting figures. A stronger culture of long-term commitment and investment requires a more co-operative and open relationship between institutional investors and the corporate sector. Investors should be committed for the longer term and have the means both to assess company strategy and exert “voice” within the board if they want to see change.

• Takeover rules should be tightened to make it more difficult to disrupt these long-term investor-management relationships.

• Within the firm, long termism may require a greater sharing of risk by employees and the acceptance of more flexible rewards. There is a debate to be had here about public incentives for co-operative, mutual and profit-sharing models in the new economy.

• The most successful innovative companies develop a modern culture of non-hierarchical relationships within the firm and encourage openness to outside learning and the development of employee capacities at all levels. This requires us to think anew about the longstanding progressive goal of partnership at work” scrie Roger Liddle, presedintele Policy Network, intr-un articol pe care il recomand.