Good morning from New Economy Brief.
With Rachel Reeves setting out her economic philosophy in a big speech in Washington last week, we take a deep dive into the origin and substance of Labour’s emerging economic policy.
Read on for our explanation of ‘Securonomics’, where it comes from, the electoral and economic problems it seeks to solve, as well as two key lessons from the US: the scale and delivery of public investment and questions of power and control over critical infrastructure and the green economy.
Rachel Reeves’ ‘Securonomics’. Last week, Shadow Chancellor Rachel Reeves gave a speech in Washington outlining Labour’s economic policy platform, framed by the term ‘Securonomics’. Reeves provided more detail in a policy report released by Labour Together: A New Business Model for Britain: Building Economic Strength in an Age of Insecurity.
- Post-neoliberalism and paradigm shifts. The speech was the clearest sign yet that the Labour Party are serious about accelerating an economic paradigm shift beyond neoliberalism, as Reeves explained the need for a new model for economics and a more interventionist role of the state. This follows an emerging global consensus that economies have suffered from an over-reliance on market mechanisms, rather than the power of the state, to solve deep rooted structural issues, and that previous economic models have contributed to widening geographic inequalities. Reeves emphasises these two failures in her speech.
- Bidenomics, modern supply-side economics and productivism. In the US, ‘Bidenomics’ is characterised by a more active role for the state in its industrial strategy to make and shape markets central to domestic industries of the future, particularly, reshoring (or ‘friendshoring’) supply chains to secure the supply of critical materials and create good quality jobs. (See our previous briefing on Bidenomics and what the UK can learn from the US.) Reeves drew explicitly on this model which is referred to variously as ‘Bidenomics’ or ‘modern-supply side economics’. IPPR’s George Dibb notes that a more accurate term would be what Harvard economist Dani Rodrik calls ‘productivism’: “a “major shift from the last-gasp-neoliberalism currently being offered by the Conservative government” and “also a shift from the approach of previous Labour administrations”. Dibb’s paper for Renewal explains why the UK economy needs a more active and strategic state to “meet our carbon emissions targets whilst also capturing the economic upside through domestic reindustrialisation.” Demos’ Ben Glover provides an explanation of ‘productivism’ - “An approach that prioritises the dissemination of productive economic opportunities throughout all regions of the economy and segments of the labour force.” - and argues that this “wider vision, if adopted by Labour, could deliver a genuine economic paradigm shift”.
- Securonomics in Britain. The substance of this shift is not especially new, but this is perhaps the clearest Labour have been to date about the intellectual underpinning of their economic policy. Reeves’ paper and speech argue that Labour would make two fundamental economic shifts in government, the first is a move away from free market economics and towards the idea of a strategic state working in partnership with business on an industrial strategy, the second is away from an economic model focused on growth in London and the South East, towards a model of growth that actively seeks to disperse growth opportunities throughout the country. The substance here is mainly found in Labour’s Green Prosperity Plan including public investments made through an initial £8bn National Wealth Fund, a publicly-owned Great British Energy renewable generator and, importantly, that “throughout, we will use public investment to underpin and unlock further private investment” pointing to the Inflation Reduction Act and the CHIPS Act in the US. IPPR’s George Dibb commented that "this is a smart move which leans into a new international consensus, aligns the UK with a global economic hegemon, and positions Labour with a powerful narrative of reform & renewal."
- How new is this? Critics might say that lots of these themes have been around for a while in British politics, including on the right. After all, in recent years the UK government has experimented with industrial strategies, taken a strategic role during Covid, and have famously committed to ‘levelling up’ the country. This shift has been driven partly from the inability of old economic models to address challenges, and partly from the new electoral reality of the so-called ‘red wall’. However none of these nascent ideas have really translated into serious policy, partly because they have not been rooted in a serious critique of modern British capitalism. Reeves’ speech indicates Labour are approaching this agenda in a more strategic way.
Learning from the US 1: fiscal challenges. Reeves was keen to emphasise that Labour’s ‘Securonomics’ and £28bn Green Prosperity Plan would be subordinate to their fiscal rules, which could threaten the amount of spending available for their industrial strategy, and ultimately, its chances of success. Since their rule is to have public debt falling as a percentage of GDP, a Labour government would be constrained by the level of growth in the economy, which could make it hard to break out of the ‘doom-loop’ of low growth and low investment . (A previous report from IPPR’s Carys Roberts and Carsten Jung explains how debt:GDP ratios don’t have to be a hard constraint on government investments so long as they generate growth.)
Learning from the US 2: carrots and sticks. In recent months critics of the Inflation Reduction Act in the US have warned that the approach of using public subsidies to catalyse further private investment is risks embedding corporate power in the green transition, rather than challenging the primacy of shareholder interests.
- Derisking vs the big green state. In her speech, Rachel Reeves suggested mobilising more private capital from UK pension funds to help fund green infrastructure. (Read our recent briefing for critique and alternatives.) The US’s Inflation Reduction Act embodies a ‘derisking approach’, which grants and tax credits to boost corporate profits and companies’ market shares for those that invest in the green transition. Brett Christophers warns that by allowing active asset management firms to gain control over crucial elements of America's infrastructure such as the road network, electricity grid, and housing stock, the state is inadvertently strengthening their power and enabling them to extract excessive profits. Political economist Daniela Gabor contrasts ‘de-risking’ private capital in the green transition to a ‘Big Green State’ approach that exercises close control over credit flows as an instrument to discipline private capital: “derisking and capital discipline are fundamentally at odds because former relies on private profitability to enlist private capital while latter forces capital into pursuing strategic objectives of the state”.
- Democratic industrial policy?. The Times’ Mehreen Khan explains how “concentrating more power in the hands of multinationals and private capital, which will be in charge of executing the green transition”, may pose problems for Labour, but also suggests that their plans for a National Wealth Fund to take direct public equity stakes in clean energy projects and a publicly owned renewable energy producer “could put the UK at the forefront of a more democratically controlled industrial policy that does not cede power to the private sector to manage the transition from fossil fuels.” Common Wealth’s Melanie Brusseler explains how Labour's proposals for a National Wealth Fund and a publicly-owned renewable energy generator breaks with the market-led approach of Bidenomics and could avoid the perils of a derisking approach if designed correctly.
- Corporate power shouldn’t direct the green transition. IPPR’s George Dibb highlights the importance of strong competition policy to ensure the green transition is not directed at the expense of workers and consumers: “A mission-oriented, supply-side approach means being pro-business, but not pro businesses that work against the interests of society or extract from it. It means recognising the power of the private sector when it works with purpose, but acknowledging that not every firm in every sector does that.” Dibb concludes that Bidenomics includes both “carrots and sticks for firms, not just handouts. Examples include robust competition policy and clawback clauses on excess profits, as well as making support conditional upon union recognition, good pay, and a commitment to decarbonisation. These are the sorts of solutions that Labour should consider to boost the British economy and confront concentrated markets.”
Building economic strength in an age of insecurity. Inevitably, much of the reaction to Reeves’ speech has focused on the merits of the word ‘securonomics’ - one of a long list of ‘onomics’ that UK politicians have used to characterise their economic policy. The interesting point here is not whether the phrase itself is any good, but what it says about the way Labour is framing the economic debate. The frame of insecurity is politically savvy as it marries the worries of voters about job security and personal finances with a wider narrative of climate disruption and the need to bolster the UK’s resilience to external shocks. With the cost of living crisis yet to dominate politics for a while longer (and is still top of voters priorities), there is an electoral logic to Labour using this frame to link their longer-term plans to the immediate pain voters are feeling. Whether or not ‘securonomics’ lasts the distance as a phrase, we should expect labour to be speaking the language of economic security in the run in to the next election.