It seems Labour’s Rachel Reeves has been peddling a myth with her ‘Securonomics’ speech in the United States.
It seems she has been trying to promise security to businesses through a means that simply won’t allow it – de-globalisation.
She said “Globalisation, as we once knew it, is dead.” That creates problems for a politician who wants to create a high-wage, high-growth economy, for these reasons:
- Stronger world trade means greater competition. That encourages firms to increase efficiency or to innovate more, both of which raise productivity.
- Managers visit customers and suppliers overseas and so can more easily learn tricks of the trade from best practice overseas.
- Globalization also cuts prices, thereby making people’s wages go further. The deglobalization caused by Brexit, for example, has greatly added (pdf) to UK food bills.
I dare say there are others.
The downside – that some industries decline and disappear – is seen by many as a benefit because it means low-productivity jobs disappear, to be replaced by high-productivity jobs (or at least, that’s what should happen. We know that, for example, under Thatcherism, that replacement didn’t happen. She simply destroyed the UK’s industrial base).
I would also dispute claims that, under Thatcherism, substantial growth came because inefficient firms closed, more efficient ones opened, and because big companies shifted output from their less efficient sites to more efficient ones. What is meant by “efficiency” here? Does it mean cutting wages by ending jobs in one firm and starting them at a lower level in another?
Back with Reeves, she claims Labour will create high productivity growth but doesn’t explain how that will happen. She isn’t offering any government help for a transition from low-productivity firms to high-productivity firms and she isn’t suggesting that new firms must offer high wages. She doesn’t even offer a more generous benefit system to support people whose jobs are destroyed and help them into newly-created positions.
And the creation of high-wage jobs means people won’t do low-wage jobs like care work, cleaning or shelf-stacking. To attract workers, these jobs need to be better-paid now, let alone in a high-productivity, high-wage economy that Reeves wants.
Government subsidy doesn’t work; it should not be applied to shelf-stackers or cleaners because their employers should be paying them, not relying on the public to do it for them. Supermarkets are currently making massive profits and can therefore easily afford to pay a living wage to all their workers.
Reeves makes the point that governments tend to focus policy on building the growth of economic success stories that are often few in number – and this neglects
the basics for a good life, strong communities and economic security – like childcare, social care, retail, hospitality and supermarkets
But she doesn’t say how she can make the maximum return on public money by investing in these traditionally low-paying jobs.
Market concentration also reduces competition, of course, meaning the “engine of productivity” has been left idling. I’ll come back to this.
Care is the one area in which the government may have a role, but this would require an enormous change in the way politicians think about it – both health-related care and child care. We don’t see that coming from Reeves.
If public money is spent on this, then taxes would rise to offset inflation – and taxes are already at their highest in 70 years (where’s the money going, Rishi Sunak?) so that’s not practical.
And which jobs will go? There’s an argument that some should be targeted:
the bullshit jobs described by David Graeber; the producers of environmental, intellectual and risk pollution; DWP and Border Force staff who harrass benefit claimants and migrants; or those in the bloated financial sector. Job destruction, as I’ve argued, is not a task which can be left to the market.
But it is left to the market. That’s how neoliberalism works and why that economic model has allowed so much corruption into society.
Reeves is silent on the possibility of weeding out the “bullshit” jobs to encourage the useful ones.
But she does argue that the State shapes markets; so Labour wants large-scale public investment in green energy (we’ll ignore the argument about nuclear power for now), and this, according to Simon Wren-Lewis at Mainly Macro,
can be thought of as a mission to get cheaper and sustainable energy, which involves public investment or government incentives in a wide range of industries
Mr Wren-Lewis also discusses failure to fund projects that would lead to lower public spending in some areas – so a 24 per cent cut in money for preventative health schemes by local government (stopping people from getting ill) means NHS costs skyrocket. He fails to take account of the current political reason for that, which is that healthcare is being turned into a profit-making industry and if the private firms that have been brought into the NHS are to make their money, more people need to be ill.
How does a government roll back market concentration and restore competition? One way is to start new businesses, and Reeves commits to that.
Brexit is also a limiting factor as it has shrunk the size of markets available to UK businesses. Reeves says she wants to reduce trading friction with the EU while staying outside the Customs Union and Single Market – but we can expect this to change. Brexit is a failure and Labour is only refusing to admit that for as long as it is politically expedient to do so. Expect agitation to get back into the EU, almost as soon as a Labour government is elected – from all sides of the House of Commons.
Put it all together and Reeves’s aim of a high-wage, high-productivity economy that does not take advantage of the global marketplace simply won’t work.
Rather than throw the baby out with the bathwater, she would be better-advised to retain what is succeeding and use its profits to invest in slower-yield but high-value projects. But I fear the right-wing blinkers she wears won’t allow her to see that.