Letter: The UK’s failing economic model demands such bold ideas

Below is the text of a letter to the editor of the Financial Times, signed by Lord Skidelsky alongside 81 other signatories, and published on 6th September 2019.

Your series of articles exploring the Labour party’s economic agenda fails to appreciate the severity of the UK’s current economic condition, and reproduces a number of misconceptions.

There is growing political consensus that the UK’s economic model is failing. The economy has been performing badly for more than a decade. Household debt has fuelled the meagre recovery from the crash of 2007-08. Earnings have stagnated, with many families borrowing to cover basic expenses; an estimated 8.3m people cannot keep up with debts or bills. The housing market is in crisis, with young people set to be poorer than their parents. Since the 1980s, the wealthiest have disproportionately benefited from growth, driving high levels of political disillusionment. Action to prevent climate and environmental breakdown, and prepare for their effects, is wholly inadequate.

All political parties in the UK are proposing increases in public spending to meet these challenges. Your headline “Cost of Labour’s economic overhaul soars” (September 3) implies that Labour’s proposals are unaffordable, but the Office for Budget Responsibility analysis cited ignores the impact of public spending on growth, and thus on tax receipts. As senior IMF economists have noted in their critique of austerity, this relationship is critical. Today the government can borrow at negative real interest rates: many pressing infrastructure, education and environment projects offer returns well above zero and can therefore generate higher future tax receipts, supporting not detracting from fiscal sustainability. Taxation levels in the UK remain lower than in most European countries.

But reform of fiscal policy is not enough. Ownership of capital helps determine in whose interests the economy operates. It is a category error to suggest a mechanism such as an Inclusive Ownership Fund would “cost” companies or that the state will “seize” shares. The proposal neither reduces the book value of corporate entities, nor requires them to pay cash out. By requiring companies to issue new shares and give them to a mutual fund — mirroring the accepted practice of issuing shares for executive compensation — it ensures instead that workers share in the wealth they create.

The UK’s economic model has failed before. In both the 1940s and 1980s, major policy changes were made in response. At first seen as overly radical, they were later accepted across the political spectrum. Since 2008 the UK economy has again been failing, with today’s political crisis one of the consequences. This is precisely the time when bold ideas are needed from all political parties.

David Blanchflower
Professor of Economics, Dartmouth University; former Monetary Policy Committee member

Victoria Chick
Emeritus Professor of Economics, University College London

Stephany Griffith-Jones
Financial Markets Director, Initiative for Policy Dialogue, Columbia University; Emeritus Professorial Fellow, Institute of Development Studies, University of Sussex

Susan Himmelweit
Professor Emeritus of Economics, Open University

Sir Richard Jolly
Professor, Institute of Development Studies, University of Sussex; former Deputy Director of Unicef

Mariana Mazzucato
Professor in the Economics of Innovation & Public Value; Director, UCL Institute for Innovation & Public Purpose

Thomas Piketty
Professor, Paris School of Economics and EHESS

Dani Rodrik
Professor of Economics, Harvard University

On behalf of 82 signatories. The complete list of signatories is here