The final report of
the IPPR’s Commission on Economic Justice is released today, with
the full title of Prosperity and Justice: A Plan for a New Economy.
[1] I was lucky enough to get an advance copy, and it is a very
impressive document: very well researched and well argued. It is
nothing less than a blueprint for a new progressive government. Of
course there are some proposals I have doubts about, but it is
sufficiently authoritative that in future anyone should ask of any
progressive economic programme how does it relate to the
recommendations of this report.
As far as my own
area of monetary and fiscal policy is concerned, I’m not sure I
have seen in one place as clear and comprehensive a summary of the
lessons of the recent past and a better set of proposals for the
future. I wrote
about an early draft of this chapter in April, so I will be brief
here. Their proposed fiscal rule separates current and investment
spending, but suggests the ONS and OBR look to obtain a measure of spending that helps
future generations that is better than the national accounts definition of public investment. They suggest a substantial increase in public
investment, while current spending in constrained by a rolling five
year target for balance. However they suggest that if interest rates
are stuck at their lower bound, the focus of fiscal policy (current
spending and taxes as well as investment) should be stimulus. Readers
familiar with this blog will know this is very similar to the
proposals in Portes
and Wren-Lewis, 2015 and the Labour Party’s fiscal
credibility rule.
For monetary policy
they suggest ending the primacy of inflation, and adding
underemployment and nominal income as primary targets. In addition,
they suggest that QE involve creating money directly to expand the
activities of a National Investment Bank (NIB) when a large
macroeconomic stimulus is required. Note that, unlike a fleeting proposal by Corbyn, money creation to expand the NIB remains a call made
by the independent Bank of England in a recession rather than by the
NIB itself or anyone else. I would go further
on the Bank’s mandate, but otherwise the IPPR’s proposals look
eminently sensible.
The chapter on
industrial policy seems sensible, with some ideas from Mazzucato
(e.g. public sector led missions) clearly evident. Beside the NIB
already mentioned, there is an emphasis on direct support rather than
via the tax system (e.g. patent box) which often have large
deadweight losses. They argue an industrial strategy should not
just be about helping and adding to innovation clusters based around
universities, but also in increasing productivity in what they call
the ‘everyday economy’. In my view it is higher productivity and
not greater union bargaining power that will raise real wages in a sustainable way,
although in other areas a greater union presence can be helpful (see
below).
For many one of the
most interesting ideas - of course not new - is to end the
shareholder model, and replace it with a stakeholders model where
workers have an influence on the board and executive pay. It
represents a move from a US to a more European model. While I find
this argument fairly convincing, the idea under reforming the
financial system that the Financial Policy Committee (FPC) of the
Bank should target house price inflation is misconceived. What the
economy needs is falling house prices, and once you make house prices
a target the pressure will be to stop that happening.
The idea of a
citizen’s (social) wealth fund is interesting, but I’m not sure a
strong case for it is made here. Why should a government hold assets
and issue debt, for example? If you want to redistribute wealth from
the wealthy old to the poorer young, why not do so directly? On tax
the proposal to combine income tax and national insurance seems
sensible, as is the idea of a replacing bands with a formula based
system (as in Germany). The same goes for a lifetime gifts tax to
replace inheritance tax, and a land value tax.
There is so much
else in the report, but let me end by talking about one issue:
executive pay. There is a cute chart in the report that I reproduce
below.
The report starts,
quite rightly in my view, by emphasising the dangers of inequality.
It also suggests that this cannot just be tackled ‘after the fact’
i.e. by tax and welfare measures. But will the stakeholder measures
talked about above, or greater union influence, be enough to reverse runaway corporate pay? The rise of the share of the 1% starts with
the advent of a neoliberal US and UK, and it has made the rest of us
noticeably
poorer. The report involves reversing many aspects of
neoliberalism, but an interesting question is whether that is enough
to achieve a decline in the 1% share, or whether other measures like higher top taxes are
an essential part
of doing that?
It is a fascinating report for anyone interested in a progressive economic policy. Do read it.
[1] This is a personal nostalgic footnote, which I am only writing because I could not
easily see this information online. New Economy also happened to be
the title of the IPPR’s journal in the early 1990s, which is now
called Progressive Review. I remember it well because between 1993
and 1995/6 I wrote a number of articles for it based around
simulations of the macroeconometric model I had developed with Julia Darby and John
Ireland. The idea to do that came from IPPR’s
Economic Director Dan
Corry, with Gerry Holtham as overall Director at the
time. Apart from members of the modelling team, Rebecca
Driver helped write a number of the articles. The
first article over that period had the title “What’s so Bad about
Borrowing?” (plus ça change), and the last “Avoiding Fiscal
Fudge” which proposed an independent fiscal institution or fiscal council
for the UK. That took 14 years to come to fruition, and I hope many of the proposals in this report do not have to wait so long.
