Rachel Reeves needs the economy to grow faster if she’s to get in the taxes required to make her spending plans sustainable. Hence why the Government is in the market for growth-stimulating ideas. I’ve offered long lists of those in the past, both in general and those consistent with a left-wing philosophy, and don’t intend to repeat myself here. What I’m interested in on this occasion is to explore some of the ideas a left-winger might have to promote growth that are distinct from those on advanced by the Right; the philosophical underpinnings of distinctively left-wing theories of growth.
One place to start is to consider the growth potential of a collective safety net. ‘Collective’ here doesn’t necessarily mean state-provided. It could be via friendly societies or other joint action. But the presence of a collective safety net is key. Such a safety net is potentially growth-boosting for a number of reasons.
First of all, it potentially addresses certain market failures with private insurance systems, such as non-diversifiable risk, adverse selection and moral hazard. Let’s skip over that for now, while recognising it, partly because, insofar as they agreed these things occurred, those on the Right might share the view. A more distinctively left-leaning angle is that the presence of a safety net reduces tail risk for those with limited access to assets. They don’t fall into utter destitution if something goes wrong. That allows them to change jobs, set up small businesses or negotiate pay increases with more confidence. More businesses, increased job-switching and more equitable wage negotiating power enhances economic efficiency, boosting growth.
A second area of left-wing growth theory may relate to collaborative versus adversarial economic ecosystems and their implications for economic efficiency and progress. A left-winger might contend that more collaborative systems facilitate higher efficiency and more rapid progress. So, for example, if workers are more included in management decisions and share more in the surpluses their labour creates, they might be more inclined to cooperate in enhancing productivity, need less monitoring to work at their best, so be less micro-managed and are thus more free to be creative. That could be a rationale for a range of reforms including encouraging more profit-related pay or including union representatives on management boards.
Another strand to left-wing theories of growth is that the Left has less need to appease in certain areas than the Right. So whereas right-leaning parties might need to assure electorates that they have no intention of significant reform of state institutions such as the NHS in order to get elected (as they would be accused by untrusting voters of privatising it by stealth), the Left can actually improve them, boosting productivity and growth in the process.
An idea closely related to this might be that when mechanisms have been created partly in order to discipline the Left, right-leaning parties will find them hard to reform and improve because reforming such institutions might be seen as setting a principle for their undermining next time a left-leaning party is in government, with bad long-term consequences. So their reform comes from the Left.
A concrete example of this is central bank independence. Right-wing governments understand that a key role of central bank independence is disciplining the inflationary instincts among left-wingers. Because of that, it could be difficult and potentially risky for right-leaning parties to reform central bank mandates. By contrast, if there are practical reforms of such institutions that could boost growth rates without creating unnecessary instability, left-wing parties are better placed to enact them.
A more contentious left-wing thought might be that the Right deludedly believe that those who currently have assets and power tend to have them because of some innate superiority in the management of assets (rather than, say, having them because of luck or history). Because they believe that those with assets are those best at managing them, if there is an economic shock or if those with assets have made errors that mean they might lose those assets, those on the Right might be tempted to use state policy and state resources to bail them out — whether that’s via tax breaks, interest rate cuts or literal bail-outs. The left-wing view might be that the Right considers the innate superiority of these asset-holders to be so high it justifies the state intervening to make sure they keep them.
If that is right, it might be valuable for left-leaning governments to enact reforms that would reduce the temptation of the Right to use the state to ensure vested asset-holders keep their wealth and power in future. Such reforms would promote a more diverse set of citizens having potential access to assets allows for better incentives for wealth creation.
My point in expressing the arguments above is not necessarily to endorse them. Rather, I want to emphasise that there is a lot more richness and depth to left-leaning theories of growth than the simplistic and unimaginative idea that the only real way to raise growth is to raise public spending – which has essentially been Reeves’ only ‘growth theory’ thus far.
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