‘Boring snoring‘, declared Ian Katz in 2013. The then editor of BBC Newsnight was referencing a contribution from Rachel Reeves on his programme. Let’s hope he wasn’t listening to her Mais Lecture this week.
There had been a press briefing that Reeves was going to endorse Margaret Thatcher. She did nothing of the kind. Though she did say that ‘as in the 1970s, we are in a moment of flux; in which old certainties about economic management have been found wanting’. Hardly all that punchy.
But the dullness of the speech was not an accident. It fits with Labour’s strategy of providing disillusioned Conservative voters with the reassurance to abstain. Boredom is not a bug for Reeves, it’s a feature. Indeed, the most thrilling passage was when she acclaimed the merits of stability.
It follows that the speech was not a rallying call to socialism either. The word did not appear, of course. There was no attack on profits. No calls for nationalisation or higher taxes. Rather than seeking the overthrow of capitalism, she suggested a few tweaks would strengthen it. She criticised Nigel Lawson for ‘assuming that the state had little role in shaping a market economy’. She acknowledged that a flexible labour market ‘can serve to reduce the risk of taking on new staff, the risk of poor matches, and allow firms to respond more easily to economic cycles’. But she felt our labour market was a bit too flexible, because security is ‘integral to the strength, dynamism and legitimacy of a market economy’.
There was not much indication of what this verbal balancing act would translate to with regards to policy. She repeated the proposal to ban so-called zero-hours contracts. But what people actually objected to about them was already banned in 2015. That was the time when an employee would be available for work for a particular company all the time, not work for anyone else, and not have any guaranteed minimum number of hours. The deal now is of mutual flexibility. Those on zero-hour contracts now do not have to take whatever hours are offered.
If one struggled for clarity wading through the technocratic mud, it should be conceded that Rishi Sunak’s Mais Lecture of two years ago invited the same criticism. The market was praised but ‘turning a market economy into a market society’ was something ‘we need to guard against’. He wanted ‘a new culture of enterprise’ – but rather than leaving this to the market, the state must use ‘the levers at our disposal’. Sunak added that: ‘Public sector net investment as a share of GDP is reaching its highest sustained level since the 1970s’. Woo hoo!
Various straw men would be assembled during the lecture. He added: ‘I am disheartened when I hear the flippant claim that ‘tax cuts always pay for themselves’.’ Who made such a claim? Certainly not Arthur Laffer.
Corporatism was the theme running through both Sunak and Reeves’s lectures. ‘We need to engage and partner with private businesses’, said Sunak. But it could just as well have been Reeves.
Reeves did say: ‘To those who assume that industrial strategy amounts only to the state picking winners and propping up uncompetitive industries, let me explain. This is to misunderstand what a modern industrial strategy looks like.’ But that could just as well have been Sunak.
The difficulty for the economy is that technocrats will not just allow everything to tick along while maintaining a sort of ideological neutrality. They have an irresistible urge to meddle.
They delude themselves that they can see the future. Fintech, biotech, meditech, nanotech, green tech. All of which ‘sound basically like 15th-century Mexico’, said Boris Johnson, who at least tempered such hubris with humour.
Rather than leaving the vehicle on autopilot, our leaders itch to grab the wheel. They can’t help it, despite protestations to the contrary. They lapse inevitably into interventionist conceits. ‘One of my Professors at Stanford University was the brilliant and inspiring economist Paul Romer, who won the Nobel Prize for a new growth theory focused on innovation and ideas,’ said Sunak in his lecture. The subtext being that the key thing is to have a top-notch technocrat who had heard lectures from Romer – not some dullard technocrat who had second-rate lecturers at the Massachusetts Institute of Technology.
Reeves is a rival technocrat. She wants to move us around like pieces on a chess board – a game she and Sunak are famously fond of.
So does that make the next General Election a depressing irrelevance? Not quite. For those who could stay awake, there was a disturbing message from Reeves this week – that we need more financial regulation. ‘Monetary policy and financial regulation cannot stand still, in the face of new risks, not least those posed by climate change,’ she announced.
Criticising New Labour, she declared: ‘An under-regulated financial sector could generate immense wealth but posed profound structural risks too.’
Our economy is already groaning under the weight of financial regulation. Leaving the EU offers some opportunity to free ourselves from the worst excesses. Notably the Government’s plans regarding ‘repealing and replacing EU-era Solvency II – the rules governing insurers balance sheets which is expected to unlock over £100bn of private investment for productive assets such as UK infrastructure’.
Yet far from taking advantage of Brexit to reduce burdens, Reeves wants to pile on more.
Her alibi for doing so – the banking crash of 15 years ago – is misconceived. The Financial Services Authority spewed out regulations at a phenomenal rate. (It’s now been rechristened the Financial Conduct Authority, which doesn’t seem to have helped much.)
Reeves argues that the rules were too lax in terms of fractional reserve banking – the ratio of money a bank is allowed to lend against the amount it has on deposit. But the real problem was the taxpayer bailouts – for shareholders as well as depositors. Corporate welfare on an enormous scale.
The technocrats (wrongly) convinced themselves this was justified as the banks were ‘too big to fail’. But how had the market become distorted so that it was so dominated by a small number of players? The regulatory burden had done more harm than good. It was the problem, not the cure. Only the huge banks can employ enough box-tickers. Competition and accountability were thwarted. Crony capitalism triumphed over the rigours of a genuine free market.
In her interpretation of history, Reeves has learnt entirely the wrong lesson. That should worry us all. Better stop snoozing before it’s too late.
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