Andy Burnham raised more than a few eyebrows when ahead of the Makerfield by-election he decided to attack “40 years of neoliberalism”. This line led to this year’s ‘Essay War’, with politicians desperately writing essays to demonstrate their intellectual credibility. Most notable was Burnham’s former master, Tony Blair, who, rightly, saw this attack as one not only on Thatcher but on his own New Labour legacy. Blair, a master of communication, immediately hit upon a media-friendly counter attack suggesting that Burnham couldn’t seriously mean going “back to the 70s?”
But what did Burnham mean and was he serious?
After a fairly boring Budget, The Prime Minister’s proposed Ten-Year Plan will be the defining test of whether Burnham was serious about dismantling forty years of neoliberalism. If Burnham chooses to make the Ten-Year Plan an exercise to create a long-term economic planning function to reconfigure the composition of the British economy, he will have undermined the very foundations of neoliberalism. Every major policy goal, from reindustrialisation to mass council housebuilding, requires this function. However, there is a slight problem. The British state lacks any capacity or capability to develop and implement any form of economic planning. The failure to create such a capability is the greatest victory of neoliberalism.
Blair’s critique assumes that Burnham is trying to return to some version of the much maligned post-war consensus. This is due to the myth that the post-war period was one in which Keynesian economic planning dominated and ended in failure. However, it was Hayek that scored the bigger victory. The post-war settlement was fixed on the idea of using the power of the state to avoid devastating economic downturns and pursue social improvement, however, the British state never successfully built a central economic planning function to deliver this goal. Burnham has to overturn more than just forty years of neoliberalism, but two hundred years of what Duncan Weldon called Britain’s approach to “muddling through”.
Neoliberalism is a political ideology, but its superpower is its negative economic epistemology. In The Road to Serfdom, Hayek’s political attack that planning would lead to totalitarianism failed to stop Western countries, particularly in Europe, from embracing economic planning. So Hayek changed tact and followed up with a technical critique in The Use of Knowledge in Society. In this article, Hayek proposed that as the complete information for economic planning cannot be gathered in one place, due to the sheer volume of decisions and actors, planning is doomed to failure. It's a simple, powerful claim that has come to dominate economic thinking on both sides of the Atlantic. As nobody can know what is going on, economic planning is not just impossible but deeply destructive.
It is this Hayekian proposition that has made it possible for its politicians, from Thatcher to Blair to Cameron to Sunak, to repeatedly say that there was “no real alternative” to deindustrialisation, dependence, decline and disorder. Nothing changes in Britain because our establishment believes that nothing can be changed. We must simply accept the results that stem from the decisions made by market actors, investors, especially large international institutional investors, and firms. In this Panglossian world view, all is for the best in this, the best of all possible worlds. We must ignore the evidence all around us of our shattered nation, and instead persuade the public to accept it.
Burnham would do well to learn the lessons from Britain’s post-war history. In his definitive account of the post-war British economy, Years of Recovery, Sir Alec Cairncross, a leading Treasury economist, noted that Labour never developed a substantial state planning function despite its commitment to a planned economy. Instead, its economic surveys acted more like OBR forecasts do today, laying out the resources available, rather than laying out a substantive plan for what to do with them and power to develop policies to implement it. The best that would be done in the immediate period after the war was to create a Central Statistical Office to “establish on a permanent basis a small central staff qualified to measure and analyse economic trends and submit appreciations of them to the Ministers concerned.” Not for the last time, British policymakers confused gathering information for planning. OBRism has a long institutional history.
There would be no dirigisme for the first seventeen years after the war. The ‘National Economy’ section at the Treasury, with responsibility for long term economic forecasts and analysis, numbered less than ten people throughout the 1950s. According to Samuel Brittan’s, The Treasury under the Tories, this small band was constantly rushed through incessant departmental requests for information and parliamentary questions so never had the ability to do long term planning. There was no central planning machine, despite the explosion of economic data collected by the state.
In order to avoid any central function, throughout the 1950s endless consultative forums and bodies would be created to bring together business, trade unions and Ministers, with the view that a plan would emerge through conversation. Again, there would be no substantive plan or capacity to direct the economy. The British post-war state was never capable of the central economic and social planning that its neoliberal critics have hung around its neck as its reason for failure. Instead of the economic miracle experienced on the continent, we got home grown neoliberal ‘Stop-and-Go’, with the British state’s unwillingness to develop and stick to long term plans creating financial uncertainty that undermined investment and saw hard choices constantly ducked. Interventions in the economy tended towards temporary splurges in public spending and stuffing money in people’s pockets to drive up demand and reduce unemployment, measures that soon added to inflation and triggered new spending cuts. This was far removed from the productivist aspirations of the Attlee years. The parallels with today are striking, both the means and consequences, except that we have experienced far more ‘Stop’, than ‘Go’. Again, the lessons for Burnham are clear, in particular for the reconstituted National Economic Council, that brings together government ministers and Mayors. Deliberative bodies will not overturn neoliberalism, even if they are constituted at the highest level of government.
The only, short lived, attempt to break from the bonds of neoliberalism came over a five-year period from the development of the National Economic Development Office (NEDO) in 1962, and Wilson’s ultimately doomed National Plan in 1967. It was here, finally, through the NEDO, that the government tried to create some sort of dedicated economic planning function to understand the resources available in the economy, target a level of economic growth and guide sectoral composition to achieve economic balance. The NEDO would have a staff commensurate with its peers on the continent. It would have institutional heft and independence. Wilson further strengthened the state’s planning capacity by shifting political leadership away from HM Treasury into a new Department for Economic Affairs, Labour’s National Plan was an attempt to develop a genuine economic planning function to drive sustained expansion. Sadly, both were doomed before they had a chance to work.
The Department for Economic Affairs and National Plan failed not because they were foolish, after all Wilson was merely copying the relatively successful economic planning of other countries, such as the Monnet Plan in France and the Vanoni Plan in Italy. They were instead doomed because of poor timing and poor judgement. The Conservatives had left the Wilson Ministry an economic time bomb in the form of the Maudling Boom that led to devaluation, import restrictions and cuts in investment. Poor judgement led Wilson to initially pick the unstable George Brown to lead the new department, instead of the more suitable Peter Shore, who would eventually take over leadership but three years too late. Brown was simply not capable of fighting the institutional hostility to economic coordination and the disempowering of traditional departments, most notably HM Treasury. The Plan’s failure was enough to kill off any future attempt at economic planning and became a frequent touchstone for neoliberal politicians.
All this may seem like institutional navel gazing, but it speaks to the failures of this current Labour government. Starmer entered No.10 with a belief in ‘mission-driven government’ but then expressed frustration at his instability to pull the right levers to make change happen. In part this was because his team tried to develop missions within a neoliberal framework that saw the state’s role not to intervene in the economy, but merely create a supportive environment and hope for the best. This was a futile exercise. More importantly, Starmer and his team failed because they tried to work within the system, through the old mechanisms of the Cabinet Office and an all powerful HM Treasury. These institutions have never been designed to develop and implement long term planning. Rebadging teams and moving people into new units does not itself create new capacity. Anything substantive will have to be built from scratch.
Burnham seems to have learnt the lessons from this failure in his creation of No.10 North, which has been pitched as an attempt to recreate the Department for Economic Affairs, with clear political leadership under Louise Haigh. A new institution is essential to break with the failures of the past. We have tested to destruction the idea that the HM Treasury can be an effective economic ministry.
The danger for No.10 North is that it will be understaffed, underpowered and overstretched. One report says that No.10 North may end up having just 150 civil servants working there, compared to over 36,000 policy professionals and 3,500 economists working across Whitehall today. Moreover, this small band of officials and advisors will have to develop, coordinate and implement not just a new economic agenda, but also carry out the largest constitutional reform agenda for decades.
Ultimately, if the analysis and recommendations are still coming from the usual departments and agencies and we expect a handful of overstretched officials and advisors in No.10 North to correct them, we will not see anything change. No.10 North needs its own research function, monitoring capacity and power to make recommendations directly to the Prime Minister. It will need to have several hundred staff, at a minimum, to have any chance of success and create a new framework to manage our economy. Burnham should use the need to develop a robust Ten-Year Plan as the reason for why this new institutional infrastructure is needed, bringing in external expertise if necessary.
At the core of this plan should be his mission to reindustrialise the country, something that cannot be delivered without a central plan to coordinate demand, remove bottlenecks, provide certainty to investors and ensure that every tool at the disposal of the state is used to pursue industrial expansion. The Reindustrialisation Research Group of Labour MPs has called for the Prime Minister to define reindustrialisation as a strategy to create a million jobs in productive industries. This bold vision will require a Ten-Year Plan that is capable of developing policies and interventions that leverage hundreds of billions of pounds of investment.
The instinct within the government will be to avoid such firm planning. Why put your neck on the line when there is so much economic and geopolitical instability? The temptation will be to produce another, what Wes Streeting dismissively called, a ‘shopping list’ of policies and ideas. A glossy document with a catchy title, but nothing more, something that the British state has copious amounts of experience in developing.
Looking back on the ‘failed’ National Plan provides an incentive to think bigger. Despite the economic instability caused by devaluation, the economy kept growing throughout the second half of the 1960s – with GDP per capita over £2,000 higher in real terms by 1970 compared with 1965. Moreover, industrial production grew faster than the rest of the economy over that period and export growth doubled compared to the previous five years. This focus on production turned an inherited balance of payments deficit into a sustained positive balance. In simple terms, the National Plan increased living standards whilst rebalancing the economy towards greater production, reducing regional inequalities and increasing exports, exactly the shift that we need to see today.
If Burnham can show by the next election that there are economic green shoots of this kind, he has a strong case to ask the country for a second term. As President Eisenhower stated, “plans are worthless, but planning is everything.” Any Ten-Year Plan will need to be monitored and iterated. This requires a robust No.10 North to provide an institution capable of long term economic planning.
The battle for the Ten-Year Plan will become a defining one for Burnham’s premiership, in the same way that Starmer’s Plan for Change was a white flag for a government unprepared for power. Only once it is published will we know whether Burnham meant what he said about ending the dominance of neoliberalism.
Andrew O'Brien, Director of the Energy Competitiveness Unit. He writes in a personal capacity.