Michael Jacobs interviewed by Florence Sutcliffe-Braithwaite
On 5 September the IPPR’s Commission on Economic Justice published its final report, the result of two years of work. Welcomed by politicians from across the political spectrum it sets out an analysis of the deep-seated problems with the UK’s economy, and a transformative plan to hard-wire justice and sustainability into the economy. Michael Jacobs is director of the Commission and talks to Florence Sutcliffe-Braithwaite about paradigm shifts, policies, narratives and enemies.
Jump to: Active state and open markets; Enemies and villains; Brexit and Globalisation; National and public ownership; Green growth or de-growth; Devolution; Deliberative democracy; Trade unions; The financial sector
Florence Sutcliffe-Braithwaite This is a hugely ambitious report, making a large number of interlinked recommendations which together add up to a plan to fundamentally transform how our economy works. So my first question is: how do you go from this report to getting a version of it implemented?
Michael Jacobs This is obviously the most important question! And in general it’s a difficult one for think tanks. Think tanks play a very specific but limited role in what you might describe as a theory of political change. Mostly, they do some research, publish a report, hope that some people read it, and then move on to the next thing. Effectively they throw their products into the world of politics, policy, media and public awareness, and then hope that they swim – and of course in practice most of them sink. So we need the Commission’s report to be different. And IPPR does indeed have a theory of change underlying the report, which we shall be trying to implement over the next few years.
Essentially this involves attempting to shift the whole nature of the debate about the economy – and to do so in a way that captures almost all of the centre ground plus its left and right wings.
We talk in the report about the ‘paradigm shifts’ that occurred after 1945 and 1979. After 1945 people on the right as well as the left accepted the Keynesian revolution: they supported a welfare state, full employment and public ownership of major industries. And similarly, after the free market revolution of the 1980s, the left as well as the right (not all of it, but certainly the governing left, the Labour Party) came to accept a lot of the Thatcherite settlement: privatisation, restrictions on trade union power, limited government involvement in the productive economy. So those were paradigm shifts in economic thought and policy. We make the argument that today we need another one. Ten years after the financial crash it is clear that the economy is simply not working, and nor is conventional economic policy (as we show in the report). So we need a complete shift in the way we think about the economy. And we want our narrative and policy agenda to form the basis of that paradigm shift.
So for us it’s very important that it isn’t just people on the left who have welcomed this report. It’s been people right across the political spectrum, from John McDonnell to the Daily Mail. Part of the theory of change here is that we want to change the whole conversation; we need the report to seep into every political and economic policy debate. Our strategy is to do what we can to achieve that: to keep up the communications about it, keep making sure that people mention it, even if just in passing, when talking about the subjects we cover in the report, from trade unions to corporate governance or the financial sector. That embeds the report in public debate. It’s very ambitious, but that’s what we’re going to try to do.
We’re also going to take the report out to the wider public. We’ve deliberately published this as a book, which you can buy in bookshops (as well as downloading it for free online). We want people who buy books about politics and the economy to find it in bookshops, read it, talk to their friends about it. We’re doing bookshop events, book festivals, all kinds of political meetings around the country – with mayors, voluntary organisations, local political parties – so that this becomes part of the conversation. And when people ask, ‘well what can we do about the economy?’ there’s a reference here to give them an answer.
The crucial thing that this report argues is that there is an alternative. It presents a coherent narrative, and a coherent set of policies – so if you want to know how capitalism can be changed, here is a blueprint. That’s why we did a Commission, rather than just writing a report. By getting the Archbishop of Canterbury, the General Secretary of the TUC, the managing partner of McKinsey, a community organiser for Citizens UK, and all the other people who are on the Commission to produce this, we gave it huge credibility and authority. It’s hard to rubbish all those people at once. And that’s of course why it got so much publicity when it launched.
FSB Did you look back to earlier IPPR reports – particularly the Commission on Social Justice report from 1994?
MJ Yes. Part of the reason this was called the Commission on Economic Justice was to echo the Commission on Social Justice. But the difference was that that was very obviously the Labour government’s manifesto in waiting, at least on public services and the welfare state (though interestingly, not on the economy, because New Labour didn’t really have much of an economic strategy, if we’re honest. Indeed one of our arguments is that our economic problems date back not just over the last 10 years but over the last 30, including the period of Labour government.) The CSJ report was so closely identified with Labour that Tony Blair had a quote on the front cover.
That reflects two things. First, it reflected the difference in what charities could do in those days (IPPR is a charity). And secondly, the CSJ was much closer to the Labour Party; the secretariat was run by David Miliband who almost immediately became Tony Blair’s Head of Policy. At the time the CSJ report was published, it was pretty obvious there was going to be a Labour government. It’s not obvious now that there’s going to be a Labour government, and therefore this is differently positioned. We’re delighted that John McDonnell has described it as a new Beveridge Report, but we needed to position this as something that not only a Labour government could pick up; as something that can be accepted, at least in its core analysis, by people across the political spectrum. Not least because it’s that kind of hegemonic shift to a different paradigm that will give any Labour government the legitimacy that comes from wide public and elite acceptance of the agenda.
FSB The Beveridge comparison is perfect, because the Beveridge report was exactly that kind of hegemonic contribution – the most popular government report ever published.
MJ Absolutely. It shaped the whole way people thought about the welfare state, People can still remember what that report said – the five evils. That shaped not just the policy framework, but the whole narrative about what the state was for, the social contract, and so on. Without wishing to sound too arrogant, we want Prosperity and Justice to do something similar.
FSB Can you say something, then, about the main thrust of your recommendations?
MJ The core messages are very simple. First, the economy isn’t working. In a sense that’s the basis of the consensus that I’m referring to – it’s simply the facts. That’s why many Conservatives as well as people on the left have accepted the report. It lays out just how poorly the British economy is performing; not only is it not raising living standards, but it has deeper problems in productivity, investment, trade and geographic inequalities, and so on.
Secondly, you can reform an economy in fundamental ways. Pointing to these major shifts after the Second World War and after the 1970s is helpful because the idea that ‘there is no alternative’ has become very powerful. But there is an alternative.
Thirdly, a fair economy is a stronger economy. It simply isn’t the case that you have to trade off growth and equality, or prosperity and justice. You don’t – on the contrary, they go together. All the international economic evidence now shows this, and we give the reasons why.
But, fourthly, you don’t create justice simply through redistribution; you have to hard-wire it into the way the economy works. You need to change the structures of the system: in corporate governance, the labour market, the ownership of wealth and housing, the role of the state and private sector, the tax system, the conduct and institutions of economic policy.
And in each case this requires, fifth, a redistribution of power.
And that’s why I think the report marks a significant leap from New Labour’s economic policy. That largely aimed to redistribute the fruits of an economy whose fundamental workings were left unchanged. Towards the end of the Labour government we experimented with a bit of industrial strategy, but by and large we didn’t change the structures of the economy. Indeed we even further deregulated parts of it, including the financial sector. And then we tried to redistribute the fruits. We did that quite successfully, slowing down the growth of inequality, and vastly improving public services. But the underlying engines of inequality and poor economic performance were not changed. So the model we are putting forward says that we need to hard-wire justice into the functioning of the economy. It’s a much more interventionist strategy.
So we argue uncompromisingly for a more active state. It is impossible to change the structures of the economy with a weak state premised on the idea that it shouldn’t intervene, and indeed which thinks that intervention is what states do, rather than shaping markets in conjunction with the private sector. We have a whole range of ways we think the state should shape markets, many of them using independent or semi-independent institutions, like a national investment bank, regional economic authorities in England, and so on.
But we also argue that we need much more open markets. The digital sectors which now dominate our economy are fantastically concentrated. Google, Facebook, Amazon, Apple and Microsoft have more power between them than probably any group of companies have ever had in the history of Western capitalism – at least since the East India Company. Eight out of ten of the major consumer markets are dominated by a small number of companies; the audit companies – ‘the big four’ – dominate that field, and so on. We need to open up those markets, and use the state to create greater openness and competition. So we argue for open markets and an active state, and we don’t see a contradiction in that. This is a distinctive feature, I think, in the way we approach the policy agenda.
FSB This framing nicely gives the lie to the very common narrative that markets exist in a ‘natural’ form, and the state needs to keep out. It makes clear that the state is doing things to create these markets anyway.
MJ Exactly – we’re drawing on the work of many economists, like Mariana Mazzucato, who have written about this. Indeed I’ve also written on this subject in the past, reconceptualising the relationship between state and market. Those two things are often placed in counterpoint to one another, but that’s a complete misunderstanding of markets. In any advanced economy, markets always have states involved in them. The question is: what is the state doing? Whose interests is it supporting? Which way is it directing and shaping the activities of the private sector?
In arguing for a more active state, we argue not just for a change in the size of the state but its directionality. As a society we face huge challenges, which we lay out in the book: environmental crisis (not just climate change, but a wide set of environmental impacts); an ageing society facing huge social costs; the massive implications of artificial intelligence, automation and biotechnology. The state should not just be saying, ‘we need a larger economy’ and intervening to achieve that, but should be pushing and guiding investment into solving those problems. That’s a role for the state in shaping markets.
One of the tragedies of the last 40 years is just how much capital has gone into the financial sector. It has earned huge profits, some of which have been earned by doing what Adair Turner, when he was head of the Financial Services Authority, famously described as ‘socially useless activity’. Not all of it was socially useless, of course, but far too many of its products weren’t contributing to a better society. Rebalancing the economy away from the financial sector towards more socially productive activity is one of the goals of the report.
We need to make the case for an active state not just in policy terms, but intellectually, so that people can no longer get away with the argument that there’s too much state ‘interference’ in what would otherwise be ‘free’ markets. The Prime Minister still felt able last year to talk about being in favour of free markets, even as she was proclaiming an industrial strategy based on the complete opposite conception. That argument has to be defeated.
FSB That brings us to the subject of enemies, which you largely avoid in the report. You talk about the major economic shifts over the last 30 to 40 years, but you avoid saying exactly who did these things. You make the point that ‘technological change is estimated to have caused at least half the decline in the labour share in advanced economies in the last four decades’. So what about the other 50 per cent? And who determined who owned that technology in the first place? Do you not want to talk about enemies because you think that’s divisive and unproductive?
MJ If I were critiquing the report, I think that would be a good line of attack. But it also brings me back to our theory of change, and what we want the report to achieve. There’s no question that a huge number of the changes in the economy that have occurred over the last 40 years, many of which have been very damaging, arose through deliberate decisions by the powerful – in financial markets, businesses, and government. There is an account of that 40 year period which could identify the enemies, the moments at which power was used to defeat other people’s interests. And, in other circumstances, I might make that kind of case myself.
But in a report of this kind, we wanted to show why the results of those decisions were so poor for so many people, for the economy, and for society, in a way that allowed many of those who might be made uncomfortable by this analysis (including some who might be implicated in it) think, ‘actually, they’re right’. The report is intended to be written in a very ‘reasonable’ style that is meant to bring as many people with us as possible. Apportioning blame is not a good way to get broad consensus. And in a sense that wasn’t the function of this report, with its group of commissioners, who were drawn very broadly. We wouldn’t have got many of those commissioners on board with that more combative kind of analysis.
Interestingly, however, our Commissioners were happy to talk about power, and this was, in a way, the compromise the report makes – between a very sharp, pointed analysis of why those decisions were taken, whose interests they were taken in, and who took them, and a completely bland kind of ‘agentless’ description, We don’t succumb to the latter. We argue that relations of power in the economy have become seriously unbalanced. We argue, for example, that power has become unbalanced between management and workers: workers don’t have enough bargaining power, which is one of the reasons wages have been stagnant even while we’ve had near full employment. The giant corporations are exercising too much market power, to the detriment of smaller firms, entrepreneurs and new entrants, as well as to consumers, workers, and suppliers. We argue that the wealthy have too much power in the economy and in politics relative to those who have no wealth. That Westminster has too much power relative to the English regions and the nations of the UK. And overall that the outcome of market forces has too much power over economic outcomes relative to the community as represented in the democratic process. By making the argument that power is absolutely key to understanding both our problems and how to address them, we’re acknowledging that these things are highly political.
The concept of economic power is not widely used. Those on the right tend not to be comfortable talking about it, not least because they often benefit from having it; it tends to be the powerless who talk about power. But there are quite a few Conservatives who don’t think capitalism is working well at the moment, and some of them have started using the concept of power too – because they can see the effects of excessive market power (for example) and they tend to believe that more competitive, open markets are better for consumers, for entrepreneurship and innovation – a position with which we agree. Some have even acknowledged that employers have too much power in labour markets. So I think power is coming back into fashion. As the crisis of capitalism since the great financial crash has deepened, it’s become more obvious that the reason we got into it (and the reason we’ve failed to get out of it) is because power is very concentrated and works in the interests of some very powerful groups. More and more people are willing to talk about power, and we wanted to encourage that.
FSB I’ve got to ask about Brexit: to what extent are the plans you set out achievable within the EU, with a softer Brexit or with a no-deal Brexit?
MJ Firstly, the Commission didn’t take a view on Brexit, for the simple strategic reason that we would have just been drawn into the mess that is the current Brexit debate. We also made a point of having Commissioners who were on both sides of the referendum debate, to ensure our report wasn’t considered the view of one side or the other. And the core analysis at the heart of the report is that our problems are nothing to do with Brexit, and have to be sorted whatever happens with Brexit.
We acknowledge that any form of Brexit is going to make this more challenging, simply because the economy is going to suffer dislocation. Any analyst, from whichever side of the debate, knows that extricating yourself from 40 years of embedded supply-chains is going to be very difficult. But there is nothing in what we propose which would be made technically impossible either by Brexit or by remaining within the EU. We don’t buy the argument, for example, that an active industrial strategy is prevented by the EU. Most countries in the EU have active industrial strategies; state aid is pretty flexible.
We also argue that trade policy is largely now not about tariffs but about regulation. We emphasise that there is a real risk of new trade agreements (for example with the US) lowering regulatory standards, on the environment, consumer rights, labour rights, and so on. That’s a real danger of a Brexit in which the UK is out of a customs union.
But, in principle, the things that we need to do to create a fairer and more sustainable economy can be done inside or outside the EU. Even if they would be made more challenging by Brexit, we need to do them whatever happens.
FSB Implicit in the report is, I think, the assumption that globalisation can and should continue, and that Britain should not argue against globalisation but for globalisation with stronger regulation.
MJ I think I would characterise it slightly differently. In one sense, globalisation will clearly continue: the growth of the world’s economy is being driven by countries in the east and south of the world, and that is going to continue (not least, through population growth). So the weight of global trade is going to continue to shift east and south, and the UK will have to find a way of being competitive in those circumstances.
At the moment globalisation is not continuing in the way that it did between 2000 and 2008; we’ve not had another huge upsurge in trade and foreign direct investment as a proportion of global GDP, but clearly we have to live within the context of globalisation.
But the report resists the complete integration of the UK economy into a globalised trading and investment pattern in which we’re at the mercy of global forces. We argue for stronger domestic production and domestic supply chains; for example, we note that British exports are very heavily import-dominated, and we think that they should be more domestically supplied – not via protectionism, but by strengthening the capacity of our domestic industries to enter those supply chains. We argue that innovation strategies should be trying to capture greater shares of global markets, but also for stronger domestic manufacturing and high-tech services bases.
So we argue not for a more open or integrated economy; in a sense, we argue for a slightly less integrated economy, but one which inevitably has to operate within the patterns of global demand it confronts.
FSB So there’s a bit of economic nationalism, but it’s through industrial strategy, not tariffs?
MJ Precisely. And not just nationalism, but localism. One of the policies which can have a very important impact in areas that have been ‘left behind’ by globalisation is what is sometimes known as ‘community wealth building’. This is the localisation strategy also known as the ‘Preston Model’, in which local authorities, the National Health Service, universities and other ‘anchor institutions’ with large procurement budgets spend more of those budgets within their local and regional economies. In this way, local economies are not left at the mercy of national and global forces; they are protected, not by protectionism, but by building up local firms’ capacity to participate in supply chains. And there’s now good evidence that it can be done.
FSB One thing absent from the report is discussion of public ownership. Why is that?
MJ Two reasons. One was, when we looked at public ownership of the privatised utilities, railways, and so on, our Commissioners said, ‘these are legitimate questions, but they’re sectoral questions; if we’re going to advocate public ownership of any industry, we have to study that industry in detail first’. But we simply didn’t have the bandwidth in a two year Commission to look at each of these sectors individually.
Secondly, we saw the case for employee ownership in particular: we want workers to have a greater stake, and we make recommendations on how that can happen, both through co-ops and through employee ownership trusts. That fitted with our narrative of the redistribution of wealth, in a way that state ownership, public ownership, didn’t so much. We note that the growing inequality of wealth is now our major inequality problem – we still have massive income inequality, but inequalities of wealth are even more significant, and those are not just class-based, but geographically based, and, of course, inter-generational. Ownership is a way of addressing that, and that’s why the Commission was more focused on employee ownership than on state ownership. I really welcome the fact that others are picking up employee ownership as a route to spreading more wealth.
The Commission’s other major recommendation in this field is a Citizens’ Wealth Fund. This would be a form of public ownership: a sovereign wealth fund built up as a public body, at arm’s length from government, which would pay a dividend to citizens, so that wealth would come to be owned by individuals, and not simply by the state. That also met the Commission’s principle of redistributing wealth.
We also talk about housing. We propose more house building, with a much higher proportion going to social housing and affordable housing. We also propose giving the Bank of England a mandate to reduce house price inflation. So there’s a range of things that the Commission wanted to do to redistribute wealth, but we propose putting wealth in the hands of ordinary people and not simply in the hands of the state.
FSB Isn’t there a case to be made for forms of ownership that sit somewhere in between public ownership and worker ownership?
MJ Yes there are, but we didn’t get into those because we didn’t get into the public ownership of the utilities question. John McDonnell has talked a bit about how you could use various forms of worker, consumer, community and regional ownership, so that taking some of these utilities back into public ownership doesn’t simply mean central state ownership, and I think there’s a lot of important work to be done there.
In our chapter on the digital economy, we also argue for data to become much more of a common resource, what we call a ‘digital commonwealth’. The paper by my colleagues Mat Lawrence and Laurie Laybourn-Langton, which informs the Commission’s work, goes into this in much more detail than we do in the report. They show how you can make public data, as well as what is now privatised data, into a resource that can be much more widely used for entrepreneurship, community activity, public and municipal activity, and so on. That’s another way we look at wider forms of ownership.
FSB You rather neatly sidestep the green growth/de-growth debate.
MJ Well, yes and no. We argue that, in principle, it should be possible to get a greener form of growth because what matters is the content of growth and not its rate. But we argue for a very specific instrument to do that, which we call a Sustainable Economy Act. And that should be something which both green growth and de-growth advocates can agree on. It is a way to ensure that the economy is constrained to live within sustainable environmental limits.
We don’t know whether growth is possible within those environmental limits, and at the moment it’s a very theoretical debate (as well as a very long-running one). So rather than debating it, my argument would be: let’s ensure the economy lives within sustainable environmental limits and then we can find out whether there’s any growth available within those limits.
A Sustainable Economy Act would do what the Climate Change Act already does. It acknowledges that there are limits to the environmental impact which our economy can have, and it sets long-term goals on what those limits should be in law. It then requires governments to set shorter-term targets on a trajectory towards those goals, and to produce policies and plans which meet them.
That’s what we’ve done for climate change: our greenhouse gas emissions are statutorily limited, and the economy lives within them. But we are not doing that for plastics, air pollution, degradation of soils, wildlife and species. So a Sustainable Economy Act is in effect a way around that green growth/de-growth debate. It would actually deal with the issue that we’re really worried about, which is not growth, but environmental impact. So let’s limit the environmental impacts and then let’s find out whether we can innovate enough to continue growth within those limits. So we think that’s a very practical way through that debate.
FSB A problem with the de-growth argument is that it can often feel like a moral or even aesthetic argument.
MJ Greens have always made two arguments about growth, which are logically independent of one another: that growth is impossible because it will destroy the environment, and that it’s not desirable because it doesn’t make us happy. Those two things have separate logical properties, but the second one informs the first, as a kind of cultural support. Greens are right to say that we live in a ‘growthist’ culture – we think that an economy must always have more consumption, that consumption makes us better off. This leads us to forms of growth and forms of consumption that are environmentally damaging. I completely agree that we have a model of prosperity which is too materially focused. I would like to see us focused much more on wellbeing, both in the way we organise work and in our metrics of economic success. And also to think much more about time rather than consumption as the key thing we need in today’s world to make us happy. The Commission makes some proposals on this – for example, for the benefits of automation to be taken in reduced working time not just higher wages; but there’s much more we could have said on it.
What I don’t accept is that doing any of this would solve the environmental problem, because you could have an economy with reduced working time and better quality jobs which was still dependent on fossil fuels. So we need to separate those two arguments – to deal with environmental problems by actually dealing with environmental problems, and then to address wellbeing and the culture of growth and materialism in the way we organise work and think about our cultural and moral lives.
FSB This links to the Universal Basic Income debate, because I think one of the powerful things about the idea of UBI is that it prompts us to think about what makes life meaningful – though it would be difficult to raise the money to implement a UBI.
MJ Yes. The practicalities of UBI are very difficult, but I agree that it raises some fundamental questions, and in that sense it’s been very useful. I think the issue of working time is central, particularly as we have an economy where working hours are increasing and people are under massive stress from working so much. Time is a collective action problem; only the rich can reduce their working hours because we live under competitive consumption conditions. We can all live happily at lower standards of living – as long as everybody around us is also doing so. So we have to solve the time problem through collective action, which is why we recommend in the report increasing bank holidays, because that’s a collective solution. And eventually if you increase the number of bank holidays enough you’d get a four day week, which is the kind of long-run strategy some of us see as underpinning the report.
FSB You have a lot of proposals on devolution: you talk about devolution to English regions, and further devolution to Wales, Scotland, and Northern Ireland, as well as a National Economic Plan. I’m wondering two things: first, devolution to England is hard (New Labour’s devolution plans faltered), so why do you think your plans will work? And second, is there any tension between having a national plan and regional devolution?
MJ Devolution within England is difficult because the natural scale of public-political identity is quite small – cities and towns, and in some places counties. But those are simply not big enough to handle the kind of economic policy and the resourcing that’s needed in a modern economy. We think even the regions that the Labour government created are not big enough. Most industrialised countries have regions of between 6 and 15 million people; in the English context that’s a ‘pan-region’: the whole of the North, the whole of the Midlands, the whole of the South West, and London and the South East. That’s why we go for four larger regions; a movement which has, of course, already started with the creation of the ‘Northern Powerhouse’ and the ‘Midlands Engine’. Those initiatives are recognitions (by the Coalition government originally) that the existing structures at city and county level, and even at the old regional level, weren’t of sufficient scale.
Because of our focus on economic justice, our Commissioners didn’t feel that they could write a constitutional blueprint covering the entire range of public responsibilities. They argued for economic devolution because their remit was economic. But they acknowledged that you couldn’t simply create unaccountable, quango-like agencies; hence the report argues for indirectly elected regional councils which would govern the Regional Economic Executives (as we call them). The people who would sit on the governing council of the Regional Economic Executive would be the elected councillors and mayors from that region, who are elected, and who would be able to say, in their own elections, what they would do on the Regional Executive. I think that’s a good compromise, because getting people to vote in a regional election for the council of the Regional Economic Executive would probably prove hard, and a low turnout would delegitimise the institution.
Of course, you don’t know what a devolved government is going to do, and it may not fit with the ‘national economic plan’. That is built into devolution. But the point of the national economic plan is to create a structure in which all the devolved governments have to try to coordinate. This is particularly important because the regions of England, and Scotland, Wales, and Northern Ireland, will not all be governed by the same party, so you will get real tensions, and it’s important those tensions don’t spill out into economic incoherence. So requiring the Scottish government to work with the UK-wide government to produce a coherent plan that is good for Scotland and good for the UK is important. There will always be tensions in any kind of federal system – as in Germany or Canada – but every developed country other than the UK has now got regional-scale government (in our case it would be regions and nations), and we can’t solve our huge problem of geographic inequality without it.
FSB So what role would the Westminster government have in this National Economic Council? To what extent is there an agenda that can be imposed from Westminster?
MJ In practice, because so much of economic policy is run by the Westminster government, I think the Westminster government would take the lead in setting the framework. But that would be an interesting relationship that could build and change. We see the National Economic Council being chaired by the Chancellor, with the Secretary of State for Business, Enterprise and Industrial Strategy, the heads of the Economic Executives in England, and probably the finance ministers of the Scottish, Welsh, and Northern Irish governments, all sitting on it, observed by the Governor of the Bank of England, and with representation from business, trade unions, and civil society. I think the agenda would be set by the Westminster government, but it would be interesting to see how much it could also effectively be driven by the interests of those other players.
A parallel was the National Health Service Plan agreed by the Labour government in its early years, which brought together all the constituent parts of the NHS, including the unions and employer organisations. Knowing that this plan would release resources, they all managed to agree on it. I think that’s achievable with an economic plan in a more devolved system.
FSB Did you consider democratic experiments and deliberative democracy as something to build in?
MJ We didn’t look at it as deeply as we might have done, partly because the RSA was simultaneously running a Citizens’ Economic Council, which did very interesting deliberative work around economic policy choices. There’s also been a lot of work about participatory budgeting, largely at local authority level.
But we do argue that economic policy should be more consultative; we think the Treasury – in budget processes for example – should be much more consultative. It’s only in the UK that budgets are secret documents that are pulled out of the hat by Chancellors on budget day. Apart from a few market sensitive decisions, budgets should be open to consultation. In general economic policymaking could be much more participative; that’s one of the things we think the drawing up of a national economic plan could experiment with.
There are two reasons that more participation is important. One is legitimacy: the public need to know more about economic policy. Most people are not very sure about economics in general or economic policy. If you want democratic legitimacy, the more people understand economic policy the better, and participative processes can help expand and develop understanding – not just for the small numbers of people involved in them but for people who read about them or hear about them. If you look at places such as Canada, which has done much more participative policy making, there’s a much wider public acceptance that governments have made an attempt to talk to people, and this increases the legitimacy of their decisions.
But it’s also because you get better results. There’s no question that if you involve people in decisions that affect them, you’ll get better policy outcomes. We’ve had very poor policy outcomes based on policies made by Westminster policy-makers. I think you’d get better results with participatory processes, too.
FSB Building up trade unions, as an important element of civil society, is another way of bridging that gap between central policy-making and the public, expanding understanding and engagement with economics and economic policy.
MJ An important argument made by the Commission is that we need stronger trade unions in the labour market to help workers bargain for wages. Over the last 40 years the decline in trade union membership and the coverage of collective bargaining has been accompanied by the decline in wages as a proportion of national income. It’s pretty clear that bargaining power has shifted massively towards employers.
But we also argue for trade unions as social institutions, and we think they should be represented in many more of the public bodies that we want to govern the economy, for example Sector Councils. There are already Sector Councils, but the unions are not, by-and-large, involved in them. We want industrial strategy to encourage the formation of Sector Councils which in turn could enable more collective bargaining between employers and trade unions.
So we’d like to see unions much more involved in industrial strategy and in efforts to raise productivity work, and in the National Economic Council which would help form the National Economic Plan. We think it’s important to do that, because it’s a way of engaging ordinary people – trade unions are made up of their members.
But it’s not just trade unions. Another organisation I would imagine being involved in a National Economic Council would be Citizens UK, which has involved very large numbers of people in the communities in which it works, in analysing their own conditions, coming up with solutions, representing, through community organising, the power of ordinary people to affect decisions. It’s led the living wage campaign. I’d like to see them and other community organisations involved too. That’s always a challenge in policy-making – the gap between the centre and the ordinary person – and civic organisations, trade unions, and community organisations can be crucial bridges between central government and the ordinary citizen.
FSB Trade union culture in this country has been more oppositional, in comparison with the German model which is more partnership-based. Do you think that a shift is needed in the culture of trade unions to achieve the partnership model you propose?
MJ We have to ask which comes first – is it that trade unions are more oppositional, or that government and employers have not involved trade unions, and therefore the only strategy is opposition? In the German system (which incidentally was created by the British after the Second World War), workers sit on boards of companies, there is ‘co-determination’ of wages and conditions within firms and social partnership in government policy making. So trade unions are encouraged to participate and to be cooperative. They still sometimes threaten strike action, which is of course the ultimate power that trade unions have. But, with that power in the background, they’ve been able to negotiate much better working conditions in the German economy and much better economic policies for workers in general. So I think an economic system that gave a stronger role to trade unions, both in the workplace, and in national and devolved economic policy-making, would encourage trade unions to see their role as getting a fairer share for their members in an economy that was more productive as well as fairer and more sustainable.
But trade unions also need to want to recruit more members. The real risk right now is that unions have become comfortable with the memberships that they’ve got – heavily dominated by the public sector and large industrial manufacturing firms. It’s difficult to organise in a fragmented service sector, amongst women, self-employed people, part-time workers, and ethnic minorities; but they’re the people who need trade unions most, and trade unions have to recruit in those sectors. We make proposals to make it easier for unions to get access to those workers, suggesting, for example, auto-enrolment in the gig economy. But trade unions can’t sit on their laurels.
FSB At The World Transformed some people have been talking about ‘breaking the power of the banks’. Do you think that’s a good aspiration?
MJ Again, you need to think about your theory of change, so we return to the question I began by talking about. If a political party wants to win mass support for a radical programme, it needs to identify some enemies. Most people will not read a 300 page report: they will look for a simple argument with an emotional resonance, and enemies are an important part of the emotional argument. At the same time you also need to provide a sense of hope, of the uplifting possibility of a better world. So the strategy, if I were running a political party’s communications, would be a combination of some enemies and some hope, and some practical solutions which are easily described but also placed into a coherent narrative so people can understand what they all add up to. Our role wasn’t to win votes, or to win a political argument of that kind. It was to create a new consensus about the nature of the economy – the problems and the solutions. So we didn’t need enemies in our story to do that, and indeed identifying enemies too closely would have turned away a lot of people.
FSB And are your recommendations for the banks an end point, or could they form the starting point for a more radical set of policies in the future?
MJ Well there is undoubtedly a more radical programme you could implement to reduce the role of the financial sector in the UK economy and to shift its focus away from socially useless activities towards productive investment. Ours is a pretty measured approach, and I could certainly imagine going further.
But in reality, a more measured approach and a more radical goal are not incompatible. Change occurs step-by-step. Any radical government that was trying to manage an economy without crisis (which is obviously the risk for any government seeking significant change – plunging the economy into a crisis of legitimacy and potentially capital flight) would have to take a measured approach to the financial sector. But this might then become more radical over time.
The approach we set out in the report is to rebalance the economy away from the financial sector, to reduce its profits in certain areas, to clamp down on illegal activity including money laundering and tax evasion, both of which are major sources of profit in the financial sector. It’s not as radical as it might have been, but it’s a powerful agenda, a good place to start, and it’s not in contradiction with a more radical approach.
Any reform programme can be either an end point or a jumping off point for further reform – except for those reforms that deliberately place barriers in the way of more radical change. So in any theory of change, you need to be careful of minor reforms which effectively block further reform. In most instances, this is the goal of many of the advocates of minor reform. When you get radical governments or movements, the forces opposing them often adopt a very weakened form of the proposal in order to prevent anything further happening. This doesn’t mean that you avoid minor reform; only that it must always be able to lead on to further reform in the future – and must not effectively prevent it. I certainly think that most of what we propose in this report on the financial sector, and in other areas, could be first steps on the road to more radical reform – but let’s do the first steps first.
The crucial thing is building coalitions of support for those first steps. Social movements can be important in supporting governments, but they’re not sufficient; in practical politics you need the support of progressive businesses, and wider public understanding. If we build a broad coalition for the first steps, then once you’ve done those and people realise they’re not sufficient, you’re likely to find allies from that initial coalition who become convinced of the need to go further. So step by step you can turn moderate incrementalism into radical change.
Michael Jacobs is Director of the IPPR’s Commission on Economic Justice and will soon be professor at the Sheffield Political Economy Research Institute (SPERI) at the University of Sheffield.
Florence Sutcliffe-Braithwaite is a lecturer in history at UCL and co-editor of Renewal.
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