Of all the many prime ministers who have walked through the doors of 10 Downing Street in the past decade, the one Andy Burnham resembles most is Liz Truss. Both had a view of what was going wrong with the economy. Both wanted to break with the politics of managed decline. Both had ambitious ideas for what needed to be done.
Truss, of course, came to grief within weeks of becoming prime minister, after her tax-cutting mini-budget was brutally rejected by the financial markets. The big question for Burnham is whether he can deliver on his agenda without suffering the same fate. He can, but it won’t be easy.
Burnham’s analysis of what’s gone wrong is spot on. Over the past 40 or so years, the economy has become ever-more dominated by the City of London. Manufacturing’s share of Britain’s output has shrunk, resulting in a permanent trade deficit. Living standards are barely any higher than they were before the banking crisis of 2008. The new owners of sold-off state assets have put profits before investment. Increasingly, Britain is a country of gig-economy workers run by a cabal of rentier capitalists.
So, yes, the neoliberal policies introduced by Margaret Thatcher have failed, and they have failed most spectacularly in what were once Britain’s industrial heartlands: Scotland, Wales and the northern regions of England. Burnham says there is a need to remedy the geographical bias in the economy and he will not be the first prime minister to come to this conclusion. Keir Starmer made the same sort of noises after winning his landslide victory two years ago.
For Burnham to succeed where others have not, three things need to happen. First, he needs to recognise the limitations of Labour’s current approach, which rests on the belief that smarter regulation, fairer taxes and better economic management will deliver the change that is needed. In effect, this means a continuation of the status quo but with the spoils of a low-growth, low-productivity economy more evenly distributed.
But as Costas Lapavitsas, Doug Nicholls and I argue in our forthcoming book, Reindustrialise Britain, the country’s real problems are not those of distribution but of production. The country needs more than new planning laws and a wealth tax. Taking utility companies back into public ownership will not magically unleash latent economic dynamism. There is clearly public demand for a more prosperous, less unequal economy, but this will only happen if there is a state-led strategy of reindustrialisation.
This is not about a return to the 1970s or feather-bedding failing enterprises. Rather, it is a recognition that there can be no genuine and sustained prosperity without a strong manufacturing base. And that means a commitment to foundational industries such as steel as well as advanced engineering, automation, digital technology and clean energy. It is the only way Britain will be able to enjoy real economic sovereignty.
Second, some serious public investment is needed. This should be channelled through a properly funded national investment bank, which would have a mandate to provide long-term, patient capital for transport, energy and industrial supply chains. A 10-year programme of investment would be tied to public equity stakes, ensuring the steady rebuilding of public wealth.
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The aim would be to use state investment to encourage – or crowd in – private investment. On a small scale, Burnham has shown as mayor of Greater Manchester what can be achieved, identifying specific cluster locations, backed with infrastructure investment, to attract high-value private employment.
There are obstacles that need to be overcome. One is that the hollowing out of manufacturing in recent decades has meant a loss of technical knowhow and hands-on experience. Britain has a pressing need for technicians and engineers, and that means investment in skills and technical training. Unions have a key role here. A break with neoliberal dogma means seeing organised labour as the solution, not part of the problem.
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Finally, Burnham will need to be ready for a backlash from the financial markets, and it is a concern that even before he has taken office there are signs of pressure being brought to bear. Starmer has left it to his successor to find the full amount to pay for the government’s defence investment plan, prompting immediate speculation that the new administration will be forced into raising taxes to avoid breaking its own fiscal rules and thereby alarming the bond markets.
If Burnham bows to this pressure, he will perpetuate the dreary cycle into which the economy has been locked for the past two decades; namely that weak growth increases the government’s budget deficit, leading to demands for spending cuts or tax increases to make good the shortfall. The tax increases and spending cuts slow the economy which results in forecasts for the public finances being missed, leading to fresh demands from the markets for austerity measures.
Can anything be done to break out of this doom loop? Well, yes. The mandate of the Bank of England could be broadened so that it was obliged to provide a flow of low-cost, patient capital needed to fund the reindustrialisation strategy. The Netherlands has shown that it is possible to borrow to finance public corporations without the bond markets cutting up rough, provided the borrowing is against a reliable revenue stream. Ultimately, the government may need to use targeted controls to prevent the manufacturing sector being at the mercy of footloose capital.
Make no mistake, none of this will be easy. The alternative, though, is the continuation of managed decline. Or, to be more precise, mismanaged decline.
