Today Compass formally launches Plan B to kickstart the economy. Typically, however, it has already been fully leaked in yesterday’s Observer. It has some helpful (though not particularly original) ideas. It wants to stop the cuts, start a new round of quantitative easing but giving the money direct to businesses, raise benefits to ease poverty and increase demand, make tax more progressive through a financial transactions tax and a multi-tiered income tax as well as a land value tax, establish a national investment bank to make loans and lever in private investment, and green the economy by decarbonising buildings and investing in green transport and infrastructure as well as achieving a better work-life balance. All warm words from the Centre-Left perspective. But it avoids the hard issues: How is it to be paid for? How is the economy to be rebalanced from finance to industry? And how is manufacturing to be revived?
The first question Osborne and the media will ask is, won’t the extra borrowing inflame the bond markets and actually make the situation worse? Of course it can be answered, but it needs to be, firmly and clearly. Partly it’s from the growth dividend (worth £40-50bn over a 4-year period), partly it’s increased taxation on the 2% super-rich who’ve so far got off scot-free, and partly it could be (but doesn’t necessarily have to be) some modest extra borrowing – not a problem when our debt to GDP ratio is about the same as Germany, and below France and the US, and far below Italy and Japan.
Rebalancing from the City to the industrial lifeblood of the country is easier said than done. But again it’s certainly possible, it just has to be spelt out. It means above all regaining pulic control of the money supply. At present just 8% of bank lending goes to productive investment, i.e. manufacturing, construction, communications, distribution, retail and wholesale. That means 11/12ths of all bank lending is poured into mortgages, speculoation foreign investments, or inter-bank.
Reviving a beaten-down, hollowed-out manufacturing is the heart of the problem, yet in most analyses it doesn’t even feature. It means switching the national allocation of capital away from consumerism, imports and the fripperies of the rich towards key manufacturing sectors. It means protecting national strategic companies and sectors from foreign takeovers, which other major governments would never allow to happen. It means re-establishing the crucial supply chains which have been broken up in previous market sell-offs. And it means helping SMEs to upgrade into higher tech niches less exposed to Asian competition.
None of this is in Compass Plan B, but it won’t persuade critics until it is spelt out in full.