If Labour is going to win again, we must have a credible economic vision

After a decade of mediocre growth and austerity policies under successive Conservative dominated administrations, Labour ought to have romped home on 12th December 2019. Instead, the Conservatives won an historic majority.

All of those contending for the Labour leadership must realise that one of the reasons was that the electorate did not believe in the economic policies Labour offered, including large giveaways that would not solve the fundamental problems the country faced. The tragedy is that Labour had, in many ways, accurately diagnosed the problems many working people were encountering. The number of people employed on zero-hour contracts has increased. The number of people in good-quality, well-paying jobs has declined. At the same time fewer young people can get on to the housing ladder.

Whether Labour ever gets close to Government again will therefore depend heavily on whether the Party can come up with a credible range of policies to tackle the huge imbalances in the UK economy, which are the cause of both so much of our political system’s current disarray and which are also responsible for distrust in Labour’s current prescriptions for tackling our economy’s evident weaknesses.

What would a truly effective economic platform look like for Labour? Spending promises based on unrealistic redistributive policies are not the answer. Instead we need credible policies to raise living standards and to strengthen public services by getting the economy to grow faster.

How could we do this? In a nutshell, by shifting incentives away from dependence on services, where productivity increases are very hard to achieve, and towards manufacturing where higher output per hour is much easier to secure. In particular, we need much more of our GDP devoted to investment, especially in technology and mechanisation and power, which are where the real drivers of economic growth are to be found.

And how might a future Labour Government increase these levels of investment and secure the corresponding increase in economic activity? The key need is for us to make it profitable to site new factories in the UK rather than in China or Germany. The problem is that the only way to get this done is with a much lower exchange rate targeted to what price-sensitive industry needs, not what services, most of which are not very price sensitive, require. They can live with a much higher parity for sterling than manufacturing can.

Is this programme going to be an easy sell? No, it is not, and this may be Labour's biggest presentational problem. But then nor did it look likely that the economic establishment was going to abandon Keynesianism in the 1970s and 1980s when monetarism and neoliberalism took over to combat rampant inflation. Labour needs to get people to realise that chasing inflation down further and further is now nothing like as important as getting the growth rate up.

A key feature of a programme for reindustrialisation is that it would particularly benefit the country's former industrial heartlands, which is where we saw the Labour Party's vote declining the most dramatically. We have to get the regions of the country outside London and the South East back to producing sufficient goods to sell to the rest of the world to become self-sustaining and prosperous again.

We also need to get the economy more evenly balanced generally. We can't go on living with a balance of payments deficit of 5% of GDP or more every year. Nor can we afford to continue with borrowing on the scale needed to support the current unsustainable state of affairs. Apart from anything else, endless QE to prop up demand is the high road to increased wealth disparities, which surely Labour should be fighting to contain.

"It's the economy, stupid" is not the be all and end all of politics but it is a vital start. If the contenders for the Labour leadership cannot come up with a credible narrative on how to get the economy to perform better, it is unlikely that any of them will ever win a general election.

We badly need a credible left of centre alternative to Conservatism and populism. Until the left finds its way on the economy, the sad fact is that this probably won’t happen.