/>Blueprint for a New Economy
In this Guest Post, Bren Albiston, a member of the Young Fabian Renewing and Reforming Our Economy Policy Commission, explores the ways in which we can change the way the country does business.
We have a big decision to make as to what future we want for this country.
Do we want to continue ever further down the road of an economic system that rewards rent-seeking more than productivity? Do we want to sustain an unfair system that generates friction between the Square Mile and the rest of the economy?
No. We can, and need to, improve this sorry state of affairs.
We have to grow our economy at more than 3% a year until 2035 in order to make up the losses incurred from the double-whammy of the credit crunch and recession. If we fail, we will lose something in the order of £4 trillion of productivity* . The task may seem insurmountable, but we must work to secure as much of that 4 trillion as we can.
Our capitalism is broken. This has been made clear by years of recession and static growth. We continue to pay the price of other people’s hubris; those who thought they could predict the unpredictable.
Despite this, we are still over-reliant on a financial system that is too cautious to invest. At the same time, the government is scaling back the public sector, our most potent means of inducing social mobility. We must reinvent the way we do business and the way that we create and encourage growth, not just because we need to recover economically, but because we need to recover socially as well.
Britain should not be afraid of taking the lead in reform. There are many ways in which the nation could change the way it does business. The establishment of a properly funded and empowered ‘Green’ investment bank is one option. As Will Hutton suggests, we should explore the benefits of a ‘Knowledge Bank’, a ‘Life Sciences Bank’ and perhaps a ‘National Infrastructure Bank’.
Through these institutions, we can invest in the technologies and expertise required to rebuild our economy. A new lending infrastructure will incentivise innovation, while benefiting traditional funding streams at the same time.
The new system would channel funds to those areas that are thought to be risky bets by orthodox lenders. However, it would need the backing of the state to succeed. It alone can provide the security and effective strategic direction needed, alongside a highly autonomous set of investment apparatus to keep its influence in check.
Fairness and just desserts should be the foundation stones of our new capitalism. In many ways, small business does more for this country than big business. At present, we neglect the small- and medium-sized businesses and leave them exposed to the predatory practices of our largest firms.
These giants operate largely unchallenged by both smaller competitors and government watchdogs. A study in 2005 revealed that the more competing firms were matched in terms of performance and productivity, the more they tended to register new patents** . We need a competition framework that actively promotes competition rather than protecting incumbent corporations.
Unfortunately, the balance between today’s consumers and tomorrow’s is too heavily in favour of the former. In consequence, there is little room for innovation and even less for emerging companies to replace those which are uncompetitive. We need an infrastructure capable of sustaining new corporate growth and innovation.
Britain is, in many respects, a world-leader in high technology and services. Yet as our manufacturing sector continues to decline, we remain over-reliant on financial institutions as the engines of growth. As the state retreats from its key role in encouraging social mobility, we are faced with a huge task: we need to reconstruct our capitalism to benefit society, and we need new institutions to help us do that.
- You can learn more about what the ‘Renewing and Reforming Our Economy’ Policy Commission has been doing by clicking here.
* H.M Treasury (2009) Pre-Budget Report: Securing the Recovery: Growth and Opportunity, HMSO. See Also: Will Hutton (2010) Them and Us. Little, Brown.
** Phillippe Aghion, Richard Blundell, Rachel Griffith, Peter Howitt and Susan Prantl (2005) ‘The Effects of Entry on incumbent Innovation and Productivity’, CEPR Discussion Paper No. DP5323.
