We need a new economic model

Andrew Davies’ recent article for ClickonWales Creating Opportunity Out of the Funding Crisis was an intriguing analysis of the economic problems facing Wales at the beginning of the 21^st Century. Until last December the AM for Swansea West had been a Cabinet Minister in the Welsh Government since its inception in 1999. His briefs have included Minister for Assembly Business (1999-2002), Minister for Economic Development and Transport (2002-07), and Minister for Finance and Public Service Delivery (2007-2009).

Underlying his analysis is the grim reality that the Conservative Lib-Dem budget will have a genuinely disproportionate impact on the poorest in our society. As Davies points out, the poorest in our community will be hit six-times harder than the richest. It is a point well made and one that will need to be made consistently over the next five years.

However, the article could have gone much further in addressing the broader political landscape. Given the scale of the economic hardships about to be unleashed, it is imperative that the Labour Party provides a relevant and clear vision for working class people. This is all the more important, given the dystopian future facing us as a result of the failed neo-liberal policies pursued, beyond reason, by the Conservative Party, the Labour Party in government since 1997 – and now, also, by the Liberal Democrats.

In kick-starting the debate, the Minister sets the scene by referring to both Keynes and Marx. Frustratingly, however, his argument moves towards a more mainstream, political narrative – and appears more Monetarist than Keynesian. This was particularly evidenced by the unhealthy focus on ‘efficiency savings’ as the primary means of dealing with the economic problems ahead.

The expectation raised at the beginning of the paper was of a Labour politician taking up the sword and slaying his right-wing adversaries. Instead, what we were left with was a general expression of the status-quo and a somewhat uninspiring offering of what measures need to be adopted to bring our debt-ridden country back from the brink. Five main points were highlighted to help us deal with the problems ahead:

1. To adopt ‘fewer actions’ for the Welsh Government to deliver on (so that only the most important priorities are met in the current harsh economic climate).
2. To move away from a target culture and vapid ‘ring-fencing’ budgets – thereby enabling greater flexibility in spending by local and national Governments.
3. To encourage a ‘Team-Wales’ approach that enables more collaboration across the public sector. ‘Public Service Summits’ should be organised to brings together the key players in the provision of public services.
4. To be more cost-effective, create greater accountability and transparency in the delivery of public services, and to reduce the variation in standards across Welsh local authorities by benchmarking best practice.
5. And, finally, to frame new policies to protect the poorest and most vulnerable.

This ‘five-point plan’ recognises the harsh financial realities that Wales is faced with over the coming decade. Certainly, we would do well to heed his advice as to how best to re-emerge from the economic tsunami engulfing Britain and the rest of the world. However, it is also time to recognise that the old arguments, around ‘greater efficiencies’, ‘transparency’, ‘accountability’, ‘more team work’ and ‘fewer targets’ are simply not enough, in themselves, given the scale of fundamental change that needs to take place.

The argument also needs to be made that the economic model upon which we have collectively invested so much also needs to be re-examined. Indeed, the ‘opportunities’ that Andrew Davies talks about cannot simply be limited to doing things ‘more efficiently’. Whatever side of the political spectrum we identify with, the implosion of the banking sector gives us a golden opportunity – and a once-in-a-generational moment – to decide which social and economic path we should choose and what changes we need to make.

The first ‘Opportunity’ from this funding crisis, must surely be to re-organise the ‘left’ and to articulate the relevance of Socialism and of Welsh Labour. If we want to win back our lost councils in Wales and regain control of the Assembly as a majority Labour Government we cannot go to the people with these ‘safe’ ideas that will do little to challenge the misguided economic orthodoxy of the past. Instead, we need to be dynamic and relevant. The laissez-faire economic crisis provides Welsh Labour with an opportunity to become the real voice of the Welsh people again – and by doing so, to become the natural Party of Government in Wales for a generation.

It is also imperative that we re-build the Trade Union movement to oppose the cuts agenda that Mr Davies seems to be complicitly accepting in his paper. There should be no inevitability about the cutbacks in our public services. The ‘Left’ should not fear tackling this debate head-on, rather than getting caught up in the tide of centre-right thinking that argues, ideologically, for ‘greater efficiency’ and ‘fewer priorities’.

It was heartening, however, to read the Minister’s argument regarding the need to lever additional funds for future capital investment projects. With a potential cut in capital spending over the next five years, this will be crucial in securing the economic recovery in Wales. The obvious question is how this will take place and whether the money will come from. Will it be from the private sector or from an as yet un-negotiated Westminster funding stream, or a combination of both?

One area that warrants particular attention is how to bring about a spur in growth, size and activity of the private sector in Wales. Given the over-reliance in Wales on public sector jobs (compared to the other side of Offa’s Dyke), the recession is likely to hit Wales hardest and we must act now to harness the financial resources and skills of a new generation of entrepreneurs. Over the next decade Wales will need to be defined by the growth in business start-ups as a means of igniting local economic drivers that will increase wealth creation and employment.

This is not to say that the public sector is either bloated or overtly profligate. Instead, it recognises that the number of Welsh jobs dependent on central Government places a vast swathe of Welsh workers at the mercy of a pernicious Tory-led Government intent on destroying their livelihoods and financial security. We must also be careful not to fall into the false counter-argument that any increases in the private-sector can only be achieved through wide-scale reductions in the public sector. As Peter Hain pointed out in an article in the Western Mail (15 March 2008):

“The private sector is too small. At just 41 per cent of GDP, it is smaller than any other part of the UK (except Northern Ireland at 36 per cent) and well below the UK average about 56 per cent). To achieve at least equilibrium with the rest of the UK and the OECD countries, Wales must move towards a private sector at around 55 per cent of Welsh GDP. And to achieve this in 15 to 20 years we will need year on year growth at around 1 per cent faster than the UK average: no mean feat”.

However, siphoning off key-parts of our public services for a private-sector feeding-frenzy is simply not the answer. Instead, we need to unleash the creative, entrepreneurial activity of a new generation of business-minded people, with their own ideas for private enterprise. In turn, this will raise employment levels, increase taxation and raise standards of living in a country marked by years of neglect and Conservative under-investment.

These are not normal times. The lives of Welsh men and women are about to be thrown up in the air by a Conservative-led Coalition Government that will destroy public services and our way of life for a generation. With this in mind, we must force our political leaders (in all parties) to identify alternative spending reductions that will enable us to save jobs, protect families and, ultimately, safeguard the lives of lower and middle-income families.

In Wales, we must break from the post-devolution convention of only debating policy areas devolved to the Welsh Government. As such, the Welsh debate must first recognise the over-arching spending commitments being made on our behalf in Westminster. The UK deficit (that is, the difference between what we spend and raise in tax) currently stands at approximately £158billion a year. Given the cutbacks currently being talked about then, it is not unreasonable to ask for a review of:

1. Trident (that could save £80 billion).

2. The wars in Iraq and Afghanistan (that cost taxpayers £5 billion a year).

3. The Civil List (that could save £20 million a year).

4. The UK military budget (costing £50 billion a year) and which is currently 50 per cent more in spending terms than Germany whose economy is twice the size of the UK.

With these spending plans being adopted by the Westminster Government, we should bear in mind Aneurin Bevan’s famous words at Labour’s 1949 Blackpool Conference, “The language of priorities is the religion of Socialism”. We must therefore widen the debate before it is too late and insist on a review of hitherto ‘no-go’ areas like defence and the monarchy to whom each of us contribute.

On a Wales-wide basis, we should also be discussing a review of the Barnett formula, given the revelation by the Holtham Commission that Wales was being underfunded by at least £300m a year. In addition, we need to explore the feasibility of adopting the Holtham Commission’s recommendation for Wales to have limited tax-raising powers, to give us another string to our economic bow to deal with our chronic economic problems.

Ultimately, however, the current crisis represents an popportunity to reframe the debate and to reset the political narrative around the failures of a 30-year old economic doctrine advocating complete deregulation of the financial sector. We should not allow the wider public to forget that free-market ideology, resulting in the banking sector running amok,  was to blame for the current crisis. We should bear in mind the words of John Maynard Keynes when motivating ourselves to articulate the counter-arguments to the public: “When the facts change, I change my opinion. What do you do?”

From a Welsh perspective, the broader ppportunities that could be created out of the funding crisis include:

1. The creation in Wales of a new partnership with the private sector to generate a new business start-up fund sponsored by leading Welsh businesses (and what better person to do this than Andrew Davies himself).
2. To look again at the merits of a People’s Bank in Wales and not to wait for a Westminster Government to lead the way.
3. To explore a closer financial and working relationship with Scotland and the North of England  to forge  new alliances that draw on political and financial resources to protect the most vulnerable in our communities.
4. To be bold in levering new capital from other countries to reinvest in coal, and to develop a dynamic, green energy programme – focusing on renewables and biofuels.
5. To increase our manufacturing sector and prioritise a new growth for the high added-value areas, such as financial services, electronics, biosciences, ICT and high-tech businesses.

These are the kind of opportunities that need to be explored given the extent of the current funding crisis. Tgey hold out more prespects for really making a difference  rather than merely pursuing a more efficient administration of our pubic services.

We must deal decisively with countering the prevailing right-wing fundamentalism and orthodoxy which has created the present unstable economic order. If the Right is wrong, then the Left must lead. We would do well within the Labour Party to remember the focus and discipline of Margaret Thatcher who said, “You may have to fight a battle more than once to win it”. So let us join the debate and have the self-confidence, as a Party, to take on all-comers, Tories and Liberals alike.