Chuka Umunna speech: more important than you think

Chuka Ummuna has set out Labour's plans to institutionalize the developmental state and the rise in productivity it achieved in 1997-2010 to solve the living standards crisis.

Last night, in a speech to the EEF Manufacturers Annual Dinner, Chuka Umunna outlined the 2030 agenda that is Labour’s plan for long term sustainable growth, promising that this long-term view would solve the standard of living crisis by creating more middle income jobs. 2030 is a very neat phrase.

It ties together business long-termism and anchoring the developmental state and presents them as the long-term solution to the standard of living crisis.

A business decision on the capital investments that the UK needs, requires at a minimum a fifteen years plan. In terms of the developmental state, 2030 has pedigree. China recently produced a huge document in partnership with the World Bank for its plans to 2030.

2030 is also an important date for strategic planning by investors.

Its best-known advocate is Jim O’Neill. The forecasters that follow Jim O’Neill’s methodology predict GDP per capita, a figure that is the economist’s method of comparing living standards across countries, based on their forecasts for education, investment, productivity, and the current forecasts for 2030 highlight Labour’s main attack on the government’s economic policy because the forecasts to 2030 warn that the UK’s living standards are forecasted to worsen.

According to HSBC’s recent predictions, the developed world’s GDP per capita (living standards) will grow on average by 1.85 per cent a year to 2030. Their prediction for the UK’s growth rate is a slower 1.5 per cent a year, much slower than that of Germany, whose living standards will grow by 2.15 per cent a year.

These are all small numbers, until you compound them across the next 15 years to get an estimate of how much further the UK’s standard of living will fall behind that of its competitors. With these small differences, the UK’s living standards will be a further five percent poorer than the developed world by 2030, and a further ten percent poorer than the Germans. 2030 warns that the standard of living crisis is not just related to austerity.

Labour’s answer is the mix of developmental state policies around long-term planning that have been laid out in a number of reports by, for example, Sir George Cox, former director general of the IoD, on overcoming short termism in business and chairman of the Olympic Delivery Committee, Sir John Armitt’s report on long-term approach needed to build infrastructure together with regulatory state policies around competition, and reduction of the deficit.

Last night they were assumed to work together and when they go with the grain, and perhaps in a growing economy, they ought to.

But there are deep tensions between the developmental state and the regulatory state, and also the developmental state and the Treasury view.

In the UK, in particular, the Treasury view is dominant when it comes to spending, and Labour needs to explain how they will protect the developmental state from the Treasury, something no UK government has ever done. In particular they need to explain how they would ring fence the spending for the developmental state. In a budget of £700 billion, any developmental state spending is quite small, but without ringfencing, any plans will be undermined by Treasury mandarins.

The disappointingly slow development of Infrastructure UK is a case in point. IUK has sat in the Treasury since 2009, and very little has happened. In contrast, its Australian counterpart, Infrastructure Australia, had a plan past 2030 within 18 months of being created.

For this reason it’s important for Labour’s credibility that it was Chuka Umunna, not Ed Balls, who framed 2030.

Hopefully, it means Labour is planning to house the developmental state outside the Treasury, because it’s not that Ed Balls doesn’t know all about the policies to promote long-term growth. The last time Labour addressed long-term productivity in opposition, Ed Balls wrote Gordon Brown’s ‘neo-classical endogenous growth theory’ speech. That phrase would never make it into a party political broadcast – 2030 will – but the economics behind it informs 2030.

At the time, the speech served its purpose as a signal of Labour’s commitment to the reform of the long-term problems of the UK economy, and Labour’s dominance of the Treasury kept the mandarins in check and resulted, according to Dan Corry and John van Reenen, in the UK having the second highest productivity growth between 1997-2010.

However, without institutions, this didn’t last. With 2030 lies the hope that Labour can institutionalize the developmental state and the rise in productivity it achieved in 1997-2010 to solve the living standards crisis. That’s why last night’s speech was so important.

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