Dead Men Left

Saturday, April 09, 2005

Rover, productivity, and other New Labour failings

Interesting piece by David Gow on the Rover collapse that dusts down what was once held as common-sense on the left:

Rover, bought for just £10 but with a £500m cash dowry from BMW, its German owners for six years, collapsed because of the perennial British industrial disease: not the poor labour relations that almost brought it to its knees in the 70s and 80s, but a chronic lack of investment in technology and human capital. Phoenix bled it to death.

Critical to New Labour's whole economic philosophy was the view that, by depoliticising macroeconomic decisions and concentrating solely on establishing the "optimum" environment for markets, many of Britain's historic economic difficulties would essentially solve themselves. Most prominent amongst these was the "productivtiy gap" between the UK and the rest of the developed world. (PDF file.)

"Old Keynesian" economists would advocate government spending and direct intervention, taking a "top-down" approach to policy and thumping markets about when necessary; New Labour, heavily influenced by a certain strand of "New Keynesian" thinking, preferred "bottom-up", cajoling and tweaking institutions into a form most suited for the market. Macroeconomic policy, in the old sense, was removed from the sway of politicians: so in one of New Labour's very first actions, back in 1997, the control of interest rates was left to the judgement of the Bank of England's unelected Monetary Policy Committee, whilst Gordon Brown explicitly set the government as firmly as possible against discretionary intervention, under the guise of the "Golden Rule".

As a result, it has been taken as read that no possible government assistance is available for Rover; but, with an election offing and plenty of pissed-off Brummies with votes not quite grasping the inexorable logic of the market, Tony Blair has been left begging favours from Chinese corporations.

Score one against non-intervention and a supposedly "stable macroeconomic environment". Across the country as a whole, the policy has singularly failed to produce the goods. Aside from the headline figure of 1m manufacturing jobs lost in the last eight years, business investment has been on the slide since 1998 (see Chart 3.2; PDF file) and research and development expenditure lags behind the EU and the US (PDF file). New Labour's hands-off approach has failed to significantly close the gap between the UK and output per worker in US, France and Germany. Ah, the Brown economic miracle.

Update: All the links work now...