Economic Policies for an Incoming Labour Government (Part 9 of 9)

The Wage and Salaries Increases Act

One of the main, and perhaps – to western eyes – most surprising features of Japanese Prime Minister Shinzo Abe’s re-introduction of Shimomuran economics is his attempt to ensure that there is a rise in Japanese wages. In marked contrast to Coalition government’s determination to drive down wages here, he well understands that higher wages are an important way of raising demand in an economy which is intent on stimulating economic activity – hence his implication that the advantage of relatively cheap investment finance will be made available only to those firms that already pay, or are willing to undertake to pay in the future, a proper level of wages to their workforce.

An incoming Labour government should take a similar stance, with positive policies for a greater share of national income by working people. In particular, there should be an immediate rise in the minimum wage rate to £8 an hour and an annual incomes and salaries growth target equal to the estimated rate of inflation plus the estimated rate of growth plus 2% for the first five years of the Labour Government. This, in the context of the other policies here proposed, will spread effective purchasing power throughout the economy and move all families out of poverty within the lifetime of this government. Zero-hours contracts should be made illegal in the UK. The disability and unemployment benefits system will so far as possible be up-rated to the levels which would have obtained if the Coalition Government had never existed.

A second part of wage legislation will be enacted to provide that future wage and salary increases will be divided, with the increases due to the estimated annual rate of inflation paid weekly or monthly and the estimated growth component paid as a lump sum every 1st November. This measure will ensure the growth of real wages and limit inflation and provide earners with lump sum funds, which research has shown are more likely to be saved, which in turn will increase the emergency funds of families for holidays or to meet unexpected expenses. It will also usefully increase the saving of British families, and will, in our restructured financial system, increase bank funds for industry. That measure has proved very effective in Japan, where it may have been another policy initiative originating from the Japanese master economist Osamu Shimomura, and we think it will be as effective in the UK as it was in Japan.

Improvements in The Machinery of Government

A review of the dominant and self-interested role played in the British economy by the major banks leaves little room for surprise at the fact that the various initiatives to support a British economic revival have all failed. George Brown’s National Enterprise Board, the Industrial Re-Organisation Corporation, and the more recent suggestion of a National Investment Bank, all had and have one factor in common – they were inevitably small, central, initiatives depending upon the co-operation and goodwill of the Clearing Banks to allow them to work. Not surprisingly, over the last century and a half, the British Clearing Banks have never had any interest in permitting the survival of any organisation that could grow to challenge their virtual monopoly and have ensured that such experiments did not survive. [1] The proposals above for the reform of the banking system will go a long way towards remedying this situation and allowing genuine reforms to take effect. If, for any reason, the banks succeed again in frustrating the flow of lending for investment purposes to industry, it would certainly be worth looking again at a National Investment Bank which would ensure that such an objective was met, with that national bank having direct links to the Local Community Interest Banks. Finally, there is one additional change in the machinery of Government that should be put into place.

The Economic Planning Agency

An Economic Planning Agency (EPA) will be set up in the Office of the Prime Minister to fulfil the following goals:

– to provide competent, timely and accurate advice to the government on how best to achieve the developing government objectives of increasing economic growth, managing inflation, and making due provision for the impact of environmental changes on UK resources

– to report upon the locality and potential of British businesses, particularly with regard to the development of the UK as a green economy

– to identify and recommend potential and emerging innovations and the location of key knowledge-based growth hubs in the economy

– to provide a monthly report upon the outcomes of the regional, national and local investments

– to calculate and comment on, as it may see fit, the capital-output ratios and other key factors in the economic development of the country

– to identify blockages in the free flow of investment funding for national and other viable projects, particularly with regard to national sea defences and the investments required to accelerate the movement into a greener economy

– to provide an Annual Economic Survey of Britain, summarising the economic state of the nation and acting to improve the practical economic understanding of key industries, and

– to report as regularly as it sees fit upon the results of various Government initiatives and projects, particularly with regard to

– Green energy generation

– The safeguarding of national resources against rising sea levels and extreme weather events

– The improvement of national education and research and development facilities and

– Other emerging issues which the EPA wish to bring to the Government’s attention.

These new institutions will mirror the more competent SME funding arrangements and other existing industrial funding arrangements in Germany. These new banks will be guaranteed by government, as in fact all banks are in the last resort. There can be no foreign objection to the British Government taking steps to ensure that British domestic industry has access to financial facilities, similar to those that have existed, and which continue to exist, to fund foreign industry abroad. Given access to equivalent funding sources, we are confident that British invention will flow through to factory floor innovation and British industry will no longer lose its place in the world and will flourish through the fresh opportunities made available to it.

Conclusion

It is that fresh economic understanding that should enable an incoming Labour Government to reshape and reform the future of Britain. The objective of that Government’s economic policy should be the restoration of a civilised and progressive Britain where all of its people are free from want, excellently educated, and achieving their full potential within a much more prosperous and fairer society. Britain’s place in the world as an innovative, highly developed manufacturing economy operating at the leading edge of invention and innovation must be re-built. The fruits of that success should be more equitably distributed, not only as a matter of social justice and to secure a more integrated, happier and healthier society, but also as a stimulus and contributor to continuing economic success.

[1] For some of the methods used, see the Henley School of Management Paper by Peter Scott and Lucy Newton “Jealous monopolists? British banks and responses to the Macmillan Gap during the 1930s” which is at http:// www.reading.ac.uk/web/FILES/management/036.pdf

© Bryan Gould and George Tait Edwards 2015

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This post was written by Bryan Gould and George Tait Edwards