How times have changed.
The story that was sold to the public in 2010 was that dramatic cuts were needed, due to a ‘profligate’ Labour Party, and ‘red tape’ needed to be hacked away which would appease the financial markets and boost business growth. Back then, the International Monetary Fund agreed and the Confederation of British Industry and the British Chambers of Commerce couldn’t be happier with the recommendations.
What a difference two years make.
Recently, there have been a series of ‘expert’ u-turns – the IMF now sees the lack investment as a major factor stifling growth while the CBI and BCC have berated Osborne’s economic plan (there clearly is nothing quite like loyalty). But while highlighting these changes are easy wins for any writer, the more important development is the message shift.
Investment, albeit reluctantly within the coalition, is becoming the new elixir. Infrastructure investment can boost economic growth and create sustainable transport options for the near future; innovation and research and investment will provide the market leading developments that can increase competitiveness and; small-medium enterprises (SMEs) need credit accessibility in order to grow and provide much needed competition within the market.
I suppose, finally, we are all becoming semi-quasi-half hearted-Keynesians now.
Unfortunately, the coalition’s plans have fallen well short. Infrastructure was on the table but has ground to a halt. SMEs have seen very little of the finance created by a combination of quantitative easing and Project Merlin – because private banks have simply topped up their reserves – and while Osborne’s new plan, the ‘Small Business Bank’, may well start to hit the credit targets, it does not go far enough (nor is it really a bank but rather an amalgamation of funds).
Labour’s policy review response is to create a British Investment Bank which will invest in projects of all sizes, particularly in infrastructure and low-carbon, as well as provide cheap loans to SMEs to boost economic growth. While details are a little thin on the ground, the principle sounds good and cites many examples from around the world.
However, this plan fails to harness the best opportunity for change –decentralisation.
How about this as an idea?
Firstly, we need to decentralise finance and responsibilities away from the Treasury to local authorities who will understand to a greater extent how their own economy can grow. They should have the funding, be able to generate their own finance and invest projects they understand more about.
Secondly, we should encourage local authorities to create formal, financial partnerships with their universities. This will allow a local authority, with greater financial responsibilities and a desire to invest in public goods and solve market failures, to actively set up a financial institution with a university (a hub of innovation and research and development). From here, finance can be provided to SMEs in the locality (allowing a long term perspective) as well as the option to invest in projects which will boost economic growth – for example, investment into research which can then be patented and possibly have a business spin out will boost the university, local authority and local economy.
If a Party isn’t bold enough to completely overhaul the financial systemwithin the UK, then this certainly is one option to get around that and stimulate growth.
This article was first published on Shifting Grounds