One of my biggest gripes with Brexit is that it is stealing cognitive bandwidth; it’s distracting us from proper economic policies. This is an especial problem for Labour as the party is showing few signs of having much cognitive bandwidth to spare.
There is, though, a big question here: assuming we get a hard Brexit, what should post-Brexit economic policy look like?
Here, we must admit that Philip Hammond’s threat to turn us into a low-tax Singapore-type economy at least answers a good question: how can the UK attract and retain business given that we’ll be offering less good access to the single market than EU nations?
The fact is that we cannot compete on price: Bulgaria and Romania have labour costs which are only one-fifth of the UK’s (pdf).
We could and should, however, compete on labour quality. Post-Brexit, the importance of an educated and trained workforce will be even more important: this means not just university education, but investment in vocational training and early years. We should emulate Singapore in having an educated workforce. In this context, the closure of Sure Start centres should be seen as an act of vandalism, a destruction of the future capital stock.
Hammond might also have point in seeing the need for lower business taxation. However, the answer here might not be so much blanket cuts in taxes and spending but rather a shift in taxation – perhaps from profits and incomes to land (pdf). As the Mirrlees review said (pdf), “there is a strong case for introducing a land value tax.”
It’s also important to encourage the growth of home-grown businesses. In this context, Labour might well press the case for a state investment bank, and for more state involvement in encouraging research and innovation along the lines suggested by Mariana Mazzucato.
A second angle here is that Brexit is likely to compound a massive pre-existing problem – that the UK’s productivity has stagnated. Slower trade growth will probably mean slower productivity growth (pdf): it’s no accident that the two have slowed down together since the financial crisis.
In this context, policies to increase productivity will become even more necessary. This too requires encouraging education, capital investment, innovation and new business formation: a lot of productivity growth comes not from incumbent firms upping their game but from new ones entering markets.
The traditional rightist answer to these issues – to cut taxes and regulation and so release capitalist dynamism – is not sufficient. The fact of secular stagnation tells us that capitalism (perhaps temporarily) has lost its mojo. This points to a need for more interventionist policies.
Thirdly, Labour should acknowledge the power of Vote Leave’s slogan: “take back control”. However, rather offer the merely formal and legalistic sovereignty that Brexit offers, Labour should consider policies to give people real control. These might include devolution; greater consumer say in public services (pdf); and more worker democracy. The latter, of course, should also be a means of raising productivity.
Finally, we should recognise that there is an economic base to demands for immigration control. Stagnant real wages and faltering public services have hardened people’s hearts to migrants. One solution to this is a reversal of austerity: more spending on public services would raise GDP and real wages, thus eventually increasing toleration of migrants; and it would diminish perceptions that migrants are putting a burden upon public services. And, of course, the continuation of sharply negative real gilt yields means that such policies are feasible and sustainable at least for a few years.
Most of these policies, of course, were good ideas before Brexit - and indeed Labour was thinking along such lines. The point is that, in threatening to depress economic growth, Brexit makes it even more imperative to introduce other growth-enhancing policies. Supply-side socialism should become even more important.
And this should be something Labour can unite around: the right can emphasise the need for better education and training policies, the left co-ops and anti-austerity. Yes, Labour is confused and divided. But there is no logical reason why it must be.