The good, the bad, the missed opportunities
By Christopher Adam, David Cobham, and Ken Mayhew
Popular perceptions of governments’ economic records are often shaped by the specific events that precipitate their downfall. From devaluation crises in the 1960s, through industrial relations in the 1970s, to the debacle of the poll tax in the 1990s, governments in the UK have often fought (and lost) elections on defining events—not all of which are of their own making. So it was with the last Labour government in the UK, which left office in 2010 facing the charge that its reckless fiscal expansion and lack of attention to financial regulation had left the UK unusually vulnerable to the effects of the global financial crisis. This charge provides a powerful justification of the Coalition government’s austerity strategy and constrains Labour’s ability to articulate a credible macroeconomic alternative.
The latest issue of the Oxford Review of Economic Policy goes behind this political narrative to provide a detailed, scholarly, and non-partisan assessment of the economic record of the Labour government. Leading UK economists trace the development of Labour’s economic policy-making across the key domestic areas and evaluates the impact of these changes on economic performance.
The result is an assessment that is more nuanced and substantially more complex than current political narratives admit. It describes a government that could point to some substantial economic achievements in the decade up to the outbreak of the global financial crisis. The NHS was delivering outcomes that were comparable to Britain’s main competitors; labour markets were probably more flexible than before, with unemployment at historically low levels; productivity converged to levels in major competitor countries; while poverty, particularly child poverty, had diminished.
Nonetheless, the economy had become increasingly skewed towards the lightly regulated financial sector, inequality remained deeply entrenched (particularly at the top end of the distribution), educational outcomes did not seem to have been much improved by the efforts and expenditures applied, while labour market policy had entrenched too much low-end, low-cost production.
To what extent did these conditions, and the policy choices that brought them about, exacerbate the severity of the recession and how many of the gains that were achieved in the period from 1997 to 2007 are likely to endure? It is still too early to address the question of legacy, though as time goes on responsibility for the current state of the economy lies more and more with the successor government, but on the question of causality, while different (macroeconomic and regulatory) policy choices during Labour’s first decade might have reduced the depth of the recession in 2009–10, it is highly unlikely that they could have eliminated it. Moreover, had Labour’s policy measures taken in response to the crisis during its final 18 months in office been sustained we might well have seen an outcome with less recession, less deficits, and less debt.
Taking Labour’s period in government as a whole, what is striking is that despite unprecedented electoral success the government appeared unwilling or unable to move beyond or away from (as opposed to finding a way forward within) the uncritically pro-market thinking which had come to dominate Westminster and Whitehall since the 1980s. In that sense, the mistakes and missed opportunities of government arose largely from ‘overdoing’ the (necessary) compromises involved in New Labour, rather than from anything that could be regarded as the Old Labour elements in its own inheritance (which had, in any case, been marginalized). This inflexibility, combined with the government’s reluctance to articulate what kind of society and economy it wanted to see develop in Britain and how it thought its policies would contribute to that, meant that policy-making under Labour was arguably unnecessarily constrained. It has also detracted from a clear understanding and appreciation of its economic record.
Christopher Adam is Professor of Development Economics at the University of Oxford, whose current research interests include the macroeconomics and growth of low-income countries, especially those of Africa. David Cobham is professor of economics at Heriot-Watt University and specialises in monetary policy. Ken Mayhew is Professor of Education and Economic Performance at the University of Oxford and Director of SKOPE, an ESRC research centre on skills, knowledge, and organisational performance. They are the authors of the paper ‘The economic record of the 1997–2010 Labour government: an assessment’, recently published in the Oxford Review of Economic Policy.
Each issue of the Oxford Review of Economic Policy concentrates on a current theme in economic policy, with a balance between macro- and microeconomics, giving a valuable appraisal of economic policies worldwide. While the analysis is challenging and at the forefront of current thinking, articles are presented in non-technical language to make them readily accessible to all readers (such as government, business and policy-makers, academics, and students). It is required reading for those who need to know where research is leading.
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Image credit: Tony Blair visiting Poland, April 2007. By the Polish President’s Office [GFDL 1.2], via Wikimedia Commons