This is what we believe: The Mais Lecture and Labour’s vision for a new economy

There is a famous story about Margaret Thatcher, that during some internal debate on economic policy she produced a copy of Hayek’s ‘Constitution of Liberty’ from her handbag, slammed it down on the table and declared, “This is what we believe.”. It may have happened, it may have not (the source of the story seems to be a Sotheby’s catalogue) but it has passed into legend because it exemplifies something people already believe, that she was a leader who stood for something and who changed the country in her image.

This is a powerful idea, one that sits at the heart of the weird afterlife she experiences today – particularly in the Tory press where the mere allusion to her by a Labour figure is helpfully guaranteed to get lots of words and onto the breakfast tables of some high turnout demographics.

So, when Thatcher comparisons started flying around in the wake of Rachel Reeves’ Mais Lecture on Tuesday, I imagine the Shadow Chancellor was pleased. Not just to get warm words in the best-read newspapers in the land, but to tap into that archetype. The woman who stands for something and has the power to deliver it.

And as we wait for the manifestos to be released ahead of an election that sometimes feels like it will never come, it has become clear the speech does even more than that. We might have to wait to see exactly what Labour will do in power, but this is the clearest distillation yet of why it will do it.

Why growth?

We have all become used to growth being almost all that politicians of the left and right talk about. Repeated often enough, any word loses its meaning and ‘growth’ is already vague and nebulous. Growth in China, America, and France are qualitatively different. The same rate of GDP increase on a chart would mean radically different things for the citizens of those countries and be experienced by them differently.

So what growth are Rachel, and Labour, talking about? It’s a growth that is pursued to raise living standards and fund public services. Which tells us two things: it’s distributed and it’s taxed.

So while the conservatives have been very good no doubt for the living standards of their donors, the OBR predicts that on average UK households will experience a 7.1% decrease in real disposable income over the next two years.

We have 3.6m children living in absolute poverty in the UK. Rachel is saying this is a growth agenda for them. And it’s not a ‘grow so we can cut taxes agenda’, as offered by Jeremy Hunt, it’s a ‘grow so we don’t have to raise taxes’ agenda. Where increased public spending comes of the back of increased tax revenues as a result of rising prosperity.

Nobody in politics is psychotic enough to be in favour of living standards falling, but conversely not everyone who is pro-growth is so because they care about standards across society. In politics, as in music, emphasis really matters. We might be saying similar words or playing the same notes but the stresses and weight we put on each changes the whole meaning of the piece.

The stability to take risks

The Shadow Chancellor set out her aims, but what will a Labour government actually do differently? In this pre-election phony war the Party is rightly keeping its cards close to its chest on specific policies, but there is a lot in Rachel’s speech about the new approach to the economy Labour will take.

The three pillars of her strategy for growth are stability, investment, and reform. All sensible and solid, but of these seemingly innocuous headings its what’s under Stability that is the most radical and new. Old models of ‘winner picking’ industrial strategy are rightly identified as bad, but so too is the total dog eat dog lassiez-faire approach. Across the western world, taking our cues from the radical success and cutthroat competitiveness of Chinese business, she argues a new consensus is forming. We need public private partnerships that build on our comparative advantage yes, but also to build domestic resilience.

In blunt terms it is not enough to have, e.g the most successful financial services sector in the world, without that success translating into prosperity and strength across society. This means more support for business but also more support for workers, and what that should enable is both businesses and workers to take more risks and be more dynamic – not less.

With the right support we have better exports, we can have better distribution of industries around the country, more R&D, and people can avail themselves of training and move between industries without falling into penury. In the end we all benefit from this. Stability means more management of the economy from the shop floor to international trade. Our contributor Prof Harry Pitts and Labour PPC Andrew Pakes have written in detail on this for those who are curious how it is done in Europe, and what models Labour might borrow.

These kind of debates about policy are only a tiny fraction of what will win Labour the election and make it into a success in government. But with this lecture Rachel Reeves has, like Thatcher, slammed her ideology down on the table and said “this is what we believe”.

For more on the economy see International Women’s Day 2024 marked by widening economic inequality