uncertain world.
Not all unemployment can be dealt with through cheap money and fiscal stimulus. Much will be structurally caused by the disappearance of many firms and the obsolescence of specific skills. Various initiatives will be needed: cuts in employment costs by reducing employers’ national insurance contributions (NICs); large-scale and sustained public works projects; and investment allowances, incentivising early investment. Some groups will find it very difficult to join or rejoin the labour force, especially young people without work experience and older workers close to retirement age. For the former, there are tested schemes offering a guarantee of post-school education, training or employment. For the latter, there is a need to ensure access to adult and continuing education, as well as retraining opportunities. The more successful schemes of the 1980s and the ideas successfully trialled in Sweden and Germany should inform policy.
The dogmas of the past have no role in an emergency of this kind and social democrats have an important role in escaping the public good–private bad or private good–public bad dialectics of the past. The approach will need to be eclectic and practical, and involve maximising the contributions of the private and public sectors. One of the legacies of the Coalition years is the Industrial Strategy, which provides a forum for public–private coordination and cooperation at a sector level to address long-term issues. That structure needs to be revived and strengthened to give focus to what would otherwise be random interventions at firm level.
Poverty, tax and benefits
The pandemic has exposed the limitations of the British welfare system after years of reform and cuts. Large numbers have fallen through the cracks; others have been forced to rely on the stringent benefits of Universal Credit and a patchwork of specific supports for disability and other needs. On the other hand, pensioners, protected by the ‘triple lock’ on the state pension, have been insulated from the economic effects of the crisis, as they were after the 2008/09 financial crisis.
The reforms of Beveridge (like Keynes, a liberal) provide a template for a comprehensive social safety net that social democrats have regarded as the right starting point. Recent adaptation of the post-war welfare state involved an attempt to create a form of negative income tax under Gordon Brown’s tax credit system. The principle was good but it suffered from complexity and the practical problems of offsetting continuous changes in income in current highly volatile labour market conditions, with ‘gig’ work and numerous part-time earnings. The Coalition model was to simplify means-tested benefits in Universal Credit, which has however become discredited by cuts and delays in payment, while also lifting the income tax threshold, thereby lifting low earners out of income tax.
The new idea that is being embraced by many social democrats is universal basic income. The immediate attraction is that, in an emergency, it enables money to meet basic needs, and to provide purchasing power in the economy, to be paid to everyone (in principle) without time-consuming and discriminatory checks. At present, in the UK, millions of ‘self-employed’ and recently unemployed are not adequately covered. As a temporary measure, it should be tried.
However, as a permanent system, universal basic income is being promoted with evangelical fervour, which is unfortunate since its impact depends on precisely what it replaces and on the availability of some continued means-tested support in the form of housing benefit for high-rent areas. Social democrats should welcome localised universal basic income experiments and should, in the meantime, be pressing for changes to Universal Credit in order to make it significantly more generous to low-earner families, without the current delays and impediments.
The pandemic has highlighted some of the underlying injustices and inequities in society, such as between young and old, and in respect of wealth and income. One of the side effects of the necessary use of extraordinary monetary policy is to inflate the value of assets, both property and financial. These, in turn, are disproportionately held by older people. Social democrats should be making the case for more effective and tougher taxation of assets through inheritance taxes, capital gains taxes and taxes on high-value property.
Modern capitalism
In the Great Depression of the 1930s in the US, which potentially bears comparison with today, the New Deal was President Roosevelt’s social democratic response. In fact, the New Deal was not, as widely believed, Keynesian in its economics. However, it did effect major changes to the conduct of business and strengthened the bargaining power of workers. A modern version of the New Deal is needed, not to destroy capitalism, but to remedy some of the most egregious abuses.
My main focus in the UK would be creating a tax and regulatory environment that favours stable, long-term commitment by investors over short-term, speculative activity. Some steps were taken in the Coalition years to change the culture – quarterly reporting is no longer required – but the problem remains. One important step would be to give long-term shareholders bigger voting rights. Another would be to shift the taxation of capital gains back to penalising short-term speculative activity.
Much has been written about the obligations of companies to stakeholders more widely than shareholders. Legislation in the UK already reflects those wider concerns. However, unless the legal primacy of shareholders is removed from companies, there will continue to be insufficient weight given to employee well-being and environmental and other societal factors. At the same time, it is important that entrepreneurs and investors of risk capital should be properly rewarded. The continued tax bias against risk capital and in favour of debt is a big disincentive – and has to be reversed.
There are now particular issues as a consequence of the big data companies that have come to dominate the world economy and exposed the weakness of national governments in respect of tax collection and competition policy. The European Commission has been the sole authority (outside China) to exercise some effective control over the monopoly power of the Internet platforms, and then only to a limited extent. One of the main casualties of Brexit has been the loss of that countervailing power. A major task of policy now is to create at national level a much more effective and aggressive Competition and Markets Authority to counter takeovers that further stifle competition, to impose strong standards to protect privacy (using the existing European rules), and to regulate abusive content.
Multilateralism
For social democrats, there is a clear understanding that many policy objectives in relation to trade and financial flows, tax avoidance, crime, defence, environmental commons and climate change, human rights, poverty, and development cannot be achieved at a national level alone, but require cooperation. One of the most alarming developments in recent years has been the weakening of support for multilateral bodies like the World Trade Organisation, the Bretton Woods institutions and United Nations (UN) agencies, which are more relevant than ever in repairing the damage wrought by the pandemic, especially in the poorest countries. The fact that Britain has walked away from the EU has damaged regional cooperation, as well as the UK itself. Britain will now have a less credible presence in global institutions but has a particular responsibility nonetheless for the climate negotiations soon to be held in Glasgow.
The Brexiteers’ slogan of ‘Global Britain’ may or may not have been sincere or thought through. However, social democrats should adopt it and seek to make it meaningful in trade, development, environmental, human rights and other forums. Governments in the social democratic tradition in Sweden and Canada have shown that middleweight countries can have considerable influence for good. At the same time, a major project for the next generation will be to rebuild links with the EU, not necessarily through full membership, but through the kind of close association already enjoyed by neighbours who are not members.
Conclusion
Among the most significant challenges for social democrats are mass unemployment, poverty, the problems posed by big data companies and the weakening of multinational institutions caused by rising populism. Social democrats should remain committed
