Escolar Documentos
Profissional Documentos
Cultura Documentos
Going for
Growth
Edited by Will Straw
Contents
Acknowledgements v
Contributors vii
Introduction xi
by Will Straw
PART 1
PART 2
v
Going for Growth
Will Straw
Associate Director for Strategic Development, Institute for
Public Policy Research
Karl-Heinz Spiegel
Director, Friedrich-Ebert-Stiftung, London Office
vi
Contributors
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Contributors
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Introduction
by Will Straw
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Introduction
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Introduction
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Introduction
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Introduction
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PART 1
by Philippe Legrain
The most important factor that will shape the world economy in
coming decades is the rise of China in particular and emerging
economies more generally: Brazil, India, Mexico, South Korea,
Turkey, Indonesia and a host of smaller economies.
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For the first time since the Industrial Revolution, over half
of global economic activity now takes place outside the West,
and the rest of the world is likely to account for the bulk of
global growth in the years ahead. China has just overtaken
Japan as the world’s second largest economy and it looks set
to surpass America within the next 20 years. With its younger
and rapidly growing population, India will also be a force to
be reckoned with. While there will no doubt be setbacks and
perhaps even the odd crisis along the way – development
never proceeds in a straight line – the direction of change
seems clear. Inexorably, the centre of gravity of the world
economy is shifting east (and south).
This will affect almost every aspect of the global economy
and how it is run:
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The international challenge facing Britain
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while some parts of the Indian economy are stuck in the eight-
eenth century, others are at the cutting edge of the twenty-first.
At the same time, what determines whether a job is at risk
from international competition is not how skilled it is, but
whether it is readily tradable and where Britain’s comparative
advantage lies. Thus number-crunching jobs in accounting
and finance are more susceptible to be sent offshore to India
than jobs of all skill levels that need to be done on the spot:
lawyers, psychotherapists, physiotherapists, plumbers, hotel
staff, care workers, cleaners and so on. Being expensive does
not matter provided you are the best, as Germany’s export
success shows.
Indeed, despite all the fears about Indian IT, Britain is the
world’s third-biggest exporter of IT services, and indeed exports
more IT services than it imports. So the challenge for Britain is
to continue to move up the value chain and to upgrade people’s
skills and its infrastructure, while taking full advantage of the
benefits of low-cost imports and foreign production. And while
Britain may specialise in export sectors such as IT, finance,
media, telecoms, pharmaceuticals, aerospace, energy and
others, it will continue to create lots of jobs, of all skill levels, in
areas sheltered from international competition.
While competition and imports from emerging economies
are likely to increase, that is only part of the story. Increasingly,
Britain’s prosperity will depend on exporting to emerging econ-
omies, attracting investment from their globalising companies,
tapping into global networks of highly skilled mobile workers,
researchers and businesspeople, many of whom will come from
China and India, and developing the new clean-tech industries
of the future, often thanks to technologies developed here or
abroad with the help of Chinese and Indian brainpower.
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The international challenge facing Britain
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The international challenge facing Britain
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A greener world
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The international challenge facing Britain
sions, we are still moving in the right direction. That could all
be undone, though, if French President Nicolas Sarkozy gets
his way and provokes a trade war with China and India by
imposing carbon tariffs on their imports.
There is also scope for the British government to set its
own standards and regulations. As Germany’s experience
as a pioneer in adopting tighter environmental regulations
shows, there is a clear advantage in moving first, and encour-
aging the development of new clean-tech industries.
Together with the policy response, higher oil prices driven
by demand from emerging economies will make clean energy
more attractive and encourage businesses to invest in devel-
oping and deploying new clean technologies. Here again
emerging economies will be crucial: among the global leaders
in electric cars are India’s REVA and China’s BYD; the world’s
largest maker of solar panels is China’s Suntech Power; Brazil
is a global leader in bioethanol; and Indian and Chinese
brainpower are also at the centre of the clean-tech revolution
in Silicon Valley. In short, there is huge potential for Britain to
develop new clean tech industries.
Conclusion
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Britain’s long-term challenge
by Duncan Weldon
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Demographic Change
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Britain’s long-term challenge
Sources of Growth
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Britain’s long-term challenge
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For decades in Britain the safest bet for a bank manager, and
the easiest way to “fail conventionally” as Keynes might have
put it, has been to lend against property, either commercial
or residential. Between December 1997 and December 2007,
the pre-recession decade, UK banks advanced £1.3 trillion to
UK residents as loans. Of this lending, 46 per cent went to
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Britain’s long-term challenge
Conclusion
17
German economic policy
at a crossroad
by Gustav Horn
All seems well. The German economy will end 2010 with
production levels recovering. The robust economic devel-
opment defies all criticism of the effectiveness of economic
stimulus packages. It also raises doubts about positions, such
as that taken by the German Council of Economic Experts,
which see structural obstacles to growth in an allegedly
inflexible labour market.
Germany’s economy has recovered so well because the
former grand coalition government and numerous European
and non-European governments, particularly in Asia, have
implemented strong stimulus packages.3 Furthermore,
in Germany it was possible to stabilise the labour market
through high internal flexibility with regard to working hours
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4 Alexander Herzog-Stein, Fabian Lindner, Simon Sturn and Till van Treeck, Vom
Krisenherd zum Wunderwerk? Der deutsche Arbeitsmarkt im Wandel, IMK Report,
no. 56, 2010.
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German economic policy at a crossroad
Table 1
Economic forecast for Germany – key figures
Changes compared to last year in %
*In % of employees
†
In % of GDP
Sources: DESTATIS, ECB; from 2010 onwards IMK’s forecast
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An American perspective on
innovation and growth
by Richard Seline
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An American perspective on innovation and growth
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An American perspective on innovation and growth
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An American perspective on innovation and growth
Conclusion
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What is business for?
by Charles Leadbeater
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In the last two decades the main critique of this new conven-
tional wisdom has come in the form of corporate social
responsibility, which argues that companies need to take a
wider and more responsible view of the means they use to
generate returns for shareholders. If a business acts in a way
that is too callous or self-seeking then it attracts bad publicity,
its reputation and public standing are damaged, that in turn
corrupts its brand and so undermines its value to share-
holders. Investing in social activities – education, culture,
social entrepreneurship – may not make immediate sense
in terms of the bottom line but they do so in the long run if
they mitigate these reputational, political and public risks.
Corporate social responsibility, at least in its most instru-
mental form, is business with the same ends but pursued with
slightly more socially engaged means. In Japan and parts of
Northern Europe, there is a deeply rooted version of this
socially responsible capitalism. Only a few British companies
have ever had this approach and often those stemmed from
religious roots in the nineteenth century.
Much of the debate about how business should conduct
itself has been a contest between these two approaches:
the Bolsheviks of shareholder value capitalism against the
Mensheviks of corporate social responsibility. This debate has
virtually ground to a standstill. Where might we turn to open
up the question “what is business for?” in a more interesting
and potentially progressive way?
A starting point would be to think about the ends of
business in a more open and creative way and not just
concern ourselves with the means.
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What is business for?
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What is business for?
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What is business for?
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What is business for?
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Taming the goose that
laid the golden egg
by Kitty Ussher
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Taming the goose that laid the golden egg
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Taming the goose that laid the golden egg
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Taming the goose that laid the golden egg
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Taming the goose that laid the golden egg
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Taming the goose that laid the golden egg
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Time for an economic
challenge strategy
by Adam Lent
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Time for an economic challenge strategy
11 Nick Tiratsoo and Jim Tomlinson, Industrial Efficiency and State Intervention:
Labour 1939-1951, Routledge, 1993. Nick Tiratsoo and Jim Tomlinson, The
Conservatives and Industrial Efficiency 1951- 1964: Thirteen Wasted Years?,
Routledge, 1998.
12 Geoffrey Owen, From Empire to Europe: The Decline and Revival of British
Industry Since the Second World War, Harper Collins, 1999.
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Time for an economic challenge strategy
It could be argued, and often is, that the best way to drive
the innovation, and hence productivity, so needed by British
business in the post-war era was free market competition.
Indeed, the failure of British businesses to engage with
competitive markets during this period seems to uphold that
claim. In addition, the experience of the 1980s shows that
once sectors are opened up to competition they become more
innovative and productive.
This argument certainly has much going for it but it is a
partial account. The key historical lesson of the post-war
period is that competition can only effectively produce signif-
icant levels of innovation when adequate government support
is in place to drive the investment, training and diversity of
businesses that do not naturally occur within a free market.
This is not only upheld by the fact that much bolder state-led
policies were implemented by European governments in the
post-war period but also, ironically, by the experience of the
UK in the 1980s.
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Time for an economic challenge strategy
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13 Leitch Review of Skills, Prosperity for All in the Global Economy – World Class
Skills, HM Treasury, 2006.
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Time for an economic challenge strategy
Conclusion
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PART 2
Essential investment
requires state enterprise
by Gerald Holtham
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Essential investment requires state enterprise
on the debt that other sectors wish to run down, demand and
growth will be extremely slow.
Individual countries may try to escape from the problem
by depreciating their exchange rates in search of export-led
growth. That is the most promising transmission channel
from quantitative easing to real economic activity in the
UK. However, there are problems with this strategy. First, a
sustained devaluation has a time lag, typically three years,
before net export volumes show a big effect. Second, depreci-
ation risks importing inflation. With the consumer price index
already over target, the Bank of England might be reluctant
to stay the course. Third, exports will struggle to grow fast
enough given that much of the rest of the world and espe-
cially Europe are shrinking domestic demand.
Given those difficulties it is most unlikely that easy money
will drive net exports to the point that a private investment
boom would ensue. Econometric work has always found
that while the cost of capital is important, the biggest driver
of investment is order books and the state of demand.
Moreover, even some revival of private investment would
not begin to resolve the deficiencies and requirements of
UK infrastructure.
Although a continuing credit crunch has received much
attention from commentators, it is not the core of our present
difficulties. Banks are rebuilding balance sheets; they are
imposing spreads and fees, including insurance fees, on client
businesses that make borrowing difficult or expensive. That
cannot help matters. Yet investment would be sluggish even
if this were not true. Difficulties accessing capital are mainly
a problem for small firms that depend on banks and cannot
access the capital market. Those difficulties would become a
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Essential investment requires state enterprise
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Essential investment requires state enterprise
ating profit was some £33 million but debt service of £58
million put it into the red. But that debt service implies an
effective interest rate of just over 8 per cent. At 4 per cent it
pays its way, even before consideration of social benefits like
reduced congestion elsewhere.
Those low long-term interest rates betray a market belief
that idle resources and cheap money will be with us for a
long time to come. For the reasons cited above, that expec-
tation is probably right. So this is a wonderful opportunity
for the state to make all those infrastructure investments that
it normally cannot afford on much better terms than usual.
That flow of orders will in turn induce private companies to
expand their own capacity to meet the demand – especially
if state procurement policies look to foster domestic supply
chains and medium scale or smaller businesses.
Now this will tackle the problem of deficient demand and
help to promote growth through the creation of a new deficit –
a largely self-financing deficit. But it will not remove the need
to reduce the current deficit, the one that is a burden on future
taxpayers. On one hand indeed, by resolving the demand and
growth problem, it would permit a faster reduction of the
current deficit than would otherwise be wise. On the other
hand, to the extent that the policy fosters economic growth,
it will cause the current deficit to fall as a share of GDP – the
metric that matters if we are trying to assess how big a burden
it is. On balance, the government cannot avoid a policy of
fairly sharply retrenching current expenditures and with
them the current deficit. That is a consequence of the fact that
the Labour government over-estimated the trend growth of
the economy and allowed public expenditure to grow much
faster than the growth of revenues, even before the recession
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Essential investment requires state enterprise
leaves taxpayers bearing some risk. After all the best laid
schemes of mice and men, as the poet says “gang oft agley”.
When they do, the taxpayer is stuck with the bill.
That means when the government guarantees the debt of
a state investment bank, if it does not charge the bank for its
debt guarantee, it must put the value of that guarantee on its
own balance sheet. It can get the actuarial value of the guar-
antee assessed by independent authorities. Typically it will be
around 2 per cent of the balance sheet of the bank or much
less. It is appropriate that risk should be acknowledged and,
in effect, offset in that way. Contrast that, however, with the
current policy of putting 100 per cent on the balance sheet.
Given independent risk assessment, the markets would be
perfectly content. The UK might even get brownie points for
rational policy-making.
Some commentators have argued that the government
should go further than enabling a state investment bank
to invest in infrastructure but should allow it to engage in
finance of innovative commercial projects which currently
cannot find adequate funding. However, there are strong
arguments for not allowing a wide extension of the
investment bank’s mandate. Very large infrastructure projects
using proven technology may strain the financing capabilities
of the private sector but they are not intrinsically all that risky.
Projections of future travel or energy demand are subject to
error margins but we know there will be substantial demand
in any case. Similarly construction costs may be inadequately
estimated but rail and road-building technologies are suffi-
ciently established that there will be limits on the errors. In
energy, the government has substantial control of the market
so is in a position to limit the losses on any given project
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An audit of skills,
immigration and growth
by Andy Westwood
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14 As quoted in the 1999 report of the Working Group chaired by Sir Claus Moser
A Fresh Start: Improving literacy and numeracy and in the Leitch Review of Skills’
2006 report Prosperity for All in the Global Economy – World Class Skills.
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An audit of skills, immigration and growth
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An audit of skills, immigration and growth
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An audit of skills, immigration and growth
17 David Cameron’s speech, Transforming the British economy: Coalition strategy
for economic growth, 28 May 2010.
18 Vince Cable’s speech to Cass Business School, 3 June 2010.
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An audit of skills, immigration and growth
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Encouraging growth
through innovation
by Stian Westlake
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19 Deidre N Mccloskey, The Bourgeois Virtues: Ethics for an Age of Commerce,
University of Chicago Press, 2006.
20 NESTA, The Innovation Index. Measuring the UK’s investment in innovation and
its effect, 2009.
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Encouraging growth through innovation
21 Yannis Pierrakis and Stian Westlake, Reshaping the UK economy. The role of
public investment in financing growth, NESTA, 2009.
22 Rachel Griffiths, Helen Miller and Martin O’Connell, The UK will introduce a
patent box, but to whose benefit?, Institute for Fiscal Studies, 2010.
23 Louise Marston, Shantha Shanmugalingam and Stian Westlake, Chips with
Everything, NESTA, 2010.
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24 David Connell, “Secrets” of the world’s largest seed capital fund, Centre for
Business Research, 2006.
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Encouraging growth through innovation
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Encouraging growth through innovation
26 Albert Bravo Biosca and Stian Westlake, The Vital Six Per Cent. How high-
growth innovative businesses generate prosperity and jobs, NESTA, 2009.
27 Albert Bravo Biosca, Growth Dynamics. Exploring business growth and contra-
diction in Europe and the US, NESTA, 2010.
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28 Steven Johnson, Where Good Ideas Come From: The Natural History of Inno-
vation, Riverhead Books, 2010.
29 Fiona Patterson, Maura Kerrin, Geraldine Gatto-Roissard and Phillipa Coan,
Everyday Innovation. How to enhance innovative working in employees and organi-
sations, NESTA, 2009.
30 Henry Chesborough, Open Innovation: The new imperative for creating and
profiting from technology, Harvard Business Press, 2003.
31 Howard Rush, Chris Smith, Erika Kraemer-Mbula and Puay Tang, The New
Inventors. How users are changing the rules of innovation, NESTA, 2008, Stephen
Flowers, Eric von Hippel, Jeroen de Jong and Tanja Sinozic, Measuring user inno-
vation in the UK. The importance of product creation by users, NESTA, 2010.
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Encouraging growth through innovation
Mobilising
resources
Knowledge Enterprise
creation
Selection
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Knowledge Creation
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Encouraging growth through innovation
33 Michael Kitson, Jeremy Howells, Richard Braham and Stian Westlake,
The Connected University. Driving recovery and growth in the UK economy,
NESTA, 2009.
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Enterprise
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Encouraging growth through innovation
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Selection
36 Kirsten Bound and Ruth Puttick, Buying Power? Is the Small Business Research
Initiative (SBRI) for procuring R&D driving innovation in the UK?, NESTA, 2010.
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Encouraging growth through innovation
Resource allocation
37 Yannis Pierrakis, Venture Capital: Now and after the dot-com crash, NESTA,
2010.
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38 Claudia Goldin and Lawrence Katz, The Race between Technology and
Education, Belknap Press, 2008.
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Conclusion
39 Caroline Chapain, Phil Cooke, Lisa De Propris, Stewart MacNeill and Juan
Mateos-Garcia, The Geography of Creativity, NESTA, 2010.
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Driving growth at the
regional level
by Anna Turley
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40 White Paper, Local Growth: Realising Every Place’s Potential, 2010.
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Driving growth at the regional level
41 Jonathan Clifton, Tony Dolphin and Rachel Reeves, Building a Better Balanced
UK economy: Where will jobs be created in the next economic cycle?, IPPR, 2010.
42 Department for Business, Enterprise & Regulatory Reform, Impact of RDA
spending – National Report: Volume 1 Main Report, 2009.
43 Idem.
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44 Tom Symons and Chris Leslie, Capital Contingencies: Local capital finance in an
era of high public debt, NLGN, 2009.
45 Adam Marshall, The Future of Regional Development Agencies, Centre for
Cities, 2008.
46 Mark Sandford, Local Authority Leaders’ Boards, House of Commons Library,
2009.
47 Nick Hope, Bordering on Prosperity: Driving forward sub-regional economic
collaboration, NLGN, 2009.
48 LGA, Prosperous Communities II: vive la dévolution!, 2007.
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49 The Local Government White Paper, Strong and Prosperous Communities,
2006.
50 HMT, CLG and BERR, Review of Sub-National Economic Development and
Regeneration, 2007.
51 Nick Hope and Chris Leslie, Challenging Perspectives: Improving Whitehall’s
spatial awareness, NLGN, 2009.
52 Eric Pickles, CLG Press Notice, http://www.communities.gov.uk/news/
newsroom/1753574.
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53 David Cameron’s speech, Transforming the British economy: Coalition strategy
for economic growth, 28 May 2010.
54 Pat McFadden’s speech, The new Industrial Revolution: opportunities in
creating a low carbon economy, 25 January 2010.
55 White Paper, Local Growth: Realising Every Place’s Potential, 2010.
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Driving growth at the regional level
61 Nick Hope, The starter pistol has gone off, but will LEPs have the firepower,
NLGN, 2010.
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62 White Paper, Local Growth: Realising Every Place’s Potential, 2010.
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Driving growth at the regional level
63 Paul Swinney, Kieran Larkin and Chris Webber, Firm Intentions: Cities, Private
Sector Jobs & the Coalition, Centre for Cities, 2010.
64 Nick Hope and Chris Leslie, Challenging Perspectives: Improving Whitehall’s
spatial awareness, NLGN, 2009.
65 Written Evidence from the New Local Government Network to the Business,
Innovation and Skills Select Committee, August 2010, http://www.publications.
parliament.uk/pa/cm201011/cmselect/cmbis/434/434vw60.htm.
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66 Nigel Keohane and Geraldine Smith, Greater than the sum of its parts: Total
Place and the future shape of public services, NLGN, 2010.
67 Nick Hope, Bordering on Prosperity: Driving forward sub-regional economic
collaboration, NLGN, 2009.
68 White Paper, Local Growth: Realising Every Place’s Potential, 2010.
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Conclusion
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Rethinking macroeconomic
policy in the UK
by Tony Dolphin
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Source:OfficeforNationalStatistics
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Rethinking macroeconomic policy in the UK
(QE) will be in place, for a long time.70 But such a move would
risk higher long-term interest rates if bond investors felt the
inevitable increase in inflation expectations would be hard to
reverse.71 Others have proposed targeting the price level (on
an increasing trend), rather than inflation, on the grounds
that an undershoot in inflation in one year would have to be
offset with an overshoot in the next. However, this would
seem more appropriate for an economy where inflation was
currently undershooting the target, not one like the UK where
it is stuck stubbornly at around 3 per cent. Here a price level
target would imply a period of lower than 2 per cent inflation
over the next few years, and the higher interest rates needed
to bring this about. This would not be desirable when high
unemployment signals that the economy is operating with
plenty of spare capacity.
In addition to consumer price inflation, macroeconomic
policy should support output and employment growth. In the
US, the Federal Reserve has a dual mandate: price stability
and full employment.72 The Bank of England could be given
the same remit. In the short-term, this might not make
much difference to the implementation of monetary policy.
A majority of the MPC appear willing to tolerate inflation
of around 3 per cent because they believe it is the result of
temporary factors. But it would create greater clarity if the
MPC were formally required to take account of employment
and inflation.
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Source:OfficeforNationalStatistics
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Rethinking macroeconomic policy in the UK
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Source:Nationwide
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Source:Halifax
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77 Philip Arestis and Elias Karakitsos have been making the case for this approach
for many years.
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Rethinking macroeconomic policy in the UK
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78 The exchange rate was particularly important at some points during this period.
From March 1987 to March 1988 Nigel Lawson, then Chancellor of the Exchequer,
followed an informal policy of “shadowing the Deutschmark”, effectively targeting
an exchange rate of 3DM = £1 and from October 1990 to September 1992 sterling
was part of the European exchange rate mechanism. But at other times policy was
set flexibly in response to a range of indicators.
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Rethinking macroeconomic policy in the UK
But this does not get around the objection that switching to
a totally flexible regime would lead to less clarity, increased
uncertainty and reduced credibility, compared to the
simplicity of the current regime.
The best approach to macroeconomic policy in the UK would
be to focus on what ultimately matters most – full employment
and low inflation – and what has caused the biggest problems
in the past – asset prices, particularly house prices.
The MPC’s mandate should be extended to encompass full
employment as well as low inflation, giving it the same dual
mandate as the US Federal Reserve. Much of the time, this
would make little difference to the stance of monetary policy
and the level of interest rates. But it would remove confusion
about the actions of the MPC at times like the present when
there is a huge amount of spare capacity in the UK economy
but some upward pressure on inflation due to external
factors such as higher oil prices. In these circumstances, the
dual mandate would make it clear that the MPC should be
primarily focused on employment.79 This move should also
encourage greater scrutiny of the way the Bank of England
and the MPC are thinking, and greater transparency on the
part of the MPC about its models and assumptions. It would
broaden the policy debate in a way that is difficult with the
current singular focus on consumer price inflation.
This is not, however, sufficient. The most obvious policy
failure in the UK over the years has been allowing the
formation of bubbles in asset prices, and house prices in
particular. So, the most pressing need is to bring asset price
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Rethinking macroeconomic policy in the UK
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