Rachel Reeves: ‘Securonomics’
Peterson Institute, Washington DC
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I first came to Washington DC a little over twenty years ago.
As a young economist at the Bank of England, I was sent to the British Embassy to cover the American economy.
In Britain, it was a time of prosperity and progress, with wages rising and productivity up.
Little did we know that within a decade, things would change so dramatically.
And now under successive Conservative governments.
And prosperity turned to stagnation.
Not long ago, I met a young mum and dad in a town called Worthing, on England’s south coast.
Between them, they are holding down five jobs.
Juggling work with caring for their children, they struggle to make ends meet – and, as a family, they spend just half a day together each week.
These are decent, hard-working, enterprising people.
But while they give so much, they get so little.
And they live in a world where those most basic of hopes, time together as a family, buying their own home, saving for a decent retirement are painfully distant.
One thing about this conversation will always stay with me because that mum in Worthing said something I will never forget.
“You just wonder if you’re doing something wrong.”
She isn’t doing ‘something wrong’ but something has gone wrong in our economic system.
Our economy no longer works for working people.
Their contribution no longer respected.
Their enterprise no longer rewarded.
And even their most ordinary of hopes have become impossible dreams.
Today, I am going to talk about how errors in economic policymaking allowed Britain’s economy to weaken.
How the long, hard years of austerity, and the chaos of our recent governments, compounded the damage and how global shocks exposed our weaknesses with devastating consequences for working people.
But I am also going to talk about how an approach that I call “securonomics” can right these wrongs.
By drawing on the talent and effort of millions of working people in every part of the country.
By forging a new partnership between an active state and dynamic open markets.
And by fostering a new era of global partnerships between nations with shared values and interests.
All with the goal of making hard work pay for working people in Britain once again.
Britain has incredible strengths.
The second largest exporter of services in the world.
Europe’s leading financial services sector.
Home to some of the world’s most dynamic businesses, operating at the very edge of possibility with world-leading universities that are expanding the frontiers of human knowledge.
But with the highest forecast inflation in the G7 and long-term growth showing little sign of improvement after a decade of weakness, Britain’s immense potential is being wasted.
At the root of this, I believe, are two errors of economic policymaking.
The first of these is what I consider a fundamental under-appreciation of the role of government.
That error dictated that a government’s primary economic imperative should simply be to get out of the way of free enterprise.
In the ‘80s and early ‘90s this meant cutting taxes and stripping away regulation and addressing only the most egregious market failures.
Advocates of this approach believed that wealth would ‘trickle down’.
But while wealth was generated, there was little trickling. Instead, we witnessed a steady flow upwards.
Meanwhile, whole industries were allowed to decline or disappear.
Whole communities were thrown on the scrap heap, with no alternative work to pursue and public services and social security were weakened by a thousand cuts.
The second error flowed from the first.
It was the assumption that the people and places that matter to a country’s economic success are few in number.
This misconceived view held that a few dynamic cities and a few successful industries are all a nation needs to thrive.
In Britain, this meant that the South East of England could forge ahead while the City of London and a few thriving industries could power our economy.
The result was a paucity of ambition for too many places, the hollowing out of our industrial strength and a tragic waste of human potential across vast swathes our country.
The New Labour era, overlapping with the New Democrat era here, reversed some of these trends.
During a period in which Britain experienced faster growth than many of our competitors including France, Germany, Italy and Japan – Labour turned prosperity into progress.
Public services were rescued from the point of collapse.
Investment in education dramatically improved educational outcomes.
And a focus on old age and youth inequality saw a million pensioners and children lifted out of poverty.
But a progressive politics built for an era of strong productivity growth and increasingly frictionless global trade did not have the answers to the world after 2008.
The last Labour government understood that, which is why, after the financial crisis, it worked to develop a more active state, reviving industrial strategy in Britain.
The results are still evident today. The seeds of our life sciences industry, which has now blossomed into a truly world-leading sector, were planted by Labour in this period.
But thirteen years ago, the Conservatives returned to power in Britain, and we dramatically changed course.
First came the brutal austerity that followed the financial crisis, where the Conservative government cut spending far deeper and faster than our international peers.
Demand was sucked out of the economy.
Investment, the lifeblood of economic growth, stagnated.
And for all the bitterness of the medicine, the patient got no healthier.
Even before Covid struck, government debt was nearly 30% higher than it had been ten years before.
After austerity, came the chaos.
First, we had Brexit without a plan, introducing pervasive uncertainty into our economic life.
Next came the madness of Liz Truss’s drive-by premiership which sent our gilts market tumbling and saw Kwasi Kwarteng, then Chancellor, dashing out of an IMF meeting here in DC so he could fly home to face the chop.
Today, under Rishi Sunak, we have a tired administration, out of ideas and while we were promised sound management, it seems a lot more like managed decline to me.
Held back by these two errors of policymaking, weakened by thirteen years of austerity and chaos, Britain has been buffeted by a world that has become increasingly uncertain.
We are now living through what I consider to be an “Age of Insecurity”.
In just the past few years, there have been three events that might easily be described as ‘once in a generation’ – if not ‘once in a lifetime’.
First, Britain’s chaotic departure from the European Union then, the worst pandemic since 1918 and finally, Russia’s invasion of Ukraine – bringing major conflict to the continent of Europe for the first time since the Second World War.
In the years ahead, the pace of change offers little hope of letting up.
A rising China is unbalancing the old global order of a unipolar world, climate change presents our generation with its greatest moral and economic challenge and new technology threatens to upend everything about how we live and how we work.
In this new world, we have discovered the limitations of globalisation.
We have seen that supply chains that prioritise only what is cheapest and fastest struggle when a crisis strikes be that PPE during Covid or energy following the war in Ukraine.
We have discovered that a globalised system can be gamed by countries like China who have undercut and ignored the international trading rules, and made it impossible for our own to compete.
And in the process, we have allowed the production of critical technologies to slip from our grasp – costing us jobs and compromising our security.
To witness Britain today, is to witness a country buffeted by global forces.
With our industrial capacity hollowed out, fluctuations in international markets hurt us more than most.
With wages low and demand suppressed, our growth is anaemic.
Twenty years ago, the average Briton was wealthier than their European neighbour.
Today, the average French family is 10 percent richer than their British peers and in Germany, that figure rises to 19 percent.
In Britain, the old model is failing.
In an uncertain world, we cannot rely on a handful of industries for our economic success nor can we outsource the supply of critical goods and services to the lowest bidder.
Confronted by the challenges we face in the years ahead, no government can simply ‘get out of the way’ of the market.
And no democratic government can be content with a lack of decent work, falling wages and the dimming of people’s hope for a better life.
To do so is to betray the people we were elected to represent, and risks fanning the flames of populism, as our two countries know only too well.
That’s why it is time for us to admit that globalisation, as we once knew it, is dead.
We must care about where things are made and who owns them.
We must foster new partnerships, between the free market and an active state and between countries across the world who share values and interests.
This demands a new approach, one that I call ‘securonomics’.
It focuses on the economic security of a nation.
Prioritising economic strength and resilience in the face of our uncertain world. Addressing the challenges of the future, and finding the opportunities within them.
It also focuses on securing the finances of working people.
Good jobs, decent pay, strong public services and an end to relentless increases in the cost of living.
I am here in Washington today because, while the old ‘Washington Consensus’ might have been swept away, a new one is emerging.
At its heart is what Treasury Secretary Yellen has called “modern supply side” economics.
The Biden Administration is rebuilding America’s economic security, strength and resilience.
A more active state, pursuing a modern industrial strategy, is selecting the areas where America must guarantee its ability to produce what America needs whether that’s in digital technology through the CHIPS act, or in clean energy and industry through the Inflation Reduction Act.
Your government is working in partnership with a dynamic open market, where the state does what a government does best.
Making and shaping markets that are essential to America’s resilience and future prosperity.
Meanwhile, the free market does what only it can do – innovating, competing, creating wealth.
This acknowledges the reality of our age, and the economic necessity of resilience.
It is a rejection of the hyper-globalisation of old.
But it is also an invitation to greater partnership between those who share values and interests and between those who want to address the challenges and seize the opportunities of tomorrow, together.
Across the world, others are following suit. The Albanese administration’s ‘Powering Australia’ plan, Scholtz’s ‘Climate and Transformation Fund’ in Germany and Macron’s vision for ‘economic sovereignty’ in Europe.
You might well ask what reaction has there been in Britain to this changing world?
My opposite number, Jeremy Hunt, the current Chancellor of the Exchequer, has made his position clear.
He considers the Biden Administration to be engaged in a “distortive global subsidy race”.
Speaking at Davos earlier this year, Grant Shapps, Britain’s energy secretary, called the policies “dangerous”.
I can promise today that a Labour government would be different.
Earlier this year, Keir Starmer announced that Labour will be guided by a set of missions.
The first of which is to secure the highest sustained growth in the G7 with good jobs and productivity growth in every part of the country.
I know how ambitious that sounds but that does not deter me.
Because I know we can build a prospectus for economic prosperity that allows Britain to embrace the opportunities of the future built on the rock of financial stability and economic security.
With Labour, Britain will embrace ‘securonomics’.
That won’t mean trying to become a British version of America or Australia, Germany or France – because we know that won’t work.
It will mean becoming a better version of Britain by building on the existing strengths of our economy:
Our expertise in energy and life sciences.
Our professional services and creative industries.
Our world-leading universities.
Our enterprising and industrious people.
And also by strengthening our economy where we must become more resilient.
Rebuilding the industrial foundations that we have lost and which has left us exposed to global shocks, investing in the industries and technologies that will determine our future economic success and building financial security in each and every household in Britain.
With good jobs, decent pay, and fair working conditions to ensure that working people can contribute to our national success and that their financial security underpins our economic strength.
Today, I have published a paper that sets out how a modern supply side programme would deliver ‘securonomics’ for Britain.
It sets out how a new industrial strategy can identify the areas where the UK can, and must, thrive.
It shows how an active, strategic, state will work in harmony with vibrant and open markets.
And it shows how we can build the industries and create the jobs of the future in the industrial heartlands of the past.
That means cyber amongst the former coal and steel communities of South Wales, robotics and AI in business hubs in Lancashire’s mill-towns and carbon capture and storage technologies pioneered and applied in the manufacturing landscape of Teesside.
Through Labour’s Green Prosperity Plan, an initiative we first announced 18 months ago, we will make public investments in the industries that are crucial to Britain’s future success.
A new National Wealth Fund will invest in British industries and provide a long-term return for the taxpayer.
GB Energy, a new public energy company, will invest in the clean energy sources of today and tomorrow.
Throughout, we will use public investment to underpin and unlock further private investment, just as the Inflation Reduction Act and the CHIPS Act have done here.
We will remove the barriers that too often stop investment, like Britain’s ludicrous planning system.
The reason this matters so much is simple: Jobs.
In every industry that we are building, or rebuilding, in Britain – it is the jobs that matter.
Decent jobs, in every part of the country.
Jobs that pay well, putting more spending power in the pockets of working people.
Jobs that mean a young person who wants to get on in life no longer has to get out of their hometown.
Jobs that workers in Britain are equipped with the skills to do.
And, just as the Biden administration has done here, we must build the industries of the future in partnership with unions and employers.
Delivering all this demands that we remove the barriers that currently hold people back, a particularly acute problem in Britain today.
This must mean expanding affordable childcare, helping women get back into the workforce.
Fixing Britain’s struggling health service, to get millions off the sick list.
Making sure we have the right employment support and reforms to support getting more people back into work.
And improving vocational education and skills training to equip people for the jobs of the future.
When looking across the pond to the Biden Administration, Britain’s current government sees a subsidy arms race.
In a fascinating recent speech, America’s National Security Advisor Jake Sullivan answered this question directly.
He showed that while globalisation as we know it may be dead, a new era of multilateral partnership is emerging in its place.
Nations who share values and concerns, and who want to seize the opportunities of tomorrow, can and must work together to boost our collective resilience and security.
It is a signal achievement of Britain’s recent government that it has managed to be both too open and too closed.
Too open, in letting Britain’s industrial strength hollow out.
Too closed, in the barriers to trade it has erected through its chaotic Brexit deal.
A modern supply side approach in Britain would see us rebuild our industrial strength.
But it would have trade and partnership at its heart too.
Britain with Labour will be a trading nation, exporting across the world and open to business and investment at home.
Britain cannot, should not and – with Labour in power – would not try to go it alone.
In 2025, the UK’s deal with the European Union will be reviewed.
While there’s no going back into the single market or the customs union, with Labour we would make trade easier with Europe, and rebuild ties with our closest neighbours.
In the last few years, the British government has let another critical relationship slip.
In his recent remarks, the US National Security Advisor mentioned a number of international partners: Canada, the EU, Korea, Japan, India, Taiwan, Brazil, Indonesia, Angola.
One country – to me at least – was notable by its absence: Britain.
A relationship once called “special” has been allowed to wane.
With Labour, that would change.
Labour will build a new special relationship and it will be a green special relationship focusing on the clean energy economy, where both Britain and America have signature strengths.
As any visitor to Britain will tell you, we are blessed with more wind than almost any other nation and so we have the second biggest offshore wind capacity of any country in the world.
We have the potential to lead the way in new technologies like green hydrogen and carbon capture and storage, where our unique geology provides us with storage capacity 500 times the UK’s entire annual carbon emissions.
Working together, we can guarantee a resilient supply of the clean energy and technologies that will power us for the decades, even centuries, ahead.
In the process, we can bring down bills, create good jobs, strengthen our energy security, tame inflation and build on our long history of economic collaboration.
Today, a Rolls-Royce engine is built in Britain but fitted to a Boeing plane manufactured in America before being sold, in one recent $34bn sale, to India’s national airline.
The green technologies of the future offer new opportunities to partner.
Whether that’s a Rolls Royce engine running on sustainable aviation fuel or Britain’s pioneering work on floating offshore wind deployed in the deep oceans off the Pacific West Coast.
By establishing a nationwide network of Climate Export Hubs, a Labour government would place Britain at the heart of the global supply chains in the key technologies of the future.
This is a new multilateralism, without the excesses of hyper globalisation.
This is the promise of securonomics.
I believe in a better future for Britain.
It is one where our businesses are world leaders where Britain has a leading role in the industries that will define our future, powered by the contribution of millions of working people so rather than expecting wealth to trickle down we ensure that – to borrow a phrase from President Biden – wealth is built ‘from the bottom-up and the middle-out’.
If Labour wins the next election, I intend to be a very different Chancellor to my recent predecessors.
In one sense, I know that I will be.
Like Secretary Yellen, America’s first female Treasury Secretary, I will break a glass ceiling that has been in place for far too long by becoming Britain’s first ever female Chancellor of the Exchequer.
I will chart a new economic course for Britain.
It begins by accepting that the world has changed and Britain must change with it.
In our age of insecurity, we have discovered the weaknesses of our old economic model.
Too unambitious about the role an active state can play, too willing to believe that wealth will trickle down and too reliant on the contribution of a few places, a few industries and a few people.
From the ashes of the old hyper-globalisation, securonomics emerges.
Building the industries that guarantee Britain’s economic security.
Forging resilience at home, while creating new partnerships abroad.
And bringing together an active state in partnership with a vibrant market.
Securonomics means ensuring that a mum and dad in Worthing – or Wyoming – who are doing everything right, no longer feel like they are doing “something wrong”.
But more than that – they can start to take advantage of the enormous opportunities in our economies.
This is the true promise of securonomics.
Security that provides the foundations on which we can find hope.
Hope as a nation, knowing that our future can be brighter than our past.
And hope as individuals, knowing that we can get on, not just get by. That we can provide for our families.
And pursue our own ambitions – whatever they are.
While this may seem like the most ordinary of hope, it has been out of reach for too many, for too long.
With Labour in power, that will change.
Because, from security, comes hope.