With his recent promotion to the top spot next door, the former Chancellor must not forget the radical approach to economics he adopted at no. 11
We all know Gordon Brown faces major challenges. He has to win over hearts and minds, sort out education and healthcare, deal with the mess in Iraq, re-engage with business and, ultimately, win another election. In short, we expect Brown to become a reincarnation of the best bits of New Labour, while discarding the things that made Tony Blair a liability during his last years in office. But Brown's problems are more deep-seated and originate in New Labour's "Third Way" vision of more than a decade ago.
New Labour was constructed around the idea that there was no longer any need the for polemical "left" and "right" political thinking that tended to be based on assumptions about degrees of government economic intervention and levels of public spending.
When New Labour came to power in 1997, the macro-economic argument had been won. The hegemony of the market and the price mechanism meant that inflation had to be kept under control at all costs; rampant public expenditure beyond what the economy could afford over the economic cycle would only create inflation and, therefore, damage the economy in the long run. No wonder there was such conflict between Brown and Blair. Tony got the headlines, while Gordon was reinventing economic theory and the British economy
So the real legacy of Thatcher was to render the economy profoundly dull. Much more interesting things could be achieved through social reform and greater democratic participation. The machinery of government turned itself with gusto into a vehicle for making Britain "cool", youthful, innovative, creative. "Anything but the economy, stupid."
Bunkered away in the Treasury, Brown brought tears of boredom to the eyes of those who liked a good, old-fashioned debate about business, inflation, unemployment and public expenditure. By making the Bank of England independent, he took away the government's ultimate vote-rigging tool (interest rates). Instead, he reoriented the role of the Chancellor towards minute fiscal and regulatory changes designed, surely, to try the patience of the small business sector.
Or did he? The real challenge Brown and the Treasury took on in 1997 was not, despite evidence to the contrary, to drive British business mad with red tape. Rather, his central goal was to close the US/UK productivity gap, which has existed for as long as economists can remember-not a task to be underestimated. Welcome to the fascinating world of "endogenous growth" theory. This is the economic model underpinning the Treasury and the DTI's work to address the failure of our business support systems to adapt to the pressures of competitiveness. With a name like that, it's no surprise spin-doctors tried to keep it quiet. And no wonder that there was such conflict between Brown and Blair. Tony got the headlines, while Gordon was reinventing economic theory and the British economy. In its most simple terms, endogenous growth helps us to understand, and therefore develop, the latent growth potential in the economy. It is a mechanism for economic management to fine-tune the institutional structures that make up the productive ecosystem: science and innovation; investment; skills; enterprise; and the competition environment.
Alongside macro-economic stability, these five drive wealth-creation. They underpin our ability to compete globally, to access the right source of skills and innovations, adequate sources of capital for investment and to have a seed-bed in the entrepreneurial businesses that are so important in the supply chains and innovation processes of big businesses. As global businesses look for locations around the world, these five productivity drivers inform their decisions.
Brown would be diminishing the importance of the changes he has made if he now tries to be Tony Blair. The challenge is to reintegrate the economy and business back into mainstream political debate. Streamlining the demand and supply sides of the economy (broadly represented by the DTI and the Treasury respectively) in one super-department will go some way towards achieving the goals of tightening up the economic and institutional base.
Rebecca Harding is managing partner of Delta Economics and a director of GEM UK.
