Labour still lacked a new growth model argued Professor Colin Hay at an End of New Labour? workshop at the University of Warwick last Friday. This would involve the channelling of credit out of the housing market to targeted export oriented sectors of the economy. An alternative account to the crisis of debt in terms of a crisis of growth could just about be detected.
It was difficult to see how a model of privatised Keynesianism (reliant on debt to fuel growth) could be resuscitated. High levels of private debt had increased the sensitivity of demand in the economy to interest rate variations.
There was a large interest rate spread between the LIBOR wholesale rate and mortgage and commercial lending. This functioned as a form of bank recapitalisation and was a drain on consumer demand and investment.
A manufacturing rebalancing of the economy would be very difficult to achieve. There was a need for downward pressure on the actual cost of borrowing. One could politicise the spread of credit, shaming banks. The Bank of England should be made responsible not only for base rate but for monetary policy more generally. Mortgage holders were likely to respond positively to such a strategy, but it was not sufficient.
Andrew Gamble asked how, given the extent of financialisation and individualisation, could this be reversed politically? How could the state change the supply of credit, what capacity would it need?
Peter Burnham raised the question of whether government needed a growth model. Jim Bulpott would have argued that it need it politically, but not economically. As far as manufacturing was concerned, the value chain was broken and three-quarters of what was left was in workshops employing small numbers of workers. One could not impose rates on any bank.
In summary the discussion suggested that there was no easy route out of the current crisis.