I have a lot of respect for David Sainsbury, gained from our time working together a decade ago at the Department for Trade and Industry, and I have also benefitted from a number of campaigns and organisations he has funded. So it was with some trepidation that I opened up his book Progressive Capitalism: How to Achieve Economic Growth, Liberty and Social Justice. What should I say if I did not like it?
Thankfully, I did. It is a wide-ranging and useful contribution to the industrial policy debate in Britain, with credible and thoughtful policy recommendations. But it is also, however, slightly mispitched and possibly over-ambitious in what it sets out to achieve.
The book’s guiding theme is the need to focus on the nature of institutions within an economic system. He shows that this is how successful developing countries have caught up with the most prosperous, and argues that the largest economies will continue to lead if they have institutions whose aims are ‘solely to produce the conditions that enable firms to innovate and grow profitably’.
His institutional approach enables him to argue that the UK’s efforts to emulate Germany are a waste of time – the two systems are simply different – you cannot cherry-pick parts of one and plant them in another and, what is more, ‘neither variety of capitalism is consistently better than the other.’ Instead his instructions are simple: ‘Decide which function you want each institution to perform then seek to make changes to them so that they perform better.’
By taking a pro-institutional approach he exposes the weaknesses of so-called neoliberal economics, pointing out that there is no evidence to suggest that the removal of a few regulations or a small change in tax rates will lead to a surge of innovation and economic growth, instead stating that the purpose of regulation should be ‘to significantly improve the effectiveness of an institution at reasonable cost’. He rejects totally the idea that a free market is part of the natural order of things, instead describing capitalism as ‘one of the greatest constructions of the human mind’.
The second part of the book makes specific proposals as well as providing the best account I have seen of recent initiatives in UK science and innovation policy. In financial services there should be a new Shareholder Advisory Board to reduce the power of investment managers. In labour markets people should know where the well-paid job vacancies exist and what training they need to get to make a successful application. The National Economic Council should be re-established. So should something akin to regional development agencies, and civil servants must get better at policy research.
Where the book suffers is its attempts to draw all of this into an overarching political narrative, which makes the early chapters in particular feel unduly polemic. It is not that. But it is an articulate and useful prism through which to view industrial policy. Future policymakers would be wise to take note.
Kitty Ussher is an economist and former Treasury minister
Progressive Capitalism: How to Achieve Economic Growth, Liberty and Social Justice
BiteBack Publishing | 304pp | £20
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