Before austerity does any more damage, Britain needs a plan for growth

Joseph Stiglitz writes: The choice facing the voters in this election is clear – between more failed austerity or a Labour party advancing an economic agenda that is right for the UK. To understand why Labour is right, we first need to look back to the 1980s.

Under Ronald Reagan in the United States and Margaret Thatcher in the UK, there was a rewriting of the basic rules of capitalism. These two governments changed the rules governing labour bargaining, weakening trade unions; and they weakened anti-trust enforcement, allowing more monopolies to be created. In our economy today we can see industries with one or two or three firms with market power. This gives them the power to raise prices – and as they raise prices, people’s incomes fall, in terms of what they can buy.

Changes to how our corporations are governed have allowed chief executives to take a larger and larger fraction of the corporate pie, leaving less and less to be reinvested in the company, and less to pay to workers. Monetary policy has been conducted with a focus on inflation rather than on employment.

Over three decades later, it is clear that the rules were rewritten in ways that slowed our economy. These changes encourage financialisation, with firms chasing only profits; and they promote short-termism, with companies unwilling to invest over the longer term. Both contribute to this slowdown. And as the economy has grown more slowly, it has been divided more unequally. [Continue reading…]

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