EXPERT BLOG: The Labour Party Budget: Instrumentalism, Working People, and Investment? Mazzucato, Picketty, Starmer and Reeves

Whilst promoting his own memoir, Boris Johnson claimed that his election in 2019 saved the UK from a semi-Marxist government led by Jeremy Corbyn. The UK now has a Labour government with a massive but shallow depth majority whose main protagonists, Starmer, Reeves, Miliband, Streeting and Rayner all believe in the power of the power of the state, a key Marxist concept identified and developed by Ed Miliband's father. The leaders though of the statist government have got themselves into a calamitous situation over investment and the definition of working people that threatens to undermine their credibility, how have they managed this? For critically minded academics like us the answer is easy:- they take ideas from books and run with them but either don't read the books properly or don't understand them. This creates a version of populism that cites 'an investment summit' and a Budget for 'strivers' as an update for 'working people' that no cabinet minister appears able to define.

It looks to us that Starmer and Reeves and those behind them (McSweeney, Miliband and Ali) have taken what they think are the core ideas from two influential books but have got them wrong and wrapped round their necks. That is, failing to apply the core ideas from Picketty and confusing and idolising the ideas from Mazzucato.

Picketty argues that most people with wealth in developed nations secure it by inheritance where on average rates of return on all forms of capital (building society investments, university lecturer pension lump sums, housing, rental incomes, stocks and shares and inherited wealth to name a few) all grow faster than the average rate of economic growth. Therefore those who possess capital become wealthier than those who don't. Those who don't possess capital are individuals that Starmer and Reeves try to define as working people, ergo those who don't have saving and can't write a cheque. Because the Prime Minister and Chancellor have backed themselves into a corner by committing to not increasing, income tax, VAT, or national insurance on working people or increasing and widening the scope of taxation on wealth they have to increase taxation in other ways that they claim does not affect working people. Accordingly, they have segmented people who work either as employees or SME entrepreneurs or those who own a second home that they rent out.

What they have done is ignore Picketty's central prescription:- higher and wider wealth taxes, both globally and regionally within an individual nation - so London in the UK and much higher taxes on profits of global corporations - they have done none of this in the Budget, in the main this might be the case because of the fragility of their investment summit and the threat of business withdrawal in the face of higher taxation rates. This turns us to Starmer's warped reading of Mazzucato.

In The Entrepreneurial State, Mazzucato argues that the diffusion of technological innovation is integral to the rate of economic growth but also that an economy must be highly networked to share and advance a new frontier of knowledge. Moreover, the various agencies of the state must be a central player in the national system of innovation using its systems of procurement, commissioning, and broader regulatory functions to shape but more importantly get ahead of markets and market actors to drive technological advances. Presumably, this is why Starmer and Reeves confirmed the installation of free ports initiated by the previous Conservative government and have hawked themselves around to promote investment summits and capitalised a National Wealth Fund that appears as a competitor to the UK Infrastructure Bank created in 2021. Whilst Mazzucato backs up her arguments about the entrepreneurial state in the United States by illustrating that all the component innovations in iPhones and the Google algorithm were initially funded by state agencies when venture capital and market actors chose not to develop them, Reeves and Starmer are unclear how the National Wealth Fund will promote innovation or secure private partners to invest beyond what they have already committed to within the market or the sector where they operate, P&O for example. Similarly, local free ports appear to be mechanisms to enable and support subsidized investment for multinational firms such as Amazon, or the building of massive distribution and fulfilment centres for multinational firms and national retailers. The latter could be a form of innovation that is ahead of the market but one that undermines retail in city centres.

It is here that the (mis) reading of Mazzucato and Picketty is a form of instrumentalism along the lines identified by Ralph Miliband. Miliband demonstrates that the institutional ensemble that makes up the state is a capitalist state in that it disproportionately represents the dominant capitalist interests in a nation. In the UK, these are multinational businesses and capital, financialised capital such as private equity and high-tech defence industry firms with civil applications such as Rolls-Royce aero engines and British aerospace. Apart from Rolls-Royce and British Aerospace, the majority of multinational investors locate in the UK to take advantage of the taxation regime which Picketty's thesis rails against but which Starmer and Reeves carefully ignored in their reading of his book and in the measures in their Budget.

Ian Clark and Alan Collins, Work Informalisation and Place Research Centre, Nottingham Trent University