Did Labour’s policies have any positive influence?
Some have argued that Labour simply enjoyed a “free ride” on the radicalism of Mrs Thatcher. Most analysis suggests that freeing up the labour market through breaking union militancy, removing subsidies for “lame ducks” and implementing privatisation, lower marginal tax rates and cuts in benefits all boosted productivity performance after 1979. On this line of argument the best that could be said is that at least Labour did not return to the failed pro-union, anti-competitive policies of the 1970s.
The “at least Labour didn’t mess it up” argument is not the full story. It is hard to believe that the reforms in the conservative years permanently kept productivity growth higher for the next 15 years. The anti-union policies may have raised output, for example, but it stretches credulity to think they kept the UK on a permanently better productivity growth path.
We argue that it is more likely that some policies of the Labour government drove some of the productivity improvement. In particular, the strengthening of competition policy, the support for innovation, the expansion of university education and better regulation in telecoms and elsewhere played a positive role. It is possible that immigration may have also have been a big plus. But establishing the magnitude of the causal impact of these policies is extremely difficult, and the need for proper quantitative policy evaluation remains as strong as ever.
The policy area where Labour clearly failed was in financial regulation. In addition, and more clearly with hindsight, public debt was allowed to rise higher than it should have. Although these factors did not fundamentally drive the boom and did not cause the global recession by themselves, the UK economy was more vulnerable to the recession than it should have been.