Who is better at managing the UK economy, Labour or the Tories?

Economic Growth under Labour and under the Tories

Looking at the long term economic growth rate under both Tory and Labour Governments since 1950, there is no significant difference between them – it averages 2.6% p.a. during periods of Tory rule, 2.5% per annum under Labour[1].

 

Both parties performed poorly until the 1980s

Comparing the performance of the UK to France, the USA, and the average of high-income OECD countries, the UK economy performed poorly compared to our competitors under both Tory and Labour Governments until the end of the 1970s[2].

 

The conservatives under Thatcher initially presided over a deep recession that caused mass unemployment and extreme misery, but later years did see the UK outperform our competitors on economic growth. Over the 1979-97 period of Tory Government as a whole, however, the GDP increase of 52% under the conservatives was higher than France’s 44% but lagged a long way behind the 63% average of the OECD countries let alone the 70% increase in the USA.

 

The only post-war Government to achieve faster economic growth than the average of all rich countries is the labour Government of 1997-2010[3]. Under labour the economy grew by nearly 30%, whereas the high income countries as a group achieved growth of about 28%. From 1997-2008, Labour consistently achieved high GDP growth with low inflation. During the period, the cumulative increase in national output per head in the UK was greater in percentage terms than in either the US or France. The major and important difference from the Conservatives is that labour achieved this good performance while also distributing the benefits more equitably, achieving major reductions in poverty, especially child poverty.

 

The period of growth came to an end with the global financial crisis. During the global recession from 2008, the cumulative decline in national GDP in the UK was about 4.7% compared to an OECD average of about 3.5%, and about 3% in the US and France. The UK was hit harder because of the far greater relative importance of banking and finance in the UK economy. The recession was not caused by labour economic mismanagement.

 

What is less well recognised in the UK (though acknowledged in other countries) is that the UK performed a really significant role in brokering the necessary international action to save the world financial system from collapse[4]. It is ironic that labour ended up with a reputation for economic incompetence when most international observers would give the UK much of the credit for preventing the global recession being a whole lot worse.

 

Under the Tory led coalition since 2010, recovery in the UK was slow, and (unlike the US) the UK had still not recovered the pre-slump peak level of output per head by 2014. The IMF and other commentators have argued that unnecessarily severe austerity policies have damaged economic growth since 2010[5].France performed even more poorly during the recovery because of the problems of the Euro zone – the decision to keep us out of the Eurozone was another example of sound Labour economic judgement.

Economic Management

Growth is only one aspect of economic management. Another indicator of the skill in economic management is the control of inflation, with both parties accepting that a target of about 2% per annum is appropriate. Although direct responsibility is given to the Bank of England (a significant reform introduced by Labour), Government can make their task much more difficult if it fails to retain good control of its own spending.

 

Recent economic history suggests that Labour has performed better than the Conservatives.

 

Both Labour and Tory Governments struggled to control inflation in the 1970s in the face of multiple oil shocks abroad and industrial relations problems at home. Despite the severity of the recession that it induced through over-tight monetary policy in the early 1980s, the Thatcher Government still struggled with inflation rates above 5% as late as 1991.

 

Under Labour from 1997, the UK consistently enjoyed a benign combination of moderate inflation and economic growth. Only the global financial crisis brought this to an end. As argued elsewhere, this was not caused by labour, nor was the labour Government especially profligate in its spending decisions. It was appropriate to allow some expansion in the budget deficit to avoid a still deeper recession. The debt never approached unmanageable levels. The debt has been far higher than the current level of about 80% of GDP for much of our history, it is easily financed with current low global interest rates, and will come down in relative terms as economic growth is restored-  even without the planned deep cuts in public spending.

Did Labour ‘Tax and Spend’ Excessively?

Another frequent allegation is that Labour Governments tax and spend excessively. Judge for yourself:-

I. The labour Government of 1997-2010 generally spent less than the 38% of GDP level reached in the final years of the previous Conservative administration. There was a brief (and rapidly reversed) expenditure blip to 38.8% in 2005, but the eve of the global economic crisis saw the Government spending the same share of GDP as their predecessors. Tax revenue was a little higher, which could be argued to reflect a prudent policy of avoiding excessive deficit spending in good times.

2. During the global crisis, which required extra expenditure to avoid a deep recession, expenditure peaked in 2009 at 43.6% of GDP. This is higher than the average of the rich OECD countries, but is lower than France (47%) and comparable to Denmark (43%) Italy (42%) and the Netherlands (42%). Those who have suggested that Labour economic policies would lead to disaster might want to contemplate these figures – and the fact that high spending Denmark and the Netherlands score 3rd and 6th in the global rankings of the World Happiness Report.

Conclusion

The conclusion to draw from this analysis is that there is little difference between the two parties in terms of the quality of economic management. If anything, Labour has performed better since 1997, enjoying greater consistency with less ‘boom and bust.’

 

The big difference between the two parties is in how the fruits of economic growth have been distributed. That will be the subject of a future briefing note.

[1] Calculated by the author from Office of National Statistics GDP data.

[2] Based on World Bank World Development Indicators. Re-unification makes a comparison with Germany difficult.

[3] World Bank, world development indicators, analysis by the author

[4] For quotes and analysis see William Keegan, Saving the World”? Gordon Brown Reconsidered , October 2012, ISBN 978-1-907720-56-7

[5] For IMF quotes see, http://www.theguardian.com/business/2013/may/22/imf-uk-economy-verdict-eurozone-osborne

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Publications on the Economics of Development

I had a long career as a developmen economist, first with DFID and then with the ODI, and finally as an independent consultant. With DFID, as head of Africa Economics Department, I did a lot of work on new approaches to development assistance, working with colleagues to develop more effective approaches to using aid to support sustainable poverty reduction and improved access to social services. This led on to me establishing the Centre for Aid and Public Expenditure (CAPE) within the ODI. I was the first head of CAPE, from 1999 to 2001, and I am proud that it continues to go from strength to strength. From 2002 until my eventual retirement in 2014 I worked as an independent consultant, but had the opportunity to combine practical consultancy work with some research. My focus in later years was on the problems of very high aid flows, and the difficulties of providing support in challenging policy and institutional environments.
I have pretty much retired now, and have no immediate plans to do more work in this area. The relevance of my work is clearly on a diminishing curve with time,but I do still get asked for copies of stuff I produced over the years. Most of my publications are available on Research Gate, but not necessarily well organised, and not everyone with an interest will necessarily find their way there. I thought it might be useful to provide this chronological listing of articles, book chapters, working papers, and consultancy reports. This is still work in progress. I will eventually aim to add links to where copies can be found, but that may take me a while. If you have trouble finding anything listed then please send me a request and I will do my best.

List of Publications
Mick Foster and Anthony Higgins, Programme Management Review for Australian Aid support to the Solomon Islands Health Sector, Options Paper, November 2013

Mick Foster, Anthony Higgins and Myra Harrison, Samoa Education Sector Policy Support Program, Report of First Sector Policy Support Design Mission, December 2011

Mick Foster, improving the provision of basic services for the poor:- linkages with broader public sector and Governance reform. AusAID, Office of Development Effectiveness.

Mick Foster, Rob Condon, Katja Janovsky and Chris Roche, Australian Aid to health Service Delivery in Papua New Guinea, Solomon Islands and Vanuatu: Evaluation Report and country working papers, June 2009, AusAID, Office of Development Effectiveness

Foster, Mick. How to stop development aid from doing harm. Europe’s World, Autumn 2007.

Tony Killick and Mick Foster, The macroeconomics of doubling aid to Africa and the centrality of the supply side. Development Policy Review, March 2007.

Foster, Mick and Tony Killick, Economic management in Africa: what would be the effect of doubling aid? The Commonwealth Ministers Reference Book, 2007.

Foster, Mick and Killick,T (2006), What would doubling aid do for macroeconomic management in Africa: a synthesis paper (ODI Working paper 264, April 2006). Downloadable fromhttp://www.odi.org.uk/publications/working_papers/index.html

Foster, Mick. Fiscal Space and Sustainability: Towards a Solution for the health Sector. (Reproduced in WHO, World Bank (2006), High-level forum on the Millennium Development Goals, Selected papers 2003-2005).

Foster, Mick. MDG Oriented Sector and Poverty reduction Strategies (2005), Lessons from Experience in Health, HNP Discussion Paper, World Bank, October. (Reproduced in WHO, World Bank (2006), High-level forum on the Millennium Development Goals, Selected papers 2003-2005).

Fozzard, Adrian and Mick Foster (2004), Changing Approaches to Public Expenditure Management in Low-income Aid-dependent Countries. Chapter in “Fiscal Policy for Development, Poverty Reconstruction and Growth”. Edited by Tony Addison and Alan Roe, UNU-WIDER, May.

Foster, Mick (2003), A note on Criteria for Assessing the Case for Overseas Aid, Development Policy Review, May 2003. N/A

Foster, Mick, Adrian Fozzard, Felix Naschold and Tim Conway (2002), “How, when and why does poverty get budget priority? Poverty reduction strategy and public expenditure in five African countries. Synthesis Paper.” Overseas Development Institute, Working Paper 168. ISBN 0850035791.

Foster, Mick and Douglas Zormelo (2002), “How, when and why does poverty get budget priority? Poverty reduction strategy and public expenditure in Ghana”. Overseas Development Institute, Working Paper 164. ISBN 0850035902.

Foster, Mick and Peter Mijumbi (2002), “How, when and why does poverty get budget priority? Poverty reduction strategy and public expenditure in Uganda”. Overseas Development Institute, Working Paper 163. ISBN 0850035929.

Norton, Andy, Tim Conway and Mick Foster (2002), Social Protection: Defining the Field of Action and Policy, Development Policy Review, 2002, 20 (5):541-567, November.

Foster, Mick and Felix Naschold (2001), Government-Donor Partnerships in Support of Public Expenditure, Chapter in Making Development Work, Development learning in a World of Poverty and Wealth, World Bank Series on Evaluation and Development, Volume 4, ed. by Nagy Hanna and Robert Picciotto, Transaction Publishers. N/A

Foster, Mick and Jennifer Leavy (2001), “The Choice of Financial Aid Instruments”. Overseas development Institute Working Paper 158. ISBN 085003 5724.

Andy Norton and Mick Foster (2001) “The Potential of Using Sustainable Livelihood Approaches in Poverty Reduction Strategy Papers.” Overseas development Institute Working Paper 148. ISBN 085003 5287.

Norton, Andy Tim Conway and Mick Foster (2001) “Social Protection Concepts and Approaches: Implications for Policy and Practice in International Development”, ODI Working Paper 143.ISBN 085003 5139.

Foster, Mick and Sadie Mackintosh-Walker (2001), Sector Wide Programmes and Poverty reduction. ODI Working Paper 157, commissioned by Government of Finland for the like minded donor group. ISBN 085003 5716.

Brown, Adrienne, Mick Foster, Andy Norton and Felix Naschold (2001), “The Status of Sector Wide Approaches”. ODI Working Paper 142, commissioned by Ireland Aid for the like minded donor group. ISBN 085003 5074.

Foster, Mick (2000) “New Approaches to Development Co-operation: What can we learn from experience with implementing Sector Wide Approaches?” ODI Working Paper 140, commissioned for DFID White Paper, October. ISBN 085003 5023.

Foster, Mick, Adrian Fozzard (2000) “Aid and Public Expenditure: A Guide”. Commissioned by DFID for the economists guidance manual. ODI Working Paper 141. ISBN 085003 5031.

Foster, Mick, Adrienne Brown and Tim Conway (2000) “Sector-wide approaches for health development: a review of experience ” WHO, Geneva, June.

Foster, Mick and Felix Naschold (1999), ‘Pro-poor budgets and the role of development cooperation’, chapter of “Operationalising the Comprehensive Development Framework: Evidence from Contemporary Research” (ODI’s contribution to the World Bank Annual Review of Development Effectiveness), June.

• Foster, Mick (1999) ‘Lessons from Sector Wide Approaches in Health’, WHO: Geneva, March.

• Foster, Mick (1996), Improving Overseas Development Assistance: The Broad Sector Approach, May 1996, published with proceedings from May 1996 IMF seminar, ‘Deepening Structural Reforms in Africa’.

Mick Foster: economist, drummer, and would-be author

Thanks for visiting my site. I am an economist with more years of experience than I care to admit to, most of it in overseas development, though I have also worked as Chief Economist in the UK Home Office, and had a brief stint in the Cabinet Office. The site contains:-

i. My research and consultancy work on economic development – most of this is available on researchgate.net, but not everyone has access to that.

ii. Discussion of policy issues that interest me, trying to push back against the avalanche of lies and distortions that seem increasingly to taint our politics and our media coverage.

iii. Some of my fiction writing while I figure out how best to get it either published or self-published. Short stories under the heading ‘Lives in Development’ can be seen here https://mickfoster.files.wordpress.com/2015/10/lives-in-development.pdf

iv.  I will also have a theme for the various bands and music events I am involved in, with a few links to where our music can be heard.