Credit: International New York Times
London: After 14 years in the shadows, Britain's Labour Party has returned to governing. And the country's first female chancellor of the Exchequer, Rachel Reeves, is faced with the tough job of restoring Britain's economic growth prospects and ending a decade and a half of stagnation.
For inspiration, she has turned to another glass-ceiling-shattering woman, on the other side of the Atlantic: US Treasury Secretary Janet Yellen.
Reeves was named chancellor Friday after the Labour Party won a majority in Thursday's general election. Now in charge of Britain's budget, she is expected to pursue an economic agenda influenced by Yellen, whose policies have encouraged job creation and a manufacturing investment boom in the United States.
Yellen's "modern supply-side economics" aims to bolster economic growth by increasing the number of workers and raising productivity while reducing inequality. In practice, that has meant giving companies incentives -- through subsidies and tax cuts -- to invest in the United States and generate jobs at home, particularly in emerging green sectors.
Reeves, 45, calls her version "securonomics," a portmanteau word that means ensuring "resilience for our national economy and security for working people," she said in March. It's also likely to mean a more activist government. The Labour Party has drawn up an industrial strategy and has plans for a national wealth fund and a publicly owned energy company.
"Much of my securonomics approach has its roots in Yellen's modern supply-side economics," Reeves wrote in a book published last year.
She is also influenced by Harvard University economist Dani Rodrik, who calls for "productivism," a partnership between governments and businesses to create more productive jobs throughout an economy.
Since 2010, Britain had been governed by the Conservative Party, whose instincts were toward a smaller state and the free market. Reeves has argued in favor of a greater role for the government, while it teams up with businesses.
For Reeves, the United States justifies this approach, even if many Americans have a poor view of the current economy. While Britain has experienced sluggish growth, the United States recovered rapidly from the pandemic and has continued to expand strongly. Its economy is nearly 9% larger than its prepandemic size, and nearly 16 million jobs have been created since President Joe Biden took office, more than making up for the losses during the pandemic.
The shift in economic policy in Washington has led other countries to reevaluate their approaches, said Carys Roberts, executive director of the Institute for Public Policy Research. "It's really inspired the Labour Party to be stronger on its approach."
Reeves has already followed Yellen in one respect: Yellen is also the first woman to lead her country's treasury. But following her economic agenda might prove to be more difficult.
Yellen's policies have lots of money behind them. The Inflation Reduction Act, with its incentives for manufacturers to build solar-panel or wind-turbine factories and for consumers to buy electric vehicles, is projected to cost more than $800 billion over the next decade.
But no one, least of all the Labour Party, thinks Britain has the money to do something as bold. The government's debt is at its highest level since the early 1960s, and interest payments have ballooned. Taxes are also historically high. Current spending plans suggest a squeeze on many public services amid urgent demands for more health care spending and pledges to increase military spending.
"There's not a huge amount of money there," Reeves told the BBC on Friday.
In some ways, Reeves has added to her constraints by vowing to not raise Britain's three main taxes and to keep her predecessor's "fiscal rule" of getting debt to fall in five years. To avoid worsening austerity, Labour is relying on economic growth to improve the public finances, and it is depending on wave of private-sector investment.
Reeves is betting that stability can create the conditions for growth, investment and better-paying jobs. She did not respond to requests for comment on her policy plans.
In today's "age of insecurity," as she has called it, with intensifying geopolitical tensions and climate change, Reeves expects to be a manifestation of that stability. After five chancellors in five years, she is expected to see out a full five-year term. She has also said she will strengthen Britain's institutions, including the Office for Budget Responsibility, a watchdog.
Otherwise, Reeves is expected to focus on changing policies that do not require big spending commitments, particularly overhauling the planning system for development to make it easier to build homes and upgrade the energy grid.
But for some, these constraints define Reeves more than her ambition does. Labour this year ditched a pledge to spend 28 billion pounds (about $35 billion) a year on green investment, which Reeves announced 2 1/2 years earlier.
The Biden administration "broke the rules and bet big," and Labour needs to do the same, said Danny Sriskandarajah, CEO of the New Economics Foundation, a British think tank.
"If you want to shift the needle on poverty or inequality or green investment or crumbling public services, you're going to have to find either new money or redistribute money in far more ambitious ways," he said.
But the Labour Party, led by Keir Starmer, has been wary of making big bets or seeming too ideologically driven.
"There are two ghosts that haunt her and Keir," Sriskandarajah said. They are Jeremy Corbyn, the former leader of the Labour Party, who pledged widespread industry nationalization and more spending, and Liz Truss, the former Conservative prime minister, who lasted 49 days in her job after her unfunded tax cuts sent shock waves through markets.
Instead of ideology, Labour promotes pragmatism. Reeves, an economist by training, frequently refers to the six years she spent working at the Bank of England after college, during which she had a stint at the British Embassy in Washington.
Reeves returned last year to Washington, where she meet with officials, including Yellen. In a speech there, she laid out her view of how the world was changing but Britain was being left behind.
"Globalization, as we once knew it, is dead," she said in a speech. In its place, a "new multilateralism" is emerging with partnerships among nations with shared values and interests.
Reeves' denouncement of globalization is inspired by Rodrik, who has said that the era of "hyperglobalization" is over and that, instead, a new economic order needs to put a priority on domestic social, economic and environmental objectives. That could lead to a new, "thinner" globalization, in which the government focuses on creating productive jobs.
For some economists, there are risks that these types of policies, which emphasize security and revive industrial policies, could escalate and slide into rampant protectionism.
Rodrik said this could be avoided if just a small number of critical technologies were protected and, as the Biden administration has said, the rules were not intended to economically weaken China.
"I don't see any problems if Britain chooses to follow these principles as well," Rodrik said in an email exchange.
And Reeves seems intent on following where the United States leads.
"A new Washington consensus is taking shape," Reeves said in a speech in March. "I believe it is in our interest to embrace that consensus," which will depend on having a more active state, she said.