SPRU - Science Policy Research Unit

Professor Mazzucato criticises UK Chancellor budget surplus plans

Professor Mazzucato joins other leading economists in criticising UK Chancellor’s budget surplus plans and urges UK Labour party to develop new wealth creating agenda

RM Phillips Professor in the Economics of Innovation, Mariana Mazzucato was one of 77 leading economists to criticise UK Chancellor George Osborne’s plans to place a duty on future governments to run a budget surplus in a letter to the Guardian, reported on the front page, on Saturday 13 June 2015.

In their letter, the group warned that Osborne’s plans to enshrine permanent budget surpluses in law “are nothing more than an attempt to outmanoeuvre his opponents. They have no basis in economics.”  Other signatories include Thomas Piketty (Paris School of Economics), David Blanchflower (former Bank of England Monetary Policy Committee) and Ha-Joon Chang (University of Cambridge). The letter was coordinated by the Centre for Labour and Social Studies.

The letter goes on to say that “Osborne’s proposals are not fit for the complexity of a modern 21st-century economy and, as such, they risk a liquidity crisis that could also trigger banking problems, a fall in GDP, a crash, or all three”.  It warns that the knock-on effect to the rest of the economy of tying Government hands means that “households, consumers and businesses may have to borrow more overall, and the risks of a personal debt crisis to rival 2008 could be very real indeed.” The economists conclude by calling for “an urgent rethink.”

In a separate blog for The Guardian, published on Monday 15 June, she has also urged the UK Labour party to develop a new wealth creating agenda.

Criticising the recent post-election analysis of why Labour lost the UK election by senior figures including Tony Blair, Liz Kendall and Chuka Umunna she writes, “Both Tony Blair and Chuka Umunna … [have claimed] that Labour lost because it was not ‘business friendly’ enough, with both calling business the ‘wealth creators’, a term later repeated by Liz Kendall. And on Saturday Umunna again claimed in the Independent that Labour lost because ‘not enough was given over to the “producers” creating wealth in our economy’.

Professor Mazzucato argues that “talking simply about business as wealth creators misses this point entirely. Indeed, it goes against it.” She goes on to say that, “The point here is that we are all potential wealth creators and risk takers. The failure to appreciate this is what lies behind the current dysfunctional relationship between business and the state.” 

Calling on the new Labour leader to move away from an agenda she calls “Tory light”, she urges them to instead develop a new story about innovation, the economy and wealth creation or face losing “again and again” in elections. She concludes that “A new narrative is needed which sets out a positive vision for a dynamic innovation economy – one based on a serious relationship between the public and private sector, in which both sides, along with the working population, are seen as part of the collective process of ‘wealth creation’”. 

The article prompted an instant reaction from Shadow Business Secretary Chuka Umunna who tweeted “a critique of me and others here from @MazzucatoM – worth a read” and “don’t agree with all of @MazzucatoM’s piece but there’s a lot I do agree with – important contribution to the debate”. 

Mariana Mazzucato is a member of the Scottish Council of Economic Advisers and her current research with funding from the EU’s Horizon 2020 initiative is investigating how to address the global challenge of improving the financial system to better serve society and put EU economies back on steady growth paths with innovation-fuelled, sustainable and inclusive growth.

See also:

Innovation-fuelled, Sustainable, Inclusive Growth

DOLFINS - Distributed Global Financial Systems for Society