Ruchir Shah: Economy must protect the poorest in society

The Chancellor must look beyond traditional economic models as they are not working, writes Ruchir Shah.

There’s a saying, “If something isn’t broke, don’t fix it”. But I think it’s better to say, “If something is broke, don’t even try to fix it”. Then there’s the adage, “It’s the economy stupid”. But again, if you ask me, I’d flip this around and say, “It’s the stupid economy”.

It’s unbelievable that even after four years of recession, and a trillion pounds of new debt, most of us still somehow haven’t learned the lesson that the old way of doing things (the previous economic model) isn’t worth trying to rescue.

At a time when the economy is flat-lining, growth is falling far short of forecasts, and targets for deficit reduction are being missed, we can all expect a fairly gloomy Autumn Statement from the Chancellor when it comes later today.

Even leading economists are referring to the UK government’s “abject failure” at rebuilding the economy and urging the Chancellor to be more radical in his reforms.

So, what if things could be different? What if rather than breathing new life into a dodgy model, we concentrated on completely rebuilding it and starting all over again from scratch?

The first step here would be to work out what ingredients we need. For me, these would include an economy which people from all walks of life and income groups feel they have a stake in. It would involve an economy which is designed to make people value their lives, their natural environments and their sense of belonging to society, and an economy which gives people what they need – not what they crave.

Using these ingredients we could build an economy that is more meaningful to people and their communities. But what shape would it take?

I’d like to see democratic mutual institutions through which people support each other financially as well as socially. Businesses would make their primary goals social, human and environmental development. Business support should reward positive social and environmental impacts. Investors would measure the contribution of their funds by the difference it makes to peoples’ lives. Governments would value innovation, support empowered communities and take a long-term view when making decisions.

Rather than focusing on economic growth as the sole measure of progress, the government’s economic strategy should take a wider perspective on what constitutes progress.

The National Performance Framework would be redesigned to encompass wellbeing, social inequality and environmental factors and a preventative approach to public services would save the taxpayer money in the long term and bring other benefits.

Many people in the third sector are determined to shift the debate among politicians, policymakers and economists on to how we can make the economy more meaningful to people and communities instead of economic growth being considered as an end in itself. We want to see a clearer separation between what we as a society do and do not want to subject to market economic forces.

This would usher in a move to support people to build on the assets (the skills, experience, networks and values) that they already have, rather than trying to sell them what they don’t have. We would see people as empowered citizens rather than hungry consumers.

That’s not to say that Scotland should not play to its strengths in green jobs, food and drink, technology and even financial services. But it must be mindful of how success in these areas is going to make a difference to people and communities in the long run. If you ask people about their priorities, they will mention housing, safety and employability. But we have an economy that is skewed in the wrong direction. During the ten years before the recession, years of significant economic growth, the poorest never benefitted from that boom.

We’re developing a solid, coherent critique of the focus of economic growth that offers a credible alternative – an alternative that ushers in a much more progressive economic agenda and re-balances our economy so that everybody benefits and resources are shifted closer to people.

All very pie in the sky, you might say. So, let me give you some examples of all of this in action. Let’s start with practices in some of the poorest countries in the world.

We could learn from and build on the micro-finance and micro-credit institutions pioneered by them and use this to strengthen our credit union movements. If it works for them, surely it will work in our recession.

Let’s make our so-called bloated public services our asset, and sell our knowledge, service models and skills to emerging economies to help them cope with the health and care demands of their burgeoning middle classes. And let’s make Scotland a global hub for ethical businesses, where social, technological and environmental innovation helps rebuild communities.

Sadly, for now, our governments remain wedded to the old way of doing things, wherein economic growth is the purpose of society, when it should actually be the other way around. Civil society, on the other hand, is emerging as an increasingly proactive force in this area, taking a radical approach and challenging the status quo.

Whether it be Friends of the Earth Scotland’s Just Banking conference, Scottish Environment LINK’s “Helping Scotland to Flourish”, or the Scottish campaign for the Living Wage, it is civil society which is leading the debate about how to create an economy that protects the poorest in our society, looks after our environment and avoids the booms and busts of old economic orthodoxies.

Oxfam’s Humankind Index perhaps leads the way, not simply because of its relevance as a policy-making tool to supplant GDP, but also because of the way it involved people, particularly the most disadvantaged, in its creation – allowing them to identify the things that really matter to them.

The Chancellor must take a longer term view of the economy because the traditional model, and the 
UK and the Scottish Government’s current approaches, are frankly not working for anyone.

l Ruchir Shah is policy manager at the Scottish Council for Voluntary Organisations (SCVO).