Investment, the Labour Market and Economic Policy

A major goal of economic policy in the market era was to transform the labour market. Far more than any other advanced economy, and beginning with the high unemployment decade of the 1980s, British economic policy has centred on the creation of a flexible labour market, to the exclusion of much else, with the exception perhaps of the search for a credible anti-inflationary monetary policy. By flexibility in the labour market we do not mean to include all policies such as skills training and the flexible use of labour within the firm — which were never a priority — but rather the process of increasing the willingness of workers to supply labour at a wage justified by the prevailing level of productivity. That approach has now become so much part of the current consensus that it is hard to recall that it displaced other more broad-ranging concerns over growth that headed the agenda in earlier periods. In this chapter, we ask how this transformation became accepted and commonplace. How did it happen that an orthodoxy emerged that downplayed — almost to the point of neglect — the positive contribution of capital investment, research and development (R&D) and technology in favour of a worldview that prioritized labour market institutional reform?