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Vince Cable: The Balance of Economic Risks Have Changed, So Should Our Policy

15/03/2013 12:50 GMT | Updated 15/05/2013 10:12 BST

Government policies designed to aid recovery from the UK's economic depression, which followed an unprecedented and largely unresolved financial crisis, should be revised as the economic picture changes. Such revisions are only possible through a considered critique of current policy, and the balancing of risks between any plausible set of alternatives.

This was the message in Vince Cable's thoughtful, nuanced and well-judged essay on the state of the UK economy, and in a key speech he made to Liberal Democrat activists in Brighton last week. The speech, the Q&A that followed, and the party and media reaction to it all confirmed two key aspects of the discourse on the political economy. Firstly, that Vince is making the weightiest contribution on economic policy and theory by any serving government minister in years if not decades. Secondly, that both within his own party and in much of the media, the level of debate remains depressingly below the standards Vince sets.

The business secretary began his unscripted remarks with a warning - that an organisation such as the Social Liberal Forum, that represents the values of 'practical idealism' so central to liberal thought, was flirting with danger by hosting a dangerous radical such as the recently-outed 'unreconstructed socialist' shop-steward of the Union of Ministers. No such danger came to pass, as his savvy speech remained the right side of igniting the revolution.

He acknowledged the positive signs in the UK economy, comparing our unemployment rate favourably with that in the US and eurozone, for instance - but made it clear that productivity, living standards and growth were the challenges we face in this downturn, more so than the mass unemployment of previous recessions.

Key to addressing those challenges, said Vince, was a much-needed debate on alternatives to both the "ideological economic jihad" waged by some on the Tory right, and the "crude Keynesianism" of Labour's Balls tendency. However, he continued, "the Tories and Labour have suffered collective amnesia that we've experienced a crisis of financial capitalism, which makes the UK's economic discourse very difficult". This rejection of both expansionary fiscal contraction, long-since abandoned by even its champion George Osborne, and 'vulgar Keynesianism', put me in mind of a true radical, Roberto Unger, who coined the latter phrase. The press has focussed purely on how much more borrowing Vince proposes, and not the myriad other institutional reforms he advocates. However, it was clear from his remarks, made in perhaps less colourful terms than Unger, that running a deficit cannot in and of itself haul us out of our malaise - that we must go further.

That's not to say we should rule out borrowing where it's likely to work - hence Vince's call to borrow at record-low rates to fund a massive house-building project, something he said "we should just get on and do" as it would go some way towards correcting "the big policy mistake" of slashing capital spending. Not to mention help to boost the moribund construction industry, hence employment and so on as Keynes would not doubt approve.

Borrowing to invest is not enough, however, so Vince set out some more key reforms. Ensuring the quasi-nationalised banks ("which should have been fully nationalised from day one") carry out "their true purpose" and lend to real business; encouraging market entry of new forms of banking; rebalancing the 80:20 ratio in deficit reduction of spending cuts to tax rises through asset taxation; correcting the "politically ineffective and economically damaging Tory commitment to restricting movement of skilled migrants to the UK". The institutional reforms Vince advocates stretch far beyond the sterile "play your cards right" farce played out between Osborne and Balls shouting "higher" and "lower" at each other across the dispatch box, and deserve a wider audience.

For reasons too convoluted to go into, the debate on economic policy wasn't given a further airing in Brighton, but will not recede from Vince's radar, not that of the SLF, the Lib Dems or indeed the country. We cannot sit back and let the likes of Liam Fox fill the void left by the coalition's silence on alternatives to Osbornomics. No matter how many times the prime minister invokes TINA on his Chancellor's failed Plan A, there very much is an alternative, and Vince is its most thoughtful proponent.