Even before the Covid-19 pandemic brought the global economy to its knees, modern day politicians were seeking to emulate the transformative economic and social agenda enacted by US president Franklin Delano Roosevelt (FDR) in the 1930s. Back then, Roosevelt’s ‘New Deal’ entailed a combination of public infrastructure spending projects and financial reforms designed to pull the US out of the Great Depression.
Handed an election mandate to effectively rescue the US economy, FDR’s New Deal adopted a three-pronged approach – relief for the unemployed, recovery of the economy and reform of the capitalist system. Expanding the role of the federal government, a ‘Works Progress Administration’ created around 8.5m jobs over the course of eight years, while new legislation regulated the financial system to help avoid another crash, improve working practices and introduce a minimum wage and social security safety net for lower-income Americans.
Some of FDR’s methods were akin to the thinking of economist John Maynard Keynes, especially the use of fiscal stimulus – government borrowing – to encourage consumer spending and boost demand. But Keynes was less enthusiastic about long-term reforms that he saw as a threat to business confidence. The efficacy of the New Deal continues to be debated, centred around whether the level of government spending was high enough to constitute a Keynesian stimulus and if certain tax increases proved counterproductive. The US economy had yet to fully rebound by the end of the 1930s and some argue that it was actually the arrival of the second world war that finally ended the Great Depression, providing a solution to unemployment and feeding the military-industrial complex. Nevertheless, FDR’s tactics remain prominent in political and economic discourse today.
A new ‘New Deal’
The latest iteration of the New Deal is the ‘Green New Deal’ – designed to combine economic growth with actions to address climate change – and the approach is gaining momentum on both sides of the Atlantic. While legislative efforts have stalled in the currently divided US Congress, Democratic presidential candidate Joe Biden has called the Green New Deal a “crucial framework”. Meanwhile, the European Commission is seeking to implement its own version.
Closer to home, prime minister Boris Johnson is hoping to secure a “clean, green recovery” post-Covid-19 through his ‘New Deal for Britain’. Placing construction at the heart of his plans, ‘Boris the builder’ has pledged to “build back better, build back greener, build back faster”. Some £5bn will be invested in schools, roads, hospitals and other public construction projects, while speedy reforms to the planning system have been promised to encourage more housebuilding, make development of brownfield sites easier and support an overhaul of ailing high streets.
Roosevelt-lite?
Boiled down to the basics, Mr Johnson’s ‘New Deal’ sounds encouraging – investment, pace and less red tape than Britain has become accustomed to. With the low cost of borrowing, now would seem an ideal time for a capital injection, although some are concerned that public sector net debt as a proportion of national income is set to reach its highest level since 1963. Still, the Institute for Fiscal Studies (IFS) notes that this is not uncharted territory – debt has exceeded the national income in 131 of the past 320 years.
While the prime minister is keen to play up the ‘Rooseveltian’ characteristics of his strategy, the likeness must not be overstated. For starters, this is not a new stimulus, the government is merely accelerating a small portion of the five-year, £640bn spending plan laid out in the March budget. While £5bn is nothing to be scoffed at, the overall scale is rather modest, equivalent to just 0.2 per cent of the UK’s gross domestic product (GDP) in 2019 – across six years, FDR’s ‘New Deal’ programmes spent the equivalent of 40 per cent of the US’s 1929 GDP. The level of ambition is also less grandiose – bridge repairs in Sandwell don’t exactly match up to the construction of the Hoover Dam.
This may be a ‘new’ deal, but it is also filled with old promises, not just from this administration but also its predecessors – to level up the economy, boost national productivity and increase innovation. As technology becomes ever more intertwined with our daily lives, Mr Johnson is aiming for the UK to become a “science superpower”, creating the conditions for British inventions to remain in the hands of British companies and create jobs at home. But he is not the first prime minister to lay down such a gauntlet. Back in 1963, Harold Wilson was already pointing to the threat of automation and the ‘brain drain’ of scientists – he said that Britain would need to be “forged in the white heat” of a scientific revolution in order to prosper. But despite Mr Wilson’s proclamations – and those by many others since – the UK is still some way off being a global technological force decades later. Concerns over funding and access to sufficient domestic and foreign talent have also become increasingly important as the impending departure from the European Union approaches.
Trial by fire
The feel-good rhetoric of Roosevelt is of little use if people don’t eventually feel a tangible economic benefit – history demonstrates that hyperbolic promises often fail to translate into reality. While the government made a substantial fiscal intervention during the height of the Covid-19 crisis, its actions to navigate an exit and eventual recovery, thus far, seem comparatively tame. One of the key criticisms levelled at FDR was that his New Deal didn’t go far enough, fast enough. As a starting point, the government is looking in the right direction. But only time will tell whether the prime minister’s strategy, alongside the measures announced by chancellor Rishi Sunak, will be sufficient to bring the UK out of its Covid-19 slumber.
