Rachel Reeves, Britain's first female chancellor, turns to Janet Yellen for inspiration

After 14 years in the shadows, Britain's Labour Party is back in power. And the country's first female Chancellor of the Exchequer, Rachel Reeves, faces the daunting task of restoring Britain's economic growth prospects and ending a decade and a half of stagnation.

For inspiration, she turned to another glass ceiling-shattering woman on the other side of the Atlantic: U.S. Treasury Secretary Janet L. Yellen.

Ms Reeves was appointed chancellor on Friday after Labour won a majority in Thursday’s general election. Now in charge of Britain’s budget, she is expected to pursue an economic agenda influenced by Ms Yellen, whose policies have encouraged job creation and a boom in US manufacturing investment.

Ms. Yellen’s “modern supply-side economics” aims to boost economic growth by increasing the number of workers and raising productivity, while reducing inequality. In practice, this has meant incentivizing companies, through subsidies and tax cuts, to invest in the United States and generate jobs at home, particularly in emerging green sectors.

Ms. Reeves, 45, calls her version “securonomics,” a portmanteau that means ensuring “resilience for our national economy and security for workers,” she said in March. It is also likely to mean a more activist government. Labour has drawn up an industrial strategy and plans for a national wealth fund and a publicly owned energy company.

“Much of my approach to securonomics is rooted in Yellen’s modern supply-side economics,” Ms. Reeves wrote in a book published last year.

She is also influenced by Harvard economist Dani Rodrik, who calls for “productivism,” a partnership between governments and businesses to create more productive jobs across the economy.

Since 2010, Britain has been governed by the Conservative Party, whose instincts were for a smaller state and free markets. Ms Reeves has argued for a bigger role for government, while allying herself with business.

For Ms. Reeves, the United States justifies this approach, even though many Americans have a negative view of the current economy. While Britain has experienced slow growth, the United States has recovered quickly from the pandemic and continued to expand strongly. Its economy is nearly 9 percent larger than it was before the pandemic, and nearly 16 million jobs have been created since President Biden took office, more than offsetting losses during the pandemic.

The shift in economic policy in Washington has led other countries to reevaluate their approaches, said Carys Roberts, executive director of the Institute for Public Policy Research. “It’s really inspired the Labor Party to be more forceful in its approach.”

Ms. Reeves has already trailed Ms. Yellen in one respect: Ms. Yellen is also the first woman to lead her country’s treasury. But following her economic agenda may prove more difficult.

Ms. Yellen’s policies have a lot of money behind them. The Inflation Reduction Act, with its incentives for manufacturers to build factories producing solar panels or wind turbines and for consumers to buy electric vehicles, is expected to cost more than $800 billion over the next decade.

But no one, least of all the Labour Party, thinks Britain has the money to do something so bold. Public debt is at its highest level since the early 1960s and interest payments have ballooned. Taxes are also historically high. Current spending plans suggest a squeeze on many public services amid urgent demands for more health spending and promises to increase military spending.

“There’s not a huge amount of money there,” Ms Reeves told the BBC on Friday.

In a sense, Ms Reeves has tightened her constraints by vowing not to raise Britain’s three main taxes and to uphold her predecessor’s “fiscal rule” of running down debt over five years. To avoid deepening austerity, Labour is banking on economic growth to improve public finances and is dependent on a surge in private sector investment.

Ms. Reeves is betting that stability can create the conditions for growth, investment and better-paying jobs. She did not respond to requests for comment on her policy plans.

In the current “age of uncertainty,” as she has called it, with rising geopolitical tensions and climate change, Ms Reeves expects to be a manifestation of that stability. After five chancellors in five years, she is expected to complete a full five-year term. She has also said she will strengthen British institutions, such as the Office for Budget Responsibility, a watchdog.

Otherwise, Ms Reeves is expected to focus on policy changes that do not require large spending commitments, particularly overhauling the development planning system to make it easier to build homes and upgrade the energy grid.

But for some, those constraints define Ms Reeves more than her ambition. This year, Labour abandoned a pledge to spend £28bn (about $35bn) a year on green investment that Ms Reeves announced two and a half years earlier.

The Biden administration “broke the rules and gambled big,” and the Labour Party must do the same, said Danny Sriskandarajah, chief executive of the New Economics Foundation, a British think tank.

“If you want to move the needle on poverty, on inequality, on green investment or on crumbling public services, you have to find new money or redistribute it in much more ambitious ways,” he said.

But the Labour Party, led by Keir Starmer, has been wary of making big bets or appearing too ideological.

Instead of ideology, Labour promotes pragmatism. Ms Reeves, an economist by training, often refers to the six years she spent working at the Bank of England after college, during which she also worked at the British Embassy in Washington.

Ms. Reeves returned to Washington last year, where she met with officials including Ms. Yellen. In a speech there, she laid out her vision of how the world was changing but Britain was falling behind.

“Globalization as we once knew it is dead,” he said in a speech. In its place, a “new multilateralism” is emerging, with partnerships between nations with shared values ​​and interests.

Ms. Reeves's denunciation of globalization is inspired by Mr. Rodrik, who has argued that the era of “hyperglobalization” is over and that, instead, a new economic order must prioritize national social, economic and environmental goals. This could lead to a new “thinner” globalization, in which government focuses on creating productive jobs.

For some economists, there is a risk that this type of policy, which emphasizes security and relaunches industrial policies, could degenerate and result in rampant protectionism.

Mr Rodrik said this could be avoided if only a small number of critical technologies were protected and, as the Biden administration has said, the rules are not intended to weaken China economically.

“I see no problem if Britain also chooses to follow these principles,” Mr Rodrik said in an email exchange.

And Ms. Reeves seems intent on following the path taken by the United States.

“A new Washington consensus is taking shape,” Ms. Reeves said in a speech in March. “I think it’s in our interest to embrace that consensus,” which will depend on having a more active state, she said.

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