The economist John Van Reenen lacks the public status of Gordon Brown’s “two Eds” – Balls and Miliband – who ranged across Whitehall in New Labour’s first term, enforcing the Treasury’s will. But ask today’s Labour apparatchiks about Rachel Reeves’s approach to growth, which she will set out in a speech later this month, and they often point to the chair of her council of economic advisers.
Currently on leave from the London School of Economics (LSE), where he ran the Centre for Economic Performance, Van Reenen has spent his professional lifetime probing the weak spots of the UK economy.
Now he is based in an office next to Reeves’s at the Treasury, with his three fellow advisers. One Labour source says they struggle to remember a consequential meeting at which Van Reenen has not been present. Another identifies him as a critical figure in this summer’s spending review.
Tall, affable and whip-smart, he did a four-year stint at the Massachusetts Institute of Technology in the US, where he remains a “digital fellow”, has published more than 100 academic papers and comes highly recommended by colleagues.
“If you were going to choose somebody to advise the chancellor and the Treasury on a strategy for growth, John would almost certainly be your number one candidate,” says Prof Jonathan Portes of King’s College London, who co-authored a paper with Van Reenen in 2012 attacking the coalition government’s austerity policies.
Mike Emmerich, the chair of the consultancy Metro Dynamics and a key figure in the economic regeneration of Manchester, says: “It’s a sign the Treasury still has the ability to get good people. He’s definitely one of the best economists of his kind anywhere.”
Much of Van Reenen’s published work focuses on identifying the factors behind the UK’s chronically weak productivity growth, which has never recovered to levels seen before the 2008 financial crisis. This is precisely the problem Labour must solve if it wants to create the stronger economic growth it has promised.
Prof Wendy Carlin of University College London, who has collaborated with Van Reenen, says the longstanding lack of investment in the UK, which has tended to lag behind similar economies, is at the heart of the problem.
“The focus of John’s diagnosis, and I agree with it, is that the peculiar British problem is low investment – low capital accumulation,” she says. “So you can say: ‘What is it that makes companies unwilling to commit to capital investment in the UK?’”
Part of the answer is what she calls the “self-inflicted, UK-specific policy mistakes” of sustained austerity under the Conservative-led coalition and Brexit.
Van Reenen co-authored a paper on wage inequality in UK firms, published last year, that called for the UK to rejoin the EU single market, “as an effective spur to competition and productivity”. The authors added that if this was ruled out because of “political constraints” then the government should seek to reduce trade frictions to the absolute minimum.
Given Labour’s rejection of free movement, it is the latter approach ministers are pursuing, with Reeves leading the charge through a recent speech in Brussels.
Increasing public sector investment, including in the new technologies needed to achieve the transition away from fossil fuels, is another element of Van Reenen’s worldview (as it is for his fellow economic adviser, Anna Valero, also of LSE).
This is one of the areas where Labour has been most active in power, under Ed Miliband – though in scale it is a fraction of the £28bn a year “green prosperity plan” Reeves once promised.
Prompting the private sector to invest more is another aspect of Van Reenen’s prescription – borne out in changes to planning and plans aimed at ensuring pension funds direct more capital to UK projects.
While Labour rarely spells it out for fear of being seen to applaud job losses, there is also a hope that a higher minimum wage, better workers’ rights and even the £25bn rise in national insurance contributions (NICs) will incentivise companies to invest more in productivity-enhancing technology, rather than relying on low-cost workers.
Some retailers have said they will accelerate automation as a result of higher labour costs, for example. At a recent meeting with Reeves, where a business leader warned they would have to use more artificial intelligence and computerisation as a result of the NICs rise, her response was along the lines of: “Let me know when there’s a problem,” according to one person present.
Another aspect of the UK’s economic malaise that Van Reenen has studied closely is poor management. With the economist Nick Bloom, who is from the UK but based at Stanford, he published work on management quality at different kinds of companies – finding, for example, that multinationals tend to be better run, and family firms take a dive when they hand over to the second generation (especially the eldest son).
Van Reenen told a 2020 podcast hosted by the innovation agency Nesta that he thought perhaps 40-45% of the productivity gap between the UK and US may be explained by these management differences.
“This is where politics and economics bump up against each other,” says Portes, pointing out that, in a thriving economy, poorly run businesses will fail, to be replaced by more productive ones.
Van Reenen co-edited a book on the idea of “creative destruction” developed by the 20th-century Austrian economist Joseph Schumpeter, to describe this process of unproductive companies being swept away by innovative new ones.
As he put it in a 2023 article about the book: “Entrepreneurial new entrants generate new jobs and sources of wealth – a light side. But the dark side of innovation is that it is also destructive – these new ideas make old ones obsolete, and in the process, incumbent older firms go bankrupt and workers lose their jobs.”
On this view of the world, a successful economy is a dynamic economy, but also a dog-eat-dog one, where only more productive companies survive. That helps to explain Reeves hauling in regulators this week and urging them to show what they are doing to increase competition – and thereby support economic growth.
Given how heavily this approach to growth relies on private sector investment, the pessimistic mood that has hung over the economy in the past six months has been unhelpful.
And some Labour insiders with long memories warn that shaking up the notoriously cautious Treasury and rolling out Reeves’s plans across Whitehall will be too much for Van Reenen and his three fellow economic advisers. “If I added up all the people Gordon had working in the Treasury, it would add up to more than four,” says one.
But Portes says that, contrary to much recent criticism, there is a coherence to much of what the new government has done, which aligns with Van Reenen’s work – it just may not amount to one big idea. “There is no one answer,” Portes says. “There is really no substitute for doing lots of things, somewhat better.”
