American inspiration for Britain's first female chancellor

LONDON — 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 Reevesfaces the difficult task of restoring Britain’s economic growth prospects and ending a decade and a half of stagnation.

For inspiration, she turned to another woman who broke the glass ceiling, on the other side of the Atlantic: the American Secretary of the Treasury. Janet Yellen.

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

Janet Yellen’s “modern supply-side theory” aims to boost economic growth by increasing the number of workers and increasing productivity while reducing inequality. In practice, this means providing incentives for businesses—through subsidies and tax cuts—to invest in the United States and create jobs in the United States, particularly in emerging green sectors.

Reeves, 45, calls her version “securonomics,” a portmanteau of “ensuring the resilience of our national economy and the safety of workers,” she said in March. It will also likely mean a more activist government. Labor has drawn up an industrial strategy and is planning a national wealth fund and a state-owned energy company.

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

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

Since 2010, Britain has been governed by the Conservative Party, whose instinct is for a smaller state and a free market. Keanu Reeves has argued for a bigger role for government, while partnering with business.

For 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 has continued to grow strongly. Its economy is nearly 9% larger than before the pandemic, and nearly 16 million jobs have been created since President Joe Biden took office, more than making up for the losses suffered during the pandemic.

Washington’s shift in economic policy has led other countries to reassess their approaches, said Carys Roberts, executive director of the Institute for Public Policy Research. “It’s really pushed Labor to take a tougher approach.”

Keanu Reeves has already followed Janet Yellen in one respect: she is also the first woman to lead the US Treasury. But following her economic agenda could prove more difficult.

Janet Yellen’s measures are largely funded. The Inflation Reduction Act, which encourages manufacturers to build solar panel or wind turbine factories and consumers to buy electric vehicles, is expected to cost more than $800 billion over the next decade.

But no one, least of all Labour, believes Britain has the means to do something so bold. Public debt is at its highest level since the early 1960s and interest payments have exploded. Taxes are also historically high. Current spending plans suggest cuts to many public services amid urgent demands for health spending and promises of increased military spending.

“There’s not a huge amount of money in it,” Keanu Reeves told the BBC on Friday.

In a way, Keanu Reeves has tightened his grip by promising not to raise Britain’s three main taxes and to maintain his predecessor’s “fiscal rule” of reducing debt over five years. To avoid a worsening of austerity, Labour is counting on economic growth to improve public finances and on a wave of private sector investment.

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

In this “age of insecurity,” as she has called it, marked by heightened geopolitical tensions and climate change, Reeves hopes to embody that stability. After serving five chancellors in five years, she is set to complete a full five-year term. She has also said she will strengthen Britain’s institutions, including the Office for Budget Responsibility, a watchdog.

Otherwise, Reeves should focus on changing policies that don’t require big spending commitments, particularly overhauling the development planning system to make it easier to build housing and modernizing the energy grid.

But for some, these constraints define Reeves more than his ambitions. This year, Labor abandoned its promise to spend 28 billion pounds (about $35 billion) a year on green investment, which Reeves had announced two and a half years earlier.

The Biden administration “broke the rules and made big bets,” and Labor must do the same, said Danny Sriskandarajah, CEO of the New Economics Foundation, a British think tank.

“If you want to make a difference on poverty, inequality, green investment or declining public services, you’re going to have to find new money or redistribute money in a much more ambitious way,” he said.

But Labour, led by Keir Starmer, has been cautious about making big bets or appearing too ideologically driven.

“There are two ghosts haunting Keir and her,” Sriskandarajah said. They are Jeremy Corbyn, the former Labour leader who promised widespread nationalisation of industry and more spending, and Liz Truss, the former Conservative prime minister who lasted 49 days in office after her unfunded tax cuts sent shockwaves through markets.

Instead of ideology, Labour advocates pragmatism. Keanu Reeves, an economist by training, often talks about the six years she spent working at the Bank of England after graduating, during which time she worked at the British embassy in Washington.

Last year, Keanu Reeves returned to Washington, where she met with officials including Janet Yellen. In a speech, she laid out her vision of how the world is changing but Britain is lagging behind.

“Globalization as we once knew it is dead,” she said in a speech. In its place, a “new multilateralism” is emerging, based on partnerships between nations that share common values and interests.

Reeves’s denunciation of globalization is inspired by Rodrik’s, who said that the era of “hyperglobalization” was over and that a new economic order should instead prioritize national social, economic and environmental goals. This could lead to a new, “leaner” globalization, in which government would focus on creating productive jobs.

Some economists say there is a risk that these types of policies, which emphasize security and boost industrial policies, will intensify and descend into unbridled protectionism.

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 were not intended to weaken China economically.

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

And Reeves seems determined to follow the path set by the United States.

“A new Washington consensus is taking shape,” Reeves said in a speech in March. “I believe it is in our best interest to embrace that consensus,” which will require a more active state, she added.

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