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Chuka Umunna MP, Labour’s Shadow Business Secretary, in a speech tonight at Aston Business School to the West Midlands Labour Finance and Industry Group, said:
It is fantastic to be back here in the West Midlands.
On previous visits I’ve seen sustainable heating technologies being produced at Worcester Bosch.
I’ve watched the metal used in 95 per cent of the world’s heated car windscreens being made at Strip Tinning in Rubery.
I’ve toured the Converteam factory in Rugby, global leaders in power conversion engineering.
So I know this is a region at the forefront of innovation - a world beater.
It is great to be back here too at Aston University - a university that works hard to develop the skills students need to become successful entrepreneurs. It is fitting to be here in Global Entrepreneurship Week.
And it is an honour to be asked by the West Midlands Labour Finance and Industry Group to give this lecture this evening - champions of business and champions of your region. Thank you for all you do for our party.
Above all I want to thank all of you here who have set up, built and run businesses in this region and beyond. You take the risks; you put your houses on the line to expand and provide more jobs; it is your dynamism which drives our economy. We are truly grateful for that.
We live in a great country and have huge unrealised potential.
Last month, the Leader of our party - Ed Miliband - set out our vision to realise this better future - how we build a One Nation country for a new era:
A country in which every citizen has a stake;
A country in which wealth and prosperity are fairly shared;
A country where the institutions that bind us together are preserved.
Of all the leaders’ speeches during this year’s party conference season, Ed’s “One Nation” speech had by far the most impact. It framed the debate, and laid a challenge to which our political opponents have failed to respond.
We argue a One Nation economy is right for Britain because it does not trade social progress for economic success but seeks to advance both together.
It is an economy serving our society, not a society at the service of the market.
It is an economy where the success of one enriches us all, and where we all have a responsibility to each other because of our mutual dependence.
As Ed said, One Nation is not just the destination we want to get to; it also provides the means by which we get there. Everyone has a contribution to make, everyone has a stake in our success, and everyone should share in the fruits of that success. So reward should be related to contribution – at the top as well as the bottom.
And in tough times, "One Nation, as Ed says, is not a way of avoiding the difficult decisions, it is a way of making the difficult decisions". It is a means for making choices which will not be universally popular, but which are necessary in the national interest to draw us together, not divide and rule.
One Nation Labour stands in stark contrast to the ‘sink or swim’ Tory approach - a society forced to submit to the logic of the market, told it must sell its soul to save its soul.
Where the security that wealth can bring for some is built on greater workplace insecurity for others.
Where economic growth must be traded against environmental sustainability.
Where public is divided from private. Union divided from business.
That is their zero sum world, where success is solely of your own making, failure is your own fault, and we have little responsibility to one another.
You see, the Tories have an entirely different approach based on a different set of values. Nowhere is this more evident than across the Business, Innovation and Skills brief.
In the months before Ed gave his One Nation speech, he, myself and others in our party had been making the case for a more responsible and productive capitalism. Responsible capitalism provides the political economy for One Nation Britain with industrial policy is at its heart.
Tonight I will outline how our One Nation industrial strategy is taking shape and how it will help build the economy we need for the long term.
So where are we now?
Despite a quarter of growth, our economy remains in a fragile state, stagnating due to a failed strategy at home, and facing renewed challenges from abroad.
After the longest double dip recession since the Second World War, it is welcome the latest GDP figures show we have returned to growth, though our economy is simply back to where it was a year ago. It has grown by just 0.6 per cent since the Government’s 2010 Spending Review, compared with over 3 per cent growth in Germany and US during the same period.
Lord Heseltine said in his recent report that the message he keeps hearing is that the UK does not have a strategy for growth and wealth creation. He is right.
The Government’s failure has prolonged the misery of those who are long-term unemployed, tarnished the dreams of our young people whose first experience of work has been unemployment, and squeezed the household budgets of those who can only find part time or insecure work. In Perry Barr, 19 unemployed people are competing for every job centre vacancy. In Hodge Hill it is 22.
The wrong strategy at home makes us ill-prepared for turbulence in the global economy. Growth in the US is still fragile. Troubles in the Eurozone continue. China’s economy is slowing. And despite the slowdown, the centre of global economic gravity continues to shift South and East.
In the longer term, more and more countries are seeking to move up the value chain, in direct competition with us to meet the new demand coming from the emerging economies. There are of course the ‘BRICs’ but the ‘Next 11’ too, coming through like Nigeria, Pakistan and Bangladesh where we have strong historic ties. My father’s native Nigeria has grown at an average of 7 per cent a year over the last decade despite all its governance issues.
If we are not preparing for success in these growing markets, we are simply preparing for failure.
But we need more than growth at any cost. The world’s resources are finite. We need to find ways to grow sustainably. And we must find ways to grow that address the underlying structural problems of our economy and our society.
The problem of unequal rewards, with wages for workers in the middle having stagnated since 2003 as the cost of living has risen, breaking the historic link between rising productivity and wages. We need to rebuild this link so that a growing economy benefits us all.
We have seen our labour market hollowing out in the middle too – with the fortunes of workers similarly polarised.
Too many jobs do not pay a wage sufficient for a decent life. People don’t realise that the majority of families receiving means tested support have someone in work.
There is the problem as well of too narrow a base of growth, with the 2008/9 crash exposing the need for us to broaden the productive base of our economy, so that we are less vulnerable to the fortunes of the housing and financial services sectors. We don’t want to kill the financial services goose but we do want it to lay much better eggs for the UK economy by helping fund the development of businesses in other sectors and across all regions.
And we need more businesses building value for the long term, investing in their people, innovating, developing their supply chains, and building environmental sustainability into their business models – that is what our competitor countries are doing.
If we follow this path we strengthen our economy and we strengthen our society. By taking this One Nation approach to these challenges we face, by drawing on the talents of all, working together, using industrial strategy to create better jobs, we are focusing on getting things right first time around, rather than having to use the state to try to fix problems created by unconstrained markets.
This is what is meant by pre-distribution, rather than redistribution. And better jobs and fairer rewards not only reduce inequalities, but also give people more control over their lives.
But this does not happen by chance. The One Nation approach – creating a more responsible and productive capitalism – is a choice. Labour is making that choice. In doing so, we demonstrate that not all politicians are the same, who you vote for does actually matter and government can make a difference.
That is why this country needs a government that can make and will make the right choices.
As Ed Miliband said in his Policy Network speech in September, when New Labour came to power the consensus view was that low inflation was the key to growth, a rising tide would lift all our boats, wealth would trickle down and the rules governing the economy were unchangeable. New Labour challenged some aspects of that consensus but left others unchanged.
The 2008/9 crash and what has since followed discredited these assumptions. Low inflation, though important, isn’t a sufficient condition for growth and stability. Wealth has not trickled down enabling all to share in the proceeds of growth. And a passive approach to the structure of the economy has led to geographic and sectoral imbalances.
So Ed Miliband was absolutely right to say that just as the pre-war consensus could not solve the problems Britain faced in 1945 and the post-war consensus could not solve the problems of the late 1970s, so the ideas of the last three decades will not provide the answers to the challenges we now face.
The Conservative response since the crash has been deeply ideological – in many ways it has been a classic Conservative response. ‘Classic’ because – as ever - they argue the problem is government - so you should reduce what the state does, let market forces rip, liberalise the labour market and cut taxes for the super rich. ‘Conservative’ because it is no different from what they offered before the crash. It represents no change.
George Osborne is explicit, stating proudly: I am “a small government Conservative”. And whilst he is careful to say the state is not without a role to play in the economy, his aim is to minimise it.
President Obama’s first Chief of Staff, Rahm Emanuel, famously said you should never let a crisis go to waste. So, after the crash, Osborne framed the financial crisis and its economic consequences as being the fault of government, rather than the fault of irresponsible and foolish behaviour in the banks.
What happened in the banking sector precipitated the global economic downturn. It caused confidence in the UK to fall, demand to drop, tax revenues to plummet and benefit payments to increase, so increasing the deficit and public sector debt.
Thanks to the actions of the last Labour government to support the economy at home and through our leadership in the G20 – we stopped the recession caused by the crisis from turning into a depression and our banking system from collapse.
We should have better regulated the banks and ignored the siren voices in the Conservative Party calling for ever greater liberalisation in that sector. But whatever shortcomings there were in financial regulation this should not allow the bankers off the hook - it was their actions which caused the crash and subsequent downturn across the global economy.
It is absurd for Government ministers to continue to argue otherwise.
We don’t dispute the need to get the public finances back into balance. But the downturn provided them with the perfect excuse to impose the most extreme deficit reduction programme ever embarked upon by a Western country at this point in its recovery. So they pursued their ideological goal, reducing what government does across the board, from supporting businesses to investing in our public services. This has choked off demand and caused a double dip recession with record levels of unemployment.
Next, deregulation and letting the market rip has been promoted by this government as the cure to all the nation’s economic ills.
So the Government’s much trumpeted red tape challenge and the one-in-one out regulation scheme were hailed as the big answer to our economic problems.
I do not deny that regulation can be a nuisance to business and reducing unnecessary or out-of-date regulations should always be an aim of government. But whilst some regulations may be viewed as obstructive, some are welcomed by business because good regulation underpins fair markets. For example, insurgent new and young companies seeking to break into new markets dominated by established players appreciate the benefits of a good competition regime.
But is this really the government’s big bazooka which will secure strong levels of growth in the future? According to BIS’s latest SME business barometer, no: just 5 per cent of businesses cite regulation as the main obstacle to the success of their business; seven times that number cite the performance of the economy as the crucial factor.
And instead of seeing British workers as partners in the process of growing the economy, the Government sees them as obstacles and has an obsession with further liberalising the labour market, which is already the third most liberal labour market in the OECD.
That is why they consulted on proposals to give employers the ability to fire employees as recommended by the Prime Minister’s employment law tsar, Adrian Beecroft. They did so despite his admission that his recommendations were based on “conversations and not on a statistically valid sample of people” – his words not mine. After widespread opposition, including from the Federation of Small Business, they dropped those plans.
Their latest wheeze is to allow employers to make the acceptance of job offers conditional on people agreeing to give up basic rights to maternity leave, flexible working and redundancy in return for shares. We strongly support employee ownership but why employee ownership should be connected to giving up your rights at work is beyond me. Again, there is no empirical evidence to show this will substantially assist with growth.
Finally, they have sought to cut taxes for the very wealthy – putting them in the same club as George W Bush and Mitt Romney – with the old mistaken claim that this will all trickle down to those on middle and lower incomes. So in this year’s Budget they gave people earning more than a million pounds a £40,000 tax break while reducing the personal allowances of pensioners.
So, in summary: the core of a Conservative offer post the crash is more of the same. It is anything but One Nation. It sees no more than a passive role for government in promoting growth and fair markets - you don’t get a stake, unless you are particularly wealthy - it has little concern for institutions that bring us together and foster collaboration to support the economy.
But what of Osborne’s so called “enterprise strategy”. You will recall he said he wants to back what we’re good at, extend our lead in sectors where we lead globally, promote our creative genius and support scientific innovation. He claimed this list of goals was “a modern industrial policy” and he was “its champion.”
But, you can’t be credible in willing the ends if you are not prepared to will the means. You must back your goals with action and that requires the state actually doing something. You cannot be a laissez-faire, small-government Conservative and a champion of industrial policy.
Let me be clear: I am not talking about the level of spending. Labour is every bit as committed to bringing the public finances back into balance as the Tories, but this must be done at a pace consistent with the health of the economy overall.
No, I am talking about the relationship between governments and markets. I am talking about understanding that healthy markets are not a state of nature. The rules by which markets operate and how effectively they are enforced have consequences for the types of firms that succeed, the value they create, and the fairness of the market outcomes that result.
That is why government needs to play an active role in securing the skills, the finance and the infrastructure that business needs.
That is why government needs to provide the strategic leadership that allows firms in a particular sector to come together to solve common problems they face – from technologies and materials to supply chain development, to skills and access to export markets.
On every one of these measures, the Government has come up short.
On finance, Project Merlin was a failure, credit easing was a failure, and the initial signs from the Funding for Lending Scheme are that it is doing little if anything to help business. On skills, we have seen the withdrawal of the state as a partner in funding higher education, and the Government is not developing a true parity of esteem for vocational alternatives.
On infrastructure, the Government specialises in confusion. Aviation is stuck in a holding pattern. The construction sector remains stalled. Energy policy changes by the day and by the minister.
On procurement, the Bombardier decision demonstrated the failure of the Government to take account of the impact of jobs and growth, and on the strategic development of industrial capacity. The story is the same for defence. The defence industrial strategy has been abandoned in favour of buying off the shelf, from overseas.
On incentives for firms to build value over the long term, they have withdrawn capital allowances.
Above all, as Vince Cable’s leaked letter and Lord Heseltine’s report made clear: what interventions they have made have been piecemeal. There is no “compelling vision” and no overall strategy to get us there.
So we have heard their rhetoric and seen their record. We know a proper industrial policy when we see one – this ain’t it.
You will notice, Vince Cable has merited just one mention so far.
In the crucial early months of this Parliament he went off on an intellectual odyssey, to persuade himself of the need for industrial strategy. He, who had previously called for the abolition of the Department he was now leading, was away looking for its purpose.
In the meantime, Eric Pickles was busy abolishing RDAs; Liam Fox was busy abandoning the defence industrial strategy; and Chris Huhne was busy putting our entire solar energy at risk with his decisions on Feed In Tariffs.
Let’s consider the local impact of this. For every £1 of government investment, through Advantage West Midlands it leveraged in eight. Now, I understand the Greater Birmingham LEP is starting to find its feet. But time has been lost. Uncertainty has been created. Investment that might have happened hasn’t. And people who might have been working have been unemployed – hurting family finances, costing the public finances, eroding workplace skills and damaging self esteem.
So in two and a half years, whilst this has been happening, what has the Business Secretary actually been doing?
Well, credit where credit is due. He has carried on with what we put in place for the car industry with the Automotive Council and other measures that are now bearing fruit.
He has taken forward Technology and Innovation Centres which we introduced, rebranding them as “Catapults”.
But beyond that? Well, he’s trebled university student tuition fees.
He’s given sixteen speeches on the need for an industrial strategy during his two and a half years in office. But he has failed to deliver one.
Delivery of his flagship industrial policy, the Regional Growth Fund, has been appalling. It opened more than two years ago. The winners were announced over 18 months ago but there are still firms waiting to receive their money. Ministers have repeatedly promised that money will be paid but these promises are repeatedly broken.
Just before he was promoted, Business Minister Matthew Hancock co-authored a Public Accounts Committee report. It reported that only £60m of the £1.4bn from the first two rounds of the Fund had actually made its way to the front line.
Answers to parliamentary questions I’ve asked reveal that just £14m more from Rounds 1 and 2 of the Fund have been given out over the last four months.
In the meantime, 30 winning bidders – who were due to create or safeguard more than 20,000 jobs – have simply given up. They have walked away. What a fiasco.
And the problems of delivery stem from the top. People I speak to in Government tell me that Vince Cable’s sabre rattling – his “opposition within” persona – has compromised the ability of BIS to work productively across Whitehall. This is disastrous for a department whose work is so cross-cutting.
In addition, the department that is meant to champion working with business, increasingly is failing to practice what it preaches. The length of secondments from business and industry to BIS has fallen by more than half. The number of BIS staff who have started secondments this financial year has fallen to just ten out of over 3,000 civil servants; and with a handful to private sector firms. Morale is low, delivery is poor. This is what the department has been reduced to under this Government – it is a department adrift when it should be a powerhouse.
Enough of the Tories and Vince Cable. Let’s look at Labour’s response since the crash.
In October 2008 our new Business Secretary, Lord Mandelson, was just back from his stint at the European Commission. The Commission had opened his eyes to how other countries do things. So Peter set a new course.
The New Industry, New Jobs White Paper summarised the new approach. It was government understanding that it must “match...the influence it exercises in the economy to the strategic needs of business”.
It was about recognising where we are already strong and building on our strengths; and about establishing or recasting institutions like the Technology Strategy Board, the Office of Life Sciences and the Automotive
Council to enable sectors to develop, supported by government.
It challenged the way the civil service did things, and also some business too. But in spite of these difficulties, where it was well applied, we are already seeing the benefits. Here in the West Midlands, you can see the evidence around you. For the first time since 1976 we are now a net exporter of cars. By 2015, we are set to be making more cars than at any time in our history, breaking the record we set in 1972.
Now, I am not the first politician to bang on about the renaissance in our Automotive Sector, or to point to the £6 billion of new investment promised in the last two years alone. But it bears repeating, because it points towards what can be achieved when government engages with industry in a different way. Not to dictate, but to assist a sector in finding a vision for its own future, understanding what business is saying and how to help. Not to control but to coordinate. Not to step away, but to provide active support, and unblock blockages.
Most automotive companies based in the UK face similar challenges. Of fragmented supply chains. Of developing the breakthrough materials and technologies unlikely to be achieved on their own. Of being part of the solution to climate change, not part of the problem. And of persuading their bosses – headquartered in the US and Korea, Japan and Germany – that these breakthroughs can be made in Britain, not least because government is standing behind them.
Through the Automotive Council, the industry has found a way to collaborate on issues of joint concern away from the market while continuing to compete fiercely in domestic and global markets.
Underpinning this collaborative approach is the notion that everyone – government, businesses, trade unions, employees all have a part to play and a stake in the success. This One Nation approach – upon which we have built our industrial strategy - stands in stark contrast to the classic Conservative approach pursued by Cameron and Osborne that I talked about earlier.
What does our One Nation industrial strategy comprise? Our starting point is a stable macro economy and sound public finances. These are necessary conditions for building a One Nation economy.
However, these alone are not sufficient. Changing the way that we generate our wealth requires a strategic approach to long term challenges in the business environment, and a very different relationship between governments and markets.
We have seen elements of this on visits to Singapore, the US, Germany and Israel, all of which have been pursuing industrial strategies in different ways and under different guises. There is much we can learn from
these and other examples.
But the truth is this: a One Nation industrial strategy for Britain is not something that can be bought off a shelf. There is no formula. The overriding lesson from our visits is the need for Labour’s industrial policy to speak to our particular history as country, to our values and our institutions, to our strengths and our weakness, and to be attuned to the opportunities and realities of the global economy today.
Right at the centre of this story is the productive business: firms pursuing the creation of sustainable value over the long term, not just looking for the fast buck. Firms taking risks to innovate, not resting on their laurels. Firms investing in their people, not poaching trained workers from others. We must tilt the playing field in their favour, providing consistent and comprehensive support for business models, practices and behaviours that build sustainable value and which form the backbone of a One Nation economy.
To support productive businesses, we must start by improving the general environment for them. In doing so, our policies are informed by the business organisations that are joining us in calling for a longer term approach with a credible industrial strategy, as the CBI has done in its recent report which outlines how government can be used intelligently to boost growth, support key sectors and give certainty.
We also have our long termism review which the former head of the Institute of Directors, Sir George Cox, is leading for us to foster the conditions for long-term decision making; and our Small Business Taskforce, led by Bill Thomas, will report in the near future on how we support entrepreneurs and smaller firms grow through each stage of the business cycle.
One of our top priorities is to sort out the banking system so that it works for new and growing businesses in the real economy.
As Ed has put it, we want “banks that serve the country, not a country that serves its banks” – and we have warned that if they don’t reform themselves, the next Labour Government will break them up.
To address the market failure vis-a-vis lending to businesses, we are developing our plans for a proper British Investment Bank, like the British Chambers of Commerce and FSB has have been calling for. Not just an amalgam of existing schemes but a genuinely new and different source of finance for SMEs and infrastructure, bringing us into line with every other country in the G8. Nick Tott, a former partner of a leading City law
firm reviewed the international evidence for us this summer and set out a compelling case for a British Investment Bank.
In addition to debt finance, we are looking at better equity funding for small and medium sized enterprises. In particular, the venture capital market has declined significantly in recent years, with total investment down by nearly a half.
In Israel, the government effectively built their venture capital market through the establishment of the Yozma Fund in 1993. Yozma made equity investments in technology companies engaged in fields where Israel had a competitive edge. The initiative offered attractive tax incentives for venture-capital investments in Israel and promised to double any investment with funds from the government.
Between 1991 and 2000 this contributed to venture-capital outlays in Israel, nearly all private, rising from million to .3 billion and companies launched by Israeli venture funds rising from 100 to 800. We are looking closely at this incredibly impressive scheme to see what lessons we can learn from it and to understand why we have not enjoyed similar success with the various government sponsored venture capital schemes we have here.
On skills, weakness in specific intermediate or vocational skills is perennial in the pantheon of business concerns, and a source of competitive disadvantage with our neighbours. We must ensure our system delivers people with the education and skills our business need. Ed’s conference speech focused on a new approach to vocational education to help achieve this.
Extending the opportunity of a university education to half of our young people increased the supply of higher level skills, but did less for the so called forgotten 50 per cent. In a One Nation economy this cannot be good enough – it a waste of talent and a denial of opportunity. It makes us poorer as a nation, and weaker as a society.
Once we thought that government could fix the skills problem and rearranged the deckchairs several times, but that didn’t work because government could never have sufficient information about the needs of business. The One Nation approach to skills is different - letting business together control the money, together set the standards, and together have the responsibility to make sure the training happens.
And we will use government’s buying power to reward companies doing the right thing, to encourage innovation, and to develop our industries and sectors. So companies providing goods and services to a One Nation Labour Government under contracts of £1 million or more will be expected to offer apprenticeships.
On procurement more generally, we will take account of the impact on jobs in contract criteria when making procurement decisions and deciding to whom we award contracts. The French, Dutch and the German governments do this within EU law; so will we.
And we will use the existing procurement budget to expand the value of contracts going to high-growth potential, innovative companies under the Small Business Research Initiative created by the last Labour Government.
Next, we need the right institutions to drive growth and industrial strategies at a more local level. We won’t replicate the mistakes of this government - abolishing institutions for the sake of it and causing uncertainty.
Taking LEPs for example - regions and cities must have the tools they need to support business needs. When LEPs were introduced we warned Ministers that they were holding them back by not ensuring they had the powers and resources to get going straight away, support businesses, make a real difference and be responsive to local economic circumstances. We will work to improve LEPs not abolish them if elected.
Infrastructure is obviously crucial to creating the right business climate. That is why Ed Balls has asked the Chairman of the Olympic Delivery Authority, Sir John Armitt, to crack this issue: to ensure that our long term infrastructure needs are assessed independently and objectively, and generate the cross-party consensus needed. In turn this will help promote the certainty businesses needs to invest.
Finally, all this must be underpinned by a commitment to fair markets, where no one can dominate. That is why we are considering the recommendations made by consumer champion Ed Mayo in the review he conducted for us on how consumer policy can be used to improve the functioning of markets.
Though improving the overall business environment is critical, a One Nation industrial policy must go further to support growth across sectors, and across and within regions.
Setting strategic direction, by working with industries to understand the particular problems they face, and then helping the industry together to discover a future for itself that no firm within it could achieve alone. I have already mentioned what the automotive industry has achieved from government working with the industry as a supportive but honest broker.
By fostering the creation of new partnerships and collaborative institutions where firms in a sector or a locality can work together to solve problems of mutual interest – like the development of supply chains, or research partnerships on new technologies or materials. It is at this so-called mezzo level – the institutions that facilitate collaboration away from the market, while they compete fiercely in the market – that much of the work of One Nation industrial strategy will be done.
And while the state might play a role in encouraging or facilitating these institutions, this is as much about what firms together with universities, with trade unions, and with localities, can do.
We are determined to get this right, and this means that in reforming the way that our economy works we must also reform the way that the business department and other layers of government work – to ensure the expertise, the consistency, and the sensitivity our businesses need. So Andrew Adonis is leading a team of business leaders and former Ministers to produce a blueprint to transform the Business Department into the most effective department for enterprise in the world. By doing this, we can ensure our strategy actually gets delivered if we are elected.
I believe it is a One Nation industrial strategy built solid foundations, not least because many of you have helped us produce it. Between now and the General Election will further develop and refine it. Please help us do that by continuing to let us know your thoughts and your ideas – that way, together we can build a better future for our families, our communities and our country.