Ed Miliband MP, Leader of the Opposition, in a speech to the Sheffield Political Economy Research Institute this evening, said:
It is a pleasure to give this inaugural lecture and open SPERI, the new Sheffield Political Economy Research Institute.
The Institute recalls the project of eighteenth and nineteenth century thinking, the era of David Hume, of Adam Smith, of Jeremy Bentham and John Stuart Mill.
A way of thinking which sought to understand politics and economics, the role of state and market in an integrated way.
And, as I’ll argue, a tradition which is in desperate need of rediscovery today.
There has never been a better time to open a centre which thinks about the challenges posed to our economy and our politics by the financial crisis.
As a society, we must respond to the deep lessons of the crisis and find new answers, including by learning from historical and international experience, and this institute will form an important part of that.
It is particularly important that this centre is opening in Sheffield, with its story of manufacturing strength and the example you are setting at the Advanced Manufacturing Research Centre with business and research going hand in hand.
I want to start tonight with a story.
Early on in my leadership I did an interview on the Today Programme with John Humphrys.
For the sake of clarity, this is not to be confused with the interview where he appeared to call me ugly.
That was a different interview.
And, relatively speaking, a walk in the park.
This one was about a year ago soon after I had written an article about the ‘squeezed middle.’
He thought it was a weakness that the term seemed to refer to a broad majority of the population, so we had a bit of an argument.
To be honest, I don’t think my team thought the interview was a total triumph.
But surprise surprise, a year later the ‘squeezed middle’ entered the Oxford English Dictionary as the word of the year for 2011.
Which is pretty good when you consider it was up against ‘the Arab Spring’ and ‘bunga bunga.’
The reason I tell this anecdote is because it speaks to the condition of Britain, the project of this institute, and the purpose of the Labour party
My argument is that to command consent and to be sustained, the political economy of the country must deliver for the working people in this country.
Tonight, I want to make the case that failure to do that has since the war led to radical transitions in the political economy of our country.
The 1945 welfare state settlement was built in response to the failures of the 1930s.
The 1979 market settlement was a response to the failures of the 1970s.
What you might call the 1997 settlement was a response to the failures of part of that settlement when it came to the public realm.
And now in the period after the financial crisis, we face such a challenge once again.
The failures that led up to the financial crisis of 2007 and with which we are still living today demand a new settlement.
The kind of capitalism we have seen for the last thirty-odd years has simply stopped delivering for the vast majority of working people in this country - the famous squeezed middle.
But the lesson from previous transitions is that this alone is not enough to usher in a new settlement.
The three conditions for change are:
First, the breakdown of consent for the previous settlement.
Second, the ideas which can form the basis of a new settlement.
And third, the political coalition to make it happen.
So I’m clear that the only way we are going to make the change the squeezed middle need is by being honest about the failures, and ambitious about the solutions.
That, after all, is what the Labour Party was founded to do.
Labour’s mission has always been to represent the interests, fulfill the aspirations, and embody the values of working people.
When John Humphrys asked me what I meant by the squeezed middle, I should have said this:
The squeezed middle are working people.
People bound together, now as in the past, by a set of values.
The value of working hard.
Whether it is in a factory, a mine, on a shopfloor, or a barracks.
Whether it is on the railways, at a supermarket checkout, or at a call centre.
The value of making an effort, of taking responsibility for yourself and your community.
A hope that work should earn you the chance to give your kids a better start in life than you had.
And the simple belief that you should not have to battle vested interests which use their power to rig the system, that everyone deserves a fair shot.
To be honest, I’m not sure John Humphrys would have let me get to the end of all that.
But in many ways, the story of British politics since the war has been the story of the changing aspirations and interests of working people, and of how the main political parties competed to show they understood and could deliver on them.
Let me start with the 1945 settlement.
Why did it happen? Because of the catastrophic failures of the previous decade to meet the basic human needs of millions.
Because of the growing sense that the evils of unemployment, poverty and want were not acts of nature but the result of political decisions.
Because of an intellectual revolution based on the economic ideas of John Maynard Keynes, the social reform of William Beveridge and the understanding of society of TH Marshall.
And because of the political demands of millions of servicemen and women who had returned to Britain, full of the optimism that the energy and planning which won the war could now be applied to winning the peace.
They included my Dad who spent part of the war in the British Navy.
The parting words of his commanding officer were ‘Goodbye Miliband. Remember: Don’t Vote Labour’
But he did.
And so did millions of others.
It’s easy to forget now, but the 1945 settlement represented a complete revolution in the understanding of what a government can and should take responsibility for.
The aspirations of working people were for a basic level of provision – a decent home and secure job - and Clement Attlee’s Labour government set about responding to these hopes.
Hundreds of thousands of new council houses were purpose built for families, with new schools going up alongside them.
The new role for government meant full employment and comprehensive social insurance.
And the crowning achievement was the creation of the NHS.
The day after the NHS came into operation, many working people went to the doctor or the dentist for the first time in their lives.
One receptionist working on that day remembered the queues stretching out of the surgery doors, down the street, and disappearing into the high street.
Whether in housing, schools, welfare, health, jobs or the cost of living, working people would no longer be left to cope alone.
The model of political economy of the period, based on the state providing a basic platform of services and assuring full employment and low inflation, formed a new consensus between the parties.
A consensus that lasted for more than two decades.
Both parties knew how central the aspirations of working people were to election victory.
Although the idea of what that meant was more familiar to some than others.
In the 1959 election, Harold Macmillan reportedly said to an aide:
“During this campaign, I have heard a great deal of talk about the ‘middle classes.’ Can you find out who they are and what they want, and we will see if we can give it to them.”
But of course, by the late seventies, the confident spirit of 1945 seemed to have run its course.
The magical combination of full employment, stable prices, rising living standards and social mobility was no longer available.
What good were wage rises of 15, 20 or 30 percent if prices were going up faster?
The system was unable to meet the aspirations of working people.
And the inability of government to reconcile competing aspirations, including those of trade unions, convinced people that a break was needed.
The new right had an explanation for what was going wrong, inspired by people like Friedrich Hayek and Milton Friedman.
Whereas the 1945 settlement had meant that the government provided a minimum platform of provision for all, Mrs Thatcher promised something very different.
The new bargain was that if the government got out of the way, the market would deliver prosperity and opportunity.
After financial deregulation, it was easier to get credit.
You could buy your council house from the council.
And you could even buy shares in newly-privatised companies like British Airways, British Telecom, and British Gas.
The Labour Party certainly seemed, for a time at least, at sea with these new aspirations.
It took us too long to stop opposing council house sales.
When Madonna sung about being a material girl or Rodney and Del Boy came up with another scheme to get rich quick, they were inhabiting a world that seemed alien to Labour.
But by the early nineties, working people began to ask new questions.
At this moment, people were not questioning the economic fundamentals of the settlement, in particular the dominance of financial services in our economy, and the idea that greater overall prosperity would benefit all.
But they were asking other profound questions.
Why should kids be taught in prefabs, in classes which are so big?
Why did you have to wait so long to get an operation?
It is hard to remember now, but many people were asking whether the NHS could survive at all.
People were also asking, with more women going to work, how could our economy provide quality time to spend with the family?
The ideological impulses of the time were captured in the so-called Third Way, seeking to reconcile economic efficiency and social justice.
And New Labour was the political project that spoke to this change.
And big change was produced.
Change I am proud of.
We rebuilt the NHS in ways that few would have believed possible.
We embarked on the biggest school building programme in generations.
We offered maternity and paternity leave to make it easier to spend more time with the family.
We introduced the minimum wage and tax credits, so that going to work each day brought in more money each month.
And we also undertook more redistribution than any government, including 1945.
But the new settlement was incomplete.
After the banks crashed, and the boom years turned into the toughest times for working people in a generation, a whole set of challenges were exposed.
The first is that working people are being squeezed between stagnant incomes and rising costs.
For thirty-odd years, the bargain had been clear:
Let the economy grow, and everyone, including the low paid, would get richer.
And it worked for a time, partly because of greater productivity, and partly because of changes like more and more women coming into the workplace.
But working peoples’ rise in incomes and living standards over those years was also supported by particular factors – the rise of credit, cheap imports from Asia and tax credits.
But by 2007, it was clear that these factors were not enough to sustain rising living standards for working families.
The basic promise of the 1979 era, that those at the middle would benefit as well as those at the top, began to unravel.
For the five years before the last recession, the economy grew by 11%, but the wages of everyone earning less than average incomes stayed the same.
And on current forecasts, the average worker will be earning the same in three years’ time as they were ten years ago.
The rising tide has not lifted all boats.
The result is an unprecedented squeeze to incomes.
And at the same time, costs are rising, partly as a result of vested interests that are worsening the squeeze.
Fares are going up on some train routes by 20 per cent in the next two years.
Energy bills seem to go higher and higher.
Each year, more families have to choose between paying the rent and heating their home.
Nearly one in five households here in Sheffield are fuel poor.
And if things carry on as they are, in three years the average household in the country will be too.
For too many families the only way they felt able to sustain their living standards was through greater personal debt.
The second unprecedented aspect of the squeeze is that working people have shouldered more risk and are less secure today than they have been for a generation.
Wages aren’t linked to inflation, people, including those in the middle, have no certainty that their job will still be there tomorrow.
And at the same time most people who earn less than the average wage have no pension.
Nearly half say they can’t afford to save £10 a month.
Then there are those who are already out of work in the current economic climate.
More people woke up this morning to another day without a job to go to than at any time since 1994.
For every vacancy in the country, there are six jobseekers.
For every vacancy in Sheffield, there are nearly ten.
The third big challenge is intergenerational.
The basic promise of Britain, the idea that we could be optimistic about our country’s future and expect our children to lead better lives than we did, is being betrayed.
As people in this audience know, young people are leaving home with debts which their parents never faced, because of the cost of tuition fees.
It is harder to get onto the housing ladder.
The average age of someone trying to buy a home for the first time without help from their parents is 37 and is pushing upwards.
And we see threats to the environment that young people will inherit.
And at the same time, many working people are squeezed when it comes to paying for care for their elderly relatives.
Most aren’t earning enough to be able to pay for private care, but aren’t earning so little that they qualify for free or subsidised care.
And if they cut back on work to look after them, it will hurt their own incomes.
They are squeezed by the system too.
So in contrast to a decade ago when there was optimism about uninterrupted prosperity, today the squeezed middle knows the system is not working for them.
The fundamental idea that if you work hard you will get on is being undermined.
At the same time, there appear to be rewards for failure at the top, with top executives’ salaries going up even as their companies’ share prices go down.
The reality is that by the time of the last election, no party answered the new challenges of the squeezed middle.
No party offered them sufficient hope.
No party understood that the very settlement that was supposed to help the middle, was in fact the cause of the squeeze to their living standards.
We lost. And no party won.
Perhaps my party didn’t see what was required because after thirteen years in power, we just couldn’t face up to the challenges to some of the assumptions of the era.
And the Tories certainly did not see what was required.
Those who just wanted to conserve the status quo had a blind spot when it came to seeing the need for a radical break with the past.
They just clung to a faith in free markets.
And that leaves us where we are today.
Consent for the old system has broken down.
Anyone looking around at society today can see that our previous model of capitalism is not working.
When you look at the Occupy Protests, we all know that many people who would not go and camp outside St Pauls, share the anger of those who do.
Anger at rewards for failure in the banks and the squeeze on the 99%.
But as I have argued, anger at the old system’s flaws is not enough to produce change.
It needs the ideas and the political movement to transform discontent with the old settlement into consent for a new one.
As far as the ideas are concerned, I hope and expect SPERI will make its contribution.
I can think of no more urgent project for our country.
Stage by stage, we are taking on this project in Opposition.
Identifying the issue itself, and beginning to set out solutions.
This is the subject of our ongoing policy review, but let me today give some brief pointers to Labour’s agenda.
We know the limits of the previous settlement: just getting the government out of the way won’t work.
We know the economic climate will be far tougher: there will be less money to spend.
And we know that in any case, if Labour wins the next election, it will not be good enough to simply rely on spending money to patch up the failures of the economy we inherit.
A more fundamental change is needed.
From the ashes of the kind of irresponsible capitalism which led to the crash, we need to build a new kind of capitalism, a responsible capitalism.
A capitalism based on long-term productive behaviour with a fairer distribution of rewards based on a new set of principles:
Long-termism not short-termism.
A fairer sharing of rewards not growing inequality.
An understanding that successful firms are those that invest in their people rather than neglecting them
And that the environment is not an enemy of economic progress but essential for it.
In short, an economy that better works in the interests of working people.
So what does this mean in practice?
First, Britain needs a new era of long-term wealth creation.
Both to pay its way in the world and to create fairness in tough times.
We need to use the power of government in new ways.
To set new rules that promote the long-term and fair wealth creation we need.
To share a vision with British industry of how we pay our way in an ever more competitive world with an active industrial policy.
That’s why we are looking at plans for a British Investment Bank so small businesses can invest and grow.
That’s why we will need new leadership from industry, undertaking their responsibilities to bring on the next generation.
As a first step, we say no major government contract should be awarded unless companies offer apprenticeships.
We must tackle the historic British problem of short termism in our corporate life.
And it is why we have to end the situation where we have rewards for failure at the top, harming both the company and its workforce.
That’s why Labour has suggested a number of reforms, including an employee on every remuneration committee.
We need real change.
If you will excuse me a bit of politics, the current Government is never going to provide it.
George Osborne says that action to tackle big bonuses is ‘anti-business’.
It is not.
It is pro-business to demand responsibility at the top and an end to the something-for-nothing culture which has damaged our economy in the financial crisis at every level, wrecked businesses and left everyone else squeezed.
By defending an unreformed bonus culture, this Government confuses the interests of the economy as a whole with the interests of an irresponsible few.
We need banks to be lending to small business rather than handing out big bonuses.
Some argue that it is no business of the public what bonuses banks pay.
I fundamentally disagree.
Because even banks which are not publicly owned, implicitly benefit from a taxpayer guarantee, to the tune of billions of pounds.
That is why we need change in the bonus culture across all our banks.
And we need responsibility from top to bottom across our society.
Across the economy we need executives to recognise that exceptional rewards should only be for exceptional performance.
Tackling excessive executive pay and bonuses is not an end in itself but a necessary first step towards a bigger change in our economy in which people get fair rewards for their contribution at every level of society.
Secondly, standing up for the squeezed middle today also means challenging the powerful vested interests which are squeezing working people in this country for every penny they can.
It means standing up to the banks, the train operating companies, and the electricity firms with simple measures to cap fare increases, lower electricity prices, and guaranteeing the cheapest power for the most vulnerable.
We have a Government which doesn’t even notice when the market isn’t working for working people.
In fact they are making the squeeze worse, with an economic policy that has seen growth flatline and tax credits withdrawn.
Third, standing up for the squeezed middle also means always making sure there is a fair tax system and a fair benefits system.
That means everyone paying what they are supposed to, including those at the very top.
It means cutting the 50p tax rate is the wrong priority
And it is why, for example, I have spoken out about offshore tax havens.
And on welfare, I believe in a welfare state based on contribution as well as need.
We need a better welfare state when it comes to issues like childcare and social care.
But we cannot deliver it, unless we continue to reform the welfare state so it delivers high employment and demands responsibility from all.
These are just the start of the changes we need for a new settlement.
Let me say this in conclusion.
The challenge for politics in times like this is to decide whether it is going to leave these problems to stagnate as it did in the thirties, or have the courage to address them head on.
We can hear the creaking of the foundations of the previous settlement.
The families seeing their wages squeezed for a decade know things have to change.
The small business looking for finance know things have to change.
The young person looking for work know things need to change.
All of us looking at the way thing are, know things have to change.
Sometimes people look at this and feel a sense of pessimism and question whether there is anything that can be done.
But the lesson of history is different.
Nobody would have believed in the 1930s that things would change.
From the Left, change did happen.
In the 1970s, people believed Britain would not change.
And from the Right, change did happen.
And again in 1997 we saw change to address the concerns of working people.
So in our recent history, new settlements have come forward in the face of profound scepticism about the ability of politics to deliver change.
I am in politics because I believe in its power to change working people’s lives for the better.
As a society, it is our task now to turn all our energy and resourcefulness towards a reformed, responsible capitalism,
It is our task to build a new model of political economy, one which delivers prosperity and fairness for the working people of Britain once again.
I look forward to working with this institute to make it happen.