Shadow Business Secretary

Event Invite: Going Global – Boosting Lambeth’s Exports

Friday, June 14th, 2013

Chuka – “We need an active industrial strategy to diversify our economy and meet new demand”

Saturday, September 1st, 2012

Chuka’s article which originally appeared in the London Evening Standard on 20 August 2012.

Speaking to an audience of African business people in London this month, I discussed how Africa has changed. Only a decade ago, it was plagued by war, grinding poverty and gloomy economic prospects. This year the IMF says that the likes of Angola, Ethiopia, Mozambique and Nigeria will grow at more than 25 times the rate of the British economy. Gone are the days when our trade ministers could attend international gatherings and lecture those countries on growth.

Our principal trade minister, Business Secretary Vince Cable, sees himself as the solution to our economic problems, telling us he would make a “good Chancellor”. Yet he is fully signed up to the same failed plans of the present incumbent — George Osborne — and he is failing to make the grade in his current role.

When both took office in 2010, unemployment was falling and growth was strong. Cable and Osborne vowed to secure the recovery and help British businesses start up and grow. However, since the election, unemployment has soared beyond 2.5 million. Britain is now the only G20 country, save for Italy, in a double-dip recession. Successful businesses are struggling to get the support they need.

Last Friday this newspaper revealed that five backbench Tory MPs are to publish a book in which they will say that part of the problem is British workers, whom they describe as “among the worst idlers in the world”. This follows the Foreign Secretary’s earlier claims that British businesses need to “work harder”.

But these out-of-touch ministers and MPs have only themselves to blame. It was their October 2010 spending review that choked off the recovery, precipitating a fall in confidence that caused sales to dry up. This was long before the eurozone crisis became the issue it is now. It was before many of their cuts to public investment started to feed through. Consequently government borrowing has come in at £150 billion more than they planned — equivalent to the defence, transport and education budgets put together.

Labour has urged Cable and Osborne to change course and implement an immediate plan to get our economy moving again in the short term. Leading economists who once backed the duo are now urging them to do the same. Our five-point plan includes a national insurance break for micro businesses in London — something the Government refuses to implement — and a temporary cut in VAT. They should adopt it now.

In the long term we also need to adopt the active industrial strategies which, for ideological reasons, the Tory-led Government stands in the way of. They are necessary to ensure we diversify our economy and to ensure UK plc is set up to meet the new demand coming from growing middle classes in emerging markets like those in Africa. Not only does this mean ensuring we get the policy right to provide the skills, finance and infrastructure investment that business needs. It means effective corporate governance and incentives that reward long-term value creation over the fast buck.

Above all, we should not be afraid of identifying and backing those British business sectors where we have a competitive edge and comparative advantage globally. That is, after all, the approach that helped win Team GB so many medals in so many sports.

Chuka Umunna is MP for Streatham and the Shadow Business Secretary.

Speech – Getting on with business: entrepreneurship and social mobility

Tuesday, June 26th, 2012

Chuka Umunna MP, Shadow Business Secretary
Speech at Hub Westminster, which provides facilities and support for start up firms

Thank you for inviting me to speak this evening.

I cannot think of a better group of people to discuss this with than all of you gathered here today: restless people, not satisfied with the world as it is; innovators determined to find new gaps in old markets and to create ideas for new markets.

Our economy and society needs more people like you. More people starting up businesses, building businesses, and – hopefully – succeeding in business.

You are engines of growth for an economy that has stalled but a country which has huge potential.

What I intend to do is to first reflect on entrepreneurship, then consider how it can power social mobility, before setting out our ongoing work to help entrepreneurs to set up and grow businesses. What I do not cover in my remarks, I am more than happy to pick up on in the Q&A afterwards.

Entrepreneurship – what it did for my family

Now, before coming here, some of you may have wondered what on earth is this grandson of a High Court Judge, a private school educated, former City lawyer doing coming here to talk to you about social mobility and entrepreneurship? Well, the legal tradition in my family sits on my mother’s side and I am incredibly proud of it. But it is my late father, a self made man, who makes me so passionate about the transformative power of entrepreneurship.

My father arrived here after a very long journey on a boat from Nigeria in the mid 1960s. When he arrived at Liverpool Docks he had a suitcase and no money. A random stranger leant him the cash to pay for his train fare to London where he was due to take up lodgings with friends.

Once settled in London, he did various jobs. He washed plates in kitchens and he washed limousine cars too. Washing cars was handy because, once he had finished each job, he could sit and study in the warmth and luxury of the limo until its owner arrived to pick it up. He was studying to acquire his business and accountancy qualifications at the time.

Within 15 years he worked his way up from arriving with nothing to running a very successful import and export business doing trade between Europe and West Africa, selling all manner of goods until his death. Sadly, he passed away when I was quite young so I never got to hear the full story from him. But his example continues to inspire me.

My father’s story was particular to him. But in many ways his was an archetypal story common to many immigrant families the length and breadth of Britain. Let us not forget: the Britain of the 1960s – despite the free love, the hippies and the rest – was not the tolerant Britain we live in today. His generation created – through commerce – opportunities that no one else would offer them.

Potential entrepreneurs in my constituency

So my family’s story informs my outlook; so too does my London constituency which takes in Streatham and parts of Balham, Brixton, Clapham and Tulse Hill. There I see a vibrant culture of business that must be supported. But it was something more serious that really got me thinking.

I am Chair of the London Gangs Forum which works to reduce gang activity across London. Gang culture has taken hold of a substantial minority of our young people in London. My borough, Lambeth, is one of the most acutely affected areas.

Gangs have been responsible for numerous killings with innocent bystanders being seriously injured in the cross fire between rival groups. The most shocking incident of late was the shooting of 5 year old Thusha Kamaleswaran in her family’s newsagent in Stockwell last year.

Make no mistake: at the heart of these gangs activities are criminality and very serious violence. Each of them lays claim to certain ‘territories’ in Lambeth – in particular in and around our social housing estates. As a community we send a clear message: what the gangs do is completely unacceptable, we will root it out and ensure the strong arm of the law is brought down to bear on the perpetrators. That is exactly what happened with those found responsible for the shooting of Thusha – members of a notorious local gang, who were jailed for life in March.

But if one studies what Lambeth’s gangs do in more detail, it is both shocking and frustrating. They put a lot of effort into building up their gang’s brand. Most are involved with the sale of drugs; but some have branched out into more legitimate activities around fashion and music. You can find music videos they produce to promote their activities on YouTube. BBC Radio 4’s Today programme did a series of reports on this a couple of weeks ago featuring Lambeth’s gangs.

This brand building is alarming because it helps the gangs to be more notorious and glamorises what they do – it is one of the reasons myself and other Labour parliamentary colleagues, Heidi Alexander and Karen Buck in particular, have argued that stronger powers are needed to ensure the gangs YouTube videos are taken down.

What frustrates me is this: many of these young people are using skills that – if channelled in the right way – could provide them with an alternative route to success. And yet, in Lambeth, too much of this entrepreneurial instinct is being channelled into totally the wrong thing. Just imagine what our young gang members could achieve if their energies were redirected. Their entrepreneurial zeal, used in a legitimate business setting, could provide them with a ladder up, just as it did for my father. Instead, as things stand, many of them will likely end up in jail with blood on their hands unless we change things.

I spent an evening talking to young people in a youth club in my constituency about this speech last week. A large number of the young people attending that particular club are affiliated to and/or are involved in the gangs which operate in my area. We talked about why young people were choosing to do the wrong kind of business through gangs. One young constituent said simply that illegitimate business was “an easier and faster way to make money”, to “get rich quick”.

When I dug behind this rather glib explanation, my young constituents explained that pursuing gang related business was viewed as a strategy for getting out and getting on. Gang members “have goals”, said one young man, “they do bad to do good”. What he meant was that gang members sought to make money first through illegitimate means, with a view to building up enough finance to run a legitimate business later. The other young people present shared his analysis.

I am sure that many in this room have struggled to access finance to start and grow their business, and will have considered peer to peer lending or maybe finding an angel investor for it. Well, among this group in my constituency there was a perception that profits from illegal commerce were the most viable solution for them.

Of course the reasons why young people get involved in gangs are complex and varied. But what is clear is that the entrepreneurial spirit is strong in them,
albeit misdirected. We must make legitimate business a more feasible avenue through which they can realise their dreams even when all else may have failed them.

Reflecting on my father’s experience and the entrepreneurial impulse of our young people, I am convinced that Labour must view entrepreneurship as central to our approach to increasing social mobility.

Social mobility

Social mobility is of course very much in keeping with what Labour is all about. We exist as a movement and as a political party to help more people succeed in life – or, as we put it in our constitution, to secure “the means for each of us to realise our true potential”. Like all the best entrepreneurs, ours is an ambitious mission: putting power, wealth and opportunity in the hands of the many. And, yes, this can sometimes be threatening to the established market players – those who have the power and wealth, and want to hoard it. So be it.

At root it is about helping people to get on in life regardless of where they are from, able to pursue the life they choose and value. It is about making a person’s destiny less dependent on the circumstances of their birth.

Some people view social mobility as a relative concept, meaning that for every person moving up the ladder there must be an equal and opposite reaction of others moving down. But extending opportunity need not be a zero sum game. Removing the ceiling on success that too many experience is to the collective benefit of us all.

And in an interdependent world individual success can strengthen our common bonds, just as strong common bonds can enrich the soil from which individual success grows. Hillary Clinton is fond of quoting the Nigerian proverb which says it takes a whole village to raise a child. I say it takes a similarly strong culture to raise an entrepreneur. Just ask those who have spent time in Silicon Valley about the strong culture there – of hope, possibility and forgiveness, where failure is seen as part of the learning process.

Labour’s record

In government, Labour did a lot to fracture the link between a person’s history and their destiny: from Sure Start and unprecedented investment in early years’ education, to improvements in educational attainment across the board; from the educational maintenance allowance, to the expansion of higher education. These are things we can be proud of.

We narrowed the gap in attainment between pupils from more and less advantaged backgrounds – for example, the percentage of those on free school meals gaining five grade A*-C GCSEs rose faster than for those not on free school meals. And there is some evidence that we had begun to weaken the link between family background and educational attainment: research from the University of Bristol suggests family background had less influence on GCSE results for those taking them in 2006, compared to those taking O-levels in 1986. But, despite this, the link remains strong and it is clear there is a long way to go. However, it seems unlikely that this progress will be sustained if this Government – which has already cut the educational maintenance allowance – also follows through on its plans to return us to a two-tier education system where kids are divided into winners and losers at age 14.

And even where it appears that progress has been made, it takes a long time to quantify. A key indicator for measuring social mobility is earnings. I’m told that the erratic earnings of you entrepreneurs makes it much more tricky to keep track of your earnings than those in employment, meaning you are often excluded from the data. But that’s for another day. Whether a wage earner or an entrepreneur, there is a long time lag until these data are available. For example, the very first kids who benefitted from Sure Start are still only just teenagers today but the benefits they will derive will be long lasting if the US Head Start programme is used as a guide.

Entrepreneurship as a vehicle for social mobility

The All-Party Parliamentary Group on Social Mobility recently set out its excellent “7 key truths about social mobility”. They highlighted the critical importance of early years in developing learning skills and laying the foundations for personal resilience and future emotional wellbeing; the impact of high quality teaching and out-of-school programmes; how these feed through into university admissions, the main determinant of later opportunities; as well as pointing out that while early pathways are often highly predictive, they are not determinative, something that policy makers should not forget.

So I do not want to decry the investment in the early years, or to undermine the focus on educational attainment, access to universities, and access to the professions – the last point particularly brought to public attention through the excellent and persuasive work of Alan Milburn more recently. All this remains incredibly important. They are issues I am passionate about and, in the case of universities, form a major part of my brief as Shadow Secretary of State.

But – as Ed Miliband recently pointed out – social mobility shouldn’t just be about changing the odds of people making it to university, as if only one kind of pathway top success matters. We have to improve opportunities for everyone, including those who don’t make it to university. That means ensuring vocational education is seen as just as much of a gold standard as academic education – and that there are good opportunities to switch between the two.

What I wanted to do today, by highlighting the role of enterprise, is to ensure we place the role of entrepreneurship and business policy at the heart of this debate. Increasing social mobility cannot just be a matter for education, at whatever age. It must be a whole government activity. We must harness the power of business to change lives, releasing the entrepreneurial spirit wherever it resides, to open up new routes through which people can shape their own destinies just as my father did.

Entrepreneurship has a key role to play here because running your own business, research suggests, can sometimes offer a better route for weakening the link between where you come from and where you end up, than being in paid employment.

I have been particularly taken with the work of Ingrid Schoon and Kathryn Duckworth at the Institute of Education in this respect. They compared levels of social mobility between those who are employed and those who are self-employed. Their findings suggest that self-employment offers a more likely route to social mobility than paid employment – so one has a better chance of getting on by going into business.

Labour’s vision for the economy

And entrepreneurial success is at the core of Labour’s vision for the dynamic, future economy we need, and at the core of our vision for the dynamic, fair, opportunity society we want to see.

It is central to the better and more productive capitalism Ed Miliband and I have been arguing for – innovative businesses, focused on long-term value creation not short term profit extraction.

It is a vision rooted in our history. We have always stood for increasing autonomy in life and dignity in work as the world of work has evolved and changed. So what are we doing in this area?

We set up our Small Business Taskforce early last year, now led by Bill Thomas, to advise on what we should be advocating to help people start up and grow businesses. Before coming here I tweeted a link on twitter to the Taskforce’s interim report – produced by the late, great entrepreneur Nigel Doughty – for those who have yet to read it. Its next report will be published later this year.

We set up NG:Next Generation, our vibrant entrepreneurs’ network, towards the end of last year to ensure our party is connected into the entrepreneur community and to provide a vehicle through which entrepreneurs can connect with each other. The network’s next event takes place here this evening just as soon as the Q&A session is done.

Labour’s shadow education team, led by my good friend Stephen Twigg – with whom my team is working closely – is looking at the role schools can play in fostering the next generation of entrepreneurs. It is why, for example, we are supporting the campaign by the CBI and others that speaking, presentation and communications skills should be a priority in all state schools following the excellent example of Paddington Academy, as they are in many private schools.

And I am pleased to say that, before being elected, every member of our shadow business team in the House of Commons had either set up and run their own business, or – like myself – professionally advised many entrepreneurs who have done so. So when our manifesto comes, I can confidently say it will be informed by practical experience, as well as our beliefs and values.

Making entrepreneurship a national state of mind

In closing, I want to quickly say something about the business environment.

These are difficult times for business. Our economy is in a recession of the Government’s own making. The outlook is uncertain. The full impact of the troubles in the Eurozone have yet to feed through. All the while, the Government continues to fail to show the leadership needed at home, it has failed to show the leadership needed abroad, and it has failed to take the action necessary to guide our economy back to growth. In short, they risk creating a lost generation of businesses and business opportunities.

That said, I remain optimistic about our national future in the longer term. Looking around the world at the rise of the emerging economies I know we will have to raise our game to compete but I am determined that we will do it. There are, after all, huge opportunities out there.

In the US there is a national story in which the lone entrepreneur plays the lead role, pursuing the American dream. The evidence for this kind of story today may be weak, given that social mobility in the US is as low as anywhere. We all know that in an unequal society it is simply harder to move up the ladder. But there is no doubting the rhetorical strength of their national story, with its unashamed veneration of individual success.

To succeed in the future we must write the next chapter of our own national story – with aspiration at its heart, entrepreneurship as its state of mind, and community as its end. It must encourage your restlessness and inspire my young constituents. That way, together, we will create a better future for all in Britain.

Transcript of Chuka’s response today in the House of Commons to the Business Secretary’s statement on executive pay

Wednesday, June 20th, 2012

- Check against delivery -

Mr Speaker

I thank the Secretary of State for advance sight of his statement today.

In the last decade the value of FTSE 350 companies increased by 80%, while the average total earnings of executives in those companies increased by 108%.  The evidence is clear – rewards that are not linked to success or performance have become far more frequent.

This problem has grown over the past few decades under Government’s of all persuasions.  In fact, one has to go back to 1979 to find things more in proportion, with executive pay growing by 0.8% on average in the three decades to that year.

So it is imperative that we do all we can to address this problem.

In Government, quite rightly, we did not rush to legislation – in the first instance it was right to see if legislation could be avoided.  When it became clear that this was not the case, in 2002 we made it mandatory for quoted companies to publish a separate directors’ remuneration report and we gave shareholders the right to vote on remuneration through advisory votes.

Shareholders have been exercising those rights, to their credit, with some verve this year.  This is very welcome.  Change and reform must be shareholder led and we should empower and encourage them as much as possible.  The Secretary of State has outlined his proposals to do that today.

I welcome the binding vote on exit payments and the measures to simplify pay reports to increase transparency but I have a number of concerns and questions.

First, with regard to the annual binding vote on future remuneration policy.  I have heard what the Secretary of State has said but it is deeply disappointing that, having marched us all up the hill, he appears to be marching us back down again by performing a u turn on his original proposal.

Having proposed an annual vote, he now seeks one every three years, unless – during that three years – there is a change to the policy.  Is it not the case, that this will simply incentivise Boards to draft policy as broadly as possible, so as to avoid anything other than a triennial vote?

Can the Secretary of State tell us exactly how he would define a “change” to remuneration policy?  And who will be the arbiter as to whether there has been a change of policy in each company – the Board or the shareholders?

Bureaucracy I know as been raised as an objection to an annual vote but given that there will still be annual advisory vote on the implementation of remuneration policy in the previous year, alongside other annual votes, this objection does not hold water in my view.

Second, with regard to majority required for the policy to be approved, the Government should have  been bolder and gone for a 75% threshold as opposed to a simple majority for approval.

As Dominic Rossi, the Chief Investment Officer of Fidelity World Wide Investors has said, such a threshold will ensure companies consult widely with shareholders prior to a vote, it would give companies a clear mandate, and the need for a clear majority would also encourage all shareholders to express their views.  Why does the Government not take heed of this advice?

Third, he says employee views on pay are important.  If that is the case, why does he persist in standing in the way of introducing the requirement for employee representatives to sit on Board remuneration committees?

Fourthly, we fully support the introduction of an annual advisory vote on how remuneration policy has been implemented in the previous year.  But, can the Secretary of State clarify – when he says this will automatically trigger a binding vote on policy the following year if the vote fails, to what does he refer in that the following year – the backward looking vote which would usually have been advisory becoming binding, or to the forward looking vote on future policy?

Finally, I also welcome the CBI’s call for the FRC’s corporate governance code to be updated but will he consider requiring the FRC to also carry out and produce an annual report on the operation of the UK Stewardship Code to keep shareholder activism, good pay and remuneration practice high up on the national agenda?

 

Ministers are now seeking to dump the blame on business for their economic incompetence

Sunday, May 13th, 2012


Chuka Umunna MP, Labour’s Shadow Business Secretary, commenting on Foreign Secretary William Hague’s attack on business leaders today following their critical remarks on the Queen’s Speech, said:

“Business leaders have told Ministers that this Government has lost the plot and urgently needs to work with them to create the conditions to foster private sector growth and to provide a more certain policy environment to give business the confidence to invest.

“Instead of listening to British business, this out of touch Foreign Secretary now suggests that our firms are not working hard enough and that is why there is no growth. The truth is that this Tory led Government’s disastrous policies have put Britain into recession when it inherited an economy that was growing and now they are seeking to dump the blame on business for their economic incompetence.

“William Hague says our businesses should ‘get on the plane, go and sell things overseas’ as if our businesses have not already been trying to do just that. His comments are typical of an out of touch Government that refuses to listen and refuses to take responsibility for its own economic policy failures.

“Business has been crying out for the Government to adopt an active industrial strategy, where government steps up and works in partnership with business instead of stepping aside and telling business to get on with it. For reasons of political ideology, the biggest roadblocks to the adoption of the active industrial strategy business has called for are the Prime Minister, the Chancellor and now the Foreign Secretary.”

Speech on industrial policy: “Active Government working in partnership with Productive Business”

Monday, March 12th, 2012

Chuka Umunna MP, in a speech today in Liverpool, said:

Introduction

It’s great to be back in Liverpool – in fact, it’s my first time back since our Conference here last autumn.

It’s good to get out of Westminster when we can – I think it’s so important for us to get out and about – to see and listen to you.

On my trips to different regions of the country, increasing numbers tell me they feel like we are living through some weird, distorted repeat of the 1980s – unemployment high, cuts, the NHS under threat, more recently the Falklands back in the news. Liverpool winning trophies. Okay, that last one is clearly a good thing!

And again, many argue – depending on your political point of view – that this is all happening under an ideological Conservative-led Government wedded to certain orthodoxies: the idea that the economy will fix itself; the best government can do is to stand back; that markets never fail.

So I’m going to say a little about the politics and then I’ll talk at greater length about the economics which is of primary interest to you.

Turning to the politics, today I want to pay tribute to a politician who I know commands the affection of this city.

It is not Luciana, our fantastic Shadow Minster for Energy and Climate Change, who organised today’s event, much as we all have great affection for Luciana and she does a superb job as one of your MPs.

Nor is it my other Parliamentary colleagues here today – who also work tirelessly for the people of this area too.

Nor is it even the great Joe Anderson, Leader of the Liverpool City Council.

Lord Heseltine

No. The politician I want to pay tribute to today is not a Labour politician, but a Conservative. During the long Tory years there was one among them who stood against those in his party who in the name of ideology argued against government activism being used to boost business and private sector investment.

It was Lord Heseltine.

In the early 1980s, following the Toxteth riots, he stood with you the people of Liverpool where others wavered. He became known as Minister for Merseyside, assembled a 30 strong taskforce and put in motion the Liverpool Garden Festival and the redevelopment of Albert Docks. That is why, no doubt, you are giving him the Freedom of this city tomorrow – I commend you for doing so.

In his 1987 book, “Where there’s a will”, Heseltine urged “wholehearted recognition of the need for and the adoption of a British industrial strategy”. In the early 1990s, with Thatcher toppled and at the peak of his influence, he sought to put his ideas into action after John Major appointed him to the precursor to the current Business Department, the DTI.

But the ideologues in the Conservative Party didn’t much like him – that is still the case today. When his name came up in the House of Commons at the end of last year it was met with jeering from the Tory benches. That tells you a lot.

We know they don’t like his views on Europe. They prefer the simplicities of a macho, phantom veto, not the painstaking complexities of proper engagement with our European partners to safeguard the 3.5 million jobs that depend on EU trade.

And they don’t much like his views on the role of government in the economy either. As many in this room may recall, he told the Conservative Party Conference in 1992 that, if needed, he would, “intervene before breakfast, before lunch, before tea and before dinner”. I’m not sure I’d quite put it like that myself but there was and is a clear difference between his approach and that of the Conservative orthodoxy then and now.

As a press cutting from the 1990s put it, Heseltine represented, “a break in the chain of right-wing Trade and Industry Secretaries – Sir Keith Joseph, Norman Tebbit, Nicholas Ridley, Lord Young, Peter Lilley – whose aim was to cut their budgets before breakfast lunch and dinner”. Of course, Heseltine and Young advise the government now but, whereas Heseltine has an office in BIS and is known to have concerns about this government’s lack of an industrial strategy, Young has an office in the heart of Downing St. – where power ultimately lies in this government – and his fingerprints are all over the Cameron government’s economic policy.

Of course, Heseltine’s nemesis in the 1990s was Michael Portillo, who – back then – was a darling of the Tory right, not the highly watchable TV presenter he is now. In a leaked letter from 1994, Chief Secretary to the Treasury Portillo castigated Heseltine for his failure to deliver up sufficient cuts to the DTI budget: “Nowhere in your department’s report,” complained Portillo to Heseltine, “is the assumption that it is government’s proper task to intervene in the functioning of free markets actually questioned”.

The betrayal of Heseltine’s legacy

For Portillo and Heseltine in 1994, read George Osborne and Vince Cable in 2012.

Having questioned the very need for a Business department in opposition, Vince Cable has become a recent convert to the cause of active government and industrial policy – as his letter leaked last week demonstrates.

Vince has realised the failures of his Government’s approach. In the letter he says it is clear to all that, beyond the deficit, this Government has no “compelling vision of where the country is heading”. Its actions are “piecemeal”. It has no “clear and confident message about how we will earn our living in future”.

But in seeking to address these shortcomings through the adoption of an active government strategy, he is hamstrung by the old orthodoxies of his Conservative partners who argue the best government can do is to step aside. The biggest roadblocks to reform and the adoption of an active government strategy are the Prime Minister and the Chancellor because, for ideological reasons, they simply do not buy into the idea of government activism. This is, of course, a betrayal of Heseltine’s legacy – it runs counter to his approach.

The problem Vince has is that he lacks the clout that his predecessor in the role, Peter Mandelson, had with No. 10 and across Whitehall so consequently he finds he is unable to deliver the active government strategies he and Heseltine advocate.

Reforming our economy for the challenges ahead

So much for the politics, what about the economics?

We are living through a period of seismic, rapid, global and technological change. With the government sucking demand out of the economy – by cutting too far and too fast – we worry about where demand in our economy will come from. That’s what lies behind Labour’s five point plan for jobs and growth. To get the economy moving again and – through growth as well as fiscal discipline – to bring the nation’s finances back into balance.

Taking a longer term, global perspective, the Government’s exclusive focus on deficit reduction as an end in itself, looks increasingly short term and narrow. Within the next two decades, the size of the global middle class will almost triple in size to 5 billion people. That’s a whole lot of new demand we should be preparing our economy now to meet.

Success in the global economy won’t come from being quite good at lots of things. There is a premium on being the best. So we must develop our areas of existing strength – sectors, technologies, services – where we are already world class. Like advanced manufacturing, aerospace and automotive. Like business services, the creative industries, and higher education. And, yes, financial services.

We must build on these strengths. We must develop other areas where we could realistically aspire to global leadership, with growth more broadly based across the UK. Not just in high end, export industries, but seeking to increase productivity across the economy, focusing as much on the diffusion of new technologies as on their creation.

As a nation, we have a job of work to do to modernise our economy: to position it to succeed in this new global context; to develop our national capabilities to make the most of these emerging opportunities. And, because change is difficult and its impact uneven, we must manage the process of change so that the costs and the benefits are broadly and fairly shared.

This must be our national mission. As Ed Miliband, the Leader of the Labour Party, laid out last week in his “Made in Britain” speech – a more productive, more responsible capitalism, underpinning a more inclusive and cohesive society.

As Ed said, we should celebrate, take pride in and back the best of British business, products and services. This is not about protectionism but using all the means at government’s disposal to give competitive British firms every chance to succeed.

We are clear that the growth that we need is private sector growth: UK businesses producing more, and selling more in tough but expanding global markets. I am equally clear that government must play an active role in that objective.

Trusting markets alone won’t get us there. Neither can governments. Building this New Economy requires a new partnership between productive business and active government.

Not government stepping back – as the Prime Minister and Chancellor would have it – but government stepping up: consistently, responsibly, and strategically; creating the conditions for success; supporting business in practical ways.

That is why I have taken as my starting point the approach of Lord Heseltine. Of course, he sought to adopt active government strategies at a different time in a different context. His prescriptions cannot simply be transposed into this new era. But his mindset was the right one.

So what I want to do in the rest of this speech is to set out the role for active government in 2012 and beyond as well as acknowledge its limits. I will talk about the obstacles to this kind of approach in the UK context, and will end by setting out a framework for action.

The argument for active government

What do I see as the role for active government?

My starting point remains, of course, sound macroeconomic management. There is little that BIS and other departments can do to foster growth if the underlying macroeconomic judgements of the Treasury have gone awry.

When George Osborne implied that we were on the brink of bankruptcy, he was not only wrong, he was irresponsible. As my colleague Ed Balls has clearly shown, by cutting too far and too fast, this Government choked off growth before it was properly established. Business confidence nosedived following their 2010 Spending Review. Since then, we have seen too little investment and virtually no growth.

Right now, many large firms are sitting on big piles of cash. Tragically, in an uncertain macro environment, they see greater value in hoarding cash against future uncertainties than investing it in productive capacity or re-circulating it in the economy. We need to get them investing, and this starts with getting the macroeconomic judgements right.

But beyond the crucial importance of getting the macroeconomic judgements right, why should government do more? I would give five reasons.

Number one: like it or not, in a modern economy governments can’t help but influence the shape and functioning of markets, for good or ill. It is not about denying these influences, or even trying to minimise them. It is not about market versus state. It is about fostering productive interactions between them.

Number two: there is a lot that active government can do to improve the health and functioning of markets. Markets work best where no one has a monopoly of power; where information is symmetric – in other words, when buyers and sellers both know what they are getting into. Markets work better where they reflect all the costs of production, including social and environmental costs; where barriers to entry are low; where coordination failures can be overcome.

Healthy, competitive markets reward the innovator, the insurgent, and the risk taker. They keep incumbents on their toes, benefitting consumers. They create the disciplines at home that drive success abroad.

This does not happen by itself – markets are not always efficient. Even where policy frameworks can correct market failures, markets still require active stewardship, constant vigilance against unhealthy concentrations of power, and deliberate promotion of competition.

Number three: the market outcome is the market outcome but this might differ from the outcome we would choose as a society. We could have growth with continuing high unemployment or we could have growth with low unemployment; an economy competing on quality and creating good jobs or an economy stuck in a low-skilled equilibrium, competing mostly on price; green growth to polluting growth.

Determining these preferences in aggregate is, of course, the job of politics. Realising them is the task of governments. Here I am not saying that governments know better than markets.

I am saying that governments make use of different sources of information, and are sometimes pursuing different goals.

Reason number four is perhaps the most contentious. I would argue that governments can – in some circumstances – improve on market outcomes even when pursuing the same goals. How? By doing things that, left to their own devices, markets cannot or will not do:

• Markets can’t set strategic direction. Governments, working with business, can. There are risks in doing so, so caution is necessary. But knowing that government is behind an industry or a technology can reduce uncertainty and promote investment

• Early stage, fundamental research is often too risky for businesses to undertake. The role the US government played in financing or buying many of the innovations behind the ICT revolution is increasingly being recognised. Silicon Valley venture capitalists took the plaudits, but they were standing on the shoulders of federal government investment and support over many years.

• Through regulation, governments can create entirely new markets, as Labour did by requiring zero carbon homes within ten years.

• And governments can help to foster clusters and other institutions that enable pre-market coordination and support. Liverpool Science Park is an example.

For some, this might be viewed largely as an extension of the ‘market failures’ argument. I’d take that. But it seems to me that there is a difference between government positively adding new dimensions to the market, and government simply oiling an existing machine. Ultimately, the categorisation is less important than the recognition that this is a role that government can and should play.

Interestingly, whatever the label or rationale, other countries are already pursuing active government approaches, and much more aggressively than we are. What we are advocating is in keeping with the international mainstream.

I don’t just mean the obvious places like South Korea, China and Singapore. In modern industrial policy – as in life – it is important to remember that the winners write history. Look at what they do, not at what they say. Just because the Americans preach a gospel of free markets does not mean that their government has not made huge interventions in markets through vehicles like DARPA, the Small Business Innovation Research programme, and the National Institutes of Health.

So, by holding the country back through stubborn adherence to misguided ideology and the old orthodoxies the government risks allowing others to capture future markets.

It not just me saying that. It’s Mike Turner, chairman of Babcock, the engineering and services group. It’s industrialist Sir John Parker. It’s Anthony Bamford, Chairman of JCB. It’s Richard Lambert, former head of the CBI. According to Vince, it’s Ratan Tata. It’s Vincent de Rivaz of EDF. I could go on.

The challenges in practice

There will be those who may buy this case for active government in theory, but remain sceptical about it in practice. This is a fair objection. Rightly or wrongly, the shadow of the 1970s hangs over us all. How can we get this right in the future?

We can start by being more systematic in our approach. Too often in the past, governments have reached for the levers of industrial policy when everything else has failed, responding to demands for immediate action.

I’m a lawyer by profession and we have a saying: hard cases make bad law. To be successful, active government policy must be for life, not just for crisis or dependent on the personality and drive of whoever leads the Business Department. It must be about shaping the future, not just reacting to events. It must be less about sporadic and unpredictable intervention, and more about fostering stable institutions within a certain policy environment.

This is less about Great Leaps Forward, more about consistent steps on a much longer journey. And on this journey, an active government approach is as much about knowing when not to intervene, to let business and competition thrive in healthy markets, as it is about knowing when to intervene to address market failures and fill in the gaps.

We can try and provide a more certain policy outlook. Just as macro stability is conducive to business investment, so policy induced uncertainty undermines it. Here governments can be their own worst enemies. The last Budget’s tax grab on North Sea profits may have raised a little revenue in the short term. But it also increased the long term risks of investment in the UK oil and gas industries, making it more expensive or sending it elsewhere. Changing the rules on Feed in Tariffs has completely undermined investment in the fast growing solar p.v. industry.

Now it is fair to say there is a tension between the need for policy certainty and elections when the people demand change. But they have elections in Germany too and certainty about the policy framework there is a source of competitive advantage for their industries. It is one that, with cross party commitment and the right discipline in areas where we agree, we could perhaps attempt to match in the UK despite changes of government.

One important precondition to mention – when Lord Mandelson pursued active government policies at BIS, the government machine struggled to keep pace. So getting all this right will require changes to the government machine: the way it gathers information, interacts with business, makes decisions, joins up.

A framework for action

So far I have argued the case for active government – or, as Lord Mandelson has put it, why “ministers and markets should mix”. I then set out some of the key challenges in getting active policy approaches right. Now I turn to what active government should actually mean in practice. What kinds of actions should it take, and what should be the priorities?

Traditionally, active government approaches have tended to divide between ‘horizontal’ policies that seek to improve the functioning of the whole economy, and ‘vertical’ policies that focus on the development of particular sectors, technologies and even individual businesses.

The first big lesson is that the further policy moves from the whole economy towards particular sectors or firms, the riskier it gets. The surest foundation for active government must be effective horizontal policies.

The most important horizontal policy for active government is – as I have already emphasised – fair competition in markets. Second, third, fourth and fifth must be other horizontal policies like skills, finance and infrastructure investment, effective corporate governance and incentives that reward long term value creation over short term value extraction.

Horizontal policies of this type are lower risk and, done right, should improve productivity.

But the second big lesson is that just because the risk increases as the policy becomes more targeted, it doesn’t mean that vertical, sectoral policies should be ruled out. Between risk and reward there is a balance to be struck. On this basis, sectoral policies can be extremely successful:

• Sometimes because they are very low cost. For example, government can use its convening power to solve coordination problems in a sector without spending much money at all. The Automotive Council is a very good example of this – a Labour innovation that the Government have continued. The Germans – who know a thing or two about making cars – also have an envious eye on it.

• Other times they are low risk because a small amount of initial public investment can leverage in a large amount of private investment.

• Or they may be low risk because they build on things that government would be doing any way, like using its procurement power to develop UK sectors strategically and using procurement to support innovation and jobs here in Britain.

• And sometimes sectoral policies are successful precisely because it is government taking the biggest risks and doing the groundwork: like investing in fundamental research that allows for the development of new classes of drugs, not incremental developments of existing drugs.

Ultimately, the key to good sectoral policies is the quality and independence of the decision making process concerning what to prioritise, and how.

The third big lesson concerns institutions. Look at Germany – where I recently visited – with their national investment bank, KfW; their centres of technical and vocational training and research, the Fraunhofer Institutes; their network of 426 local banks providing credit to businesses, the Sparkassen. Look at the US – I met with the Obama administration last year – with its Small Business Administration, and its Small Business Investment Companies. Look at Singapore with SPRING.

Institutions like these can help both horizontal and vertical approaches. They can support business development and growth; provide stable finance; allow for information to be shared; foster innovation and encourage its dissemination; develop the skills base on which business can build. This is why we are looking at plans for a British Investment Bank and why we have said we need to open up schools to let industry in, not have it shut out.

For us, institutions remain a bit of a gap, despite steps in that direction with the Technology Strategy Board or the Office of Life Sciences. Not that we should be importing ideas wholesale from abroad. We must foster institutions that are right for the UK today. And not just by looking to the new. We must build on our existing institutional strengths – like our universities as exemplified by the Warwick Manufacturing Group, our existing business organisations, and our trade unions who have been critical to securing investment at JLR, BMW, Nissan and elsewhere.

The fourth big lesson is that sometimes establishing the end matters more than dictating the means. Create the dream. Much of the innovation funded by the US government was a by-product of the space race and the Cold War. What are our visions of the future? Of a greener, safer world? And to get there: set standards at the product level and let business figure out how to get there – that’s exactly what we did with zero carbon homes, unleashing a wave of innovation across a wide range of industries.

And finally, the last big lesson. It’s not only about getting individual parts right. It is about the whole. So it is about competition policy being reinforced by procurement policy. It is about taxation and regulation reinforcing the strategic direction agreed with business. It is about ensuring that the finance, the skills, and the infrastructure are there for business and so on.

Above all, it is about joining up this activity across government, and government engaging with business in new ways.

Conclusion

Lord Heseltine had the right attitude, against history and against his own party. Lord Mandelson took up the baton, but had little infrastructure to build on. Now Vince Cable is starting to see the light, but faces ideological resistance from the Prime Minister and the Chancellor.

We are clear where we stand. Our country is depending on you for growth. You deserve a government than shares your ambition for the success of your business, your community, your city. A government that will back your success, supporting you where it can, every step of the way. Systematically, consistently and predictably, using every tool it has. An active government strategy and industrial policy is at the heart of this.

The prize is great. Let’s work together to achieve it.

Thank you for listening.

Video: Chuka talks to the CBI

Thursday, March 1st, 2012

Chuka Umunna talks to the CBI about how Labour would encourage growth in the UK economy. On Wednesday, Chuka gave a speech, Paying our way in the world, to the CBI in London.

Speech: Paying our way in the world

Wednesday, February 29th, 2012

Chuka Umunna MP, in a speech to the CBI today, said:

It is really wonderful to be back here at Exchange House – this is the first time I have been in the building since I left just under 6 years ago.

I am very proud to be able to say I started my legal career and qualified at Herbert Smith, a world class firm. I worked – yes, occasionally on the odd “all nighter”- on contentious and non contentious matters, the domestic and the international and it gave me a real grounding in the worlds of business and finance.

I would also like to thank, John Cridland and the CBI for inviting me to speak today. We attach huge importance to our relations with the CBI and the wider business community. And before I turn to the subject matter of my speech, let me say a little bit about our relationship with you.

During our time in government, Labour had a good record on business. An additional 1.1 million new businesses were created under Tony Blair and Gordon Brown. By the time we left office, the World Bank ranked the UK the best country in Europe for “ease of doing business”, and fourth best in the world, ahead of the U.S. However, clearly we did not get everything right and we must have the humility to say so.

The brutal truth is that by the time of the last election we had lost the trust of many of you – trust we had worked so hard, over so many years to earn. There weren’t many prominent business people prepared to come out for us in 2010. For someone who has worked for business and is immensely proud of what British business has achieved over the decades, that was a source of great regret to me as a humble parliamentary candidate in May 2010. Why? Because I know that when it comes to politics, the support of the business community does not belong to any one particular political party.

Most business people tell me what matters to them is not party politics – I find there are not on the whole partisan – but what policy makers are going to do to foster the conditions for your businesses to prosper and grow. And just as there is a diversity of views in politics about the best way forward in different policy areas, so there is a diversity of views in business.

Take the debate around executive remuneration. On the one hand, you have Richard Lambert, the former Director General of the CBI, Sir Mike Darrington, who turned the Greggs bakery chain into the huge success it is now, and others, talking in bold and radical ways about the need for change and reform.

On the other hand, other people have argued against reform.

To win back that support, we must rebuild trust. The huge regard I know there still is for my predecessor in government, the noble Lord Mandelson, demonstrates to me that it is possible to earn that trust by listening to you, building the strong relationships upon which trust is forged and being your voice in Opposition and hopefully Government. You very much appreciated the access Peter gave you, the focus he brought to your concerns, and the fact that he got things done when you said they were needed.

Unlike today when senior Government backbenchers are arguing for the abolition of the Business Department, your voice in government, when Peter was in charge of the Department had real clout across government.

I intend to follow Peter’s example and, I should say, that as a pro business party we would not dream of abolishing the Business Department. In fact, I ran into Peter the other day and, as ever, he was full of sage advice – as we parted, he said with a wry smile, “Chuka, make sure you don’t squander your legacy.”

We are in Opposition now, and so I find myself shadowing the Business Secretary, Vince Cable. On my appointment, a journalist pointed out that not only is Vince twice my age but, during his lifetime, he has been a member of the Labour Party for longer than I have.

As Her Majesty’s Opposition we have a constitutional duty to hold Vince and the Conservative-led Government of which he is a member, to account. To ask why, when they inherited a growing economy, we have seen almost no growth for a year? To ask why, when unemployment was falling in 2010, it is rising again today? To ask why, the Government has had to revise its borrowing up by £158bn?

We cannot perform this constitutional duty without reflecting your views when we do so – we want the Government to do the right things for you because it is essential if we are to get growth back again. And I will be as constructive as it is possible. When they are doing the right thing, I will not oppose them for the sake of it.

So, for example, I said in the House of Commons earlier this month that the Government deserved credit for establishing the Independent Commission on Banking – frankly, it is something we should have done ourselves.

But we don’t just aspire to be an effective opposition; we must demonstrate that we offer a clear and credible alternative government. That is why we are undertaking the biggest review of our policy programme since Tony Blair became our leader in 1994.

We are not only doing this given the thumbs down we were given at the last election. But because the challenges facing the nation are changing. We need a new set of policies to build a better, more responsible and productive capitalism, fit for our times and for the future – a New Economy offering fairness at home and competitiveness abroad.                                                       

I’ve now been in the job for just under 5 months and have talked to a lot of people in business about where we are as a country. This speech builds on what I said in my first major speech in this role, at Bloomberg in November. There I highlighted the long-term, value creating approaches of many of the UK’s best companies, and the role that government can play in supporting and spreading the kinds of policies, practices and behaviours they pursue. I called this a new partnership between productive business and active Government.

Today I want to explore how we develop the foundations for this New Economy in the context of seismic, rapid, global and technological change. I will start by looking at the pace of this change; then I will consider our current position and place in the global economy, before considering what we must do as we look to the future: to position our economy for sustained success and to develop the national capabilities we will need. In coming months, colleagues and I will be making further interventions – on infrastructure, skills, access to finance and other relevant issues, developing these themes.

I think the extent of change since Tony Blair became Prime Minister is easy to forget – we should consider for a moment the magnitude of what has happened. When I went to university in 1997, I had never even sent an email. Hotmail had just been launched. There was no Google, no YouTube, no Wikipedia, no iPods let alone smartphones. E-commerce was still in its infancy. Mark Zuckerburg was 13.

Fast forward to today – technology has fundamentally changed our world. I currently have 22,000 followers on Twitter whom I tweeted earlier to say I would be speaking to you – that is nothing compared to the 130,000 people that now follow Ed Miliband and, yes …some politicians and celebrities have discovered this instant, direct way of communicating is not without its risks but communicating in this way would have been unthinkable in 1997.

And just as technology is changing what we do, it is also changing business organisation and consumer behaviour. It is intensifying the value of time; changing the relationship with distance and space; blurring the boundaries between production and consumption; increasing the size of potential markets.

The competitive advantage of nations will increasing lie in the very specialised but distinctive contributions they can make to global supply webs – the particular components, technologies and processes where they are the best in the world.

It has spurred a new wave of globalisation. Back in 1997, China’s GDP was less than trillion – it is now more than six times larger. Chinese companies accounted for 1% of global equity capitalisation in 2000 – by 2010 this had risen to 11%. Goldman Sachs estimates that by 2030, Chinese companies will be worth trillion, well above the US.

So there has been huge and rapid change. The signs are that it will continue. India and Russia are coming up fast too and at the turn of this year, Brazil’s economy overtook the UK’s in size. And it is not just about the aggregate size of the economy. Think about this: imagine two children born today – one in the UK and the other in Brazil; it is estimated in 16 years, each will be enjoying the same material standard of living and, by 2029, the standard of living of the child born in Brazil will be higher than that of the child born in the UK. Who would have thought it?

With the Government pursing a deficit reduction strategy that we have argued goes too far and too fast, people wonder where demand will come from; while the hundreds of thousands of young people out of work is shattering confidence and could place a lasting drag on our future prosperity.

Taking a longer term and global perspective, the focus of the Government on the deficit almost to the exclusion of everything else seems short sighted and narrow. In less than 20 years there will be a global middle class that has expanded from 1.8 billion to 5 billion. That’s a whole lot of demand that we should be preparing our economy to meet, investing in now, so that we are ready for the coming explosion in global demand from emerging economies.

And at the same time that these new markets emerge, there is another outstanding challenge – to meet the new demand in a sustainable way with new green technologies. It is deeply worrying that on this Government has created so much uncertainty in the policy environment that the UK has slipped from third to thirteenth in the world for investment in green growth.

So we have a big task and, looking at our trading performance today, we see just how much work is needed.

In 2010, our exports in goods and services of £437 billion, equivalent to around 30% of our GDP, showed how important open borders and free trade are to our economy and our way of life. We have a large surplus in services but, overall – you will all know – we have an overall, persistent balance of payments deficit, of £48 billion in 2010.

And half our exports go to other EU countries. This shows the importance to the UK of maintaining constructive working relationships with our European partners; of resolving the Eurozone crisis collectively; and, in the longer term, of completing the Single Market.

This is why we were so critical of the approach adopted by the Prime Minister at the EU Council last December – it did not help safeguard the estimated 3.5 million jobs that depend on our EU exports.

But what is striking is this. We export more to Ireland – albeit a proximate and historically close trading partner but still a nation of only 4.5 million people – than we do to the 4.2 billion people in the BRIC countries. Business as usual is not good enough – change and reform are needed.

As the volume of global trade in goods has expanded rapidly, Germany has largely maintained its share of this trade. We haven’t. There are some specific explanations for this, such as Germany’s comparative advantage lying in exports like machine tools that are much in need by industrialising economies investing heavily in productive capacity. But it is not just that: Germany, US, Singapore, Korea, China are all taking a more aggressive approach than us to maintain and build their competitive advantage.

So it means we need to be faster out the blocks with a reformed approach as attention shifts to the so-called “Next 11”– the next group of fast emerging economies including other countries with close historic ties to the UK such as Bangladesh, Nigeria, Pakistan, Egypt and Turkey – we must be ready to take advantage of further new opportunities.

There are companies ready to do so. As I talk to businesses up and down the country I am proud of the export success that many enjoy.

Recently I visited Strip Tinning in Birmingham, a fantastic company with over 50 years of engineering history. You know when the windscreen on your car freezes up, and you push a button to clear it? Strip Tinning makes those tiny strips of metal ribbon that heat up and melt the ice. In fact, their parts are in 95% of the world’s car windscreens – an astonishing figure. Even in difficult economic times they achieved 75% growth in the last year through their export success. By the way, if you look at their website, you can view it in Chinese as well as in English, which tells its own story.

Then there is Carrington Career & Workwear Ltd, who I visited in Adlington in Lancashire – they are the largest supplier of workwear, corporatewear and technical fabrics to the UK garment industry, a market leader in Europe, and with customers in over 70 countries around the world.

Just two examples of export success – firms making good quality, innovative and reliable products that the world wants. We need more businesses to replicate their success – for exporting to become hard wired into our business culture. It should be as easy to begin exporting from the UK as it is to set up a business in the UK.

Recently, I met with a group of small and medium sized export businesses at the Chamber of Commerce in Hertfordshire. They said we could export so much more, if we had the support to do so and barriers were reduced. Having the confidence to start was important – the first export always being the hardest.

Things like information on routes to market – with many SMEs not knowing where demand for their products might lie, or having the contacts or networks that could guide them. As well as securing inward investment, the RDAs used to be there to help with things like this.

Many talked about issues of export finance support, highlighting the lack of understanding or support from the banks and schemes like the Export Finance Guarantee not being suitable for smaller volume exporters. This is, in part, why we are looking at proposals for a British investment bank to help with business financing.

Others suggested large companies should be incentivised to take their supply chains with them when seeking out export opportunities. Many complained how changes in immigration policy have not only made recruitment more difficult, but also have sent a signal abroad that the UK is less open for business.

A lot of businesses do not seem that familiar with the service UKTI offers. Of those that are, some are glowing about the service they receive, others less positive and speak of inconsistency of service. Some worry about staff turnover, others have been put off by form filling requirements. The relatively high fees for the Overseas Market Introduction Service and market reports seem to be a particular issue for SMEs. I met with UKTI’s senior management last month to raise these issues with them for you.

A major concern is the relative lack of foreign language skills in the UK, which limits firms’ abilities to make and maintain direct links abroad. Traditionally, we have tended to focus on French and German, with a much greater focus on Spanish in recent years. Now we need to ask which additional languages will equip us to compete in emerging markets and give much more focus to them.

We should think more creatively about how to use Diaspora communities to boost trade performance. For example, in Lambeth – the Borough where my constituency is located – we have one of the largest Portuguese speaking populations in the country, offering a unique link to Brazil.

We do not make nearly enough of this.

Active government working with in partnership with business in fairness, some of these issues that businesses raise with me are things that the Government is already trying to address. But their approach – of trade missions and the like – are what you might call “point of sale” strategies: they help existing firms to sell more of what they already produce into new markets. This has merit as there is clearly much greater exporting potential among UK companies than is being exploited. But in the longer term it is not nearly enough.

As a nation, we have a job of work to do to modernise our economy. The market alone won’t get us there; Government alone can’t do so either. It will take a degree of calculated risk. But it must be a national mission where productive business and active government work together in partnership:

• First, to reposition our economy to succeed in this context of change: understanding with business the markets in which demand is set to grow, where our particular sources of comparative advantage lie in those markets; and how we can broaden our areas of global leadership. It means understanding what underpins our existing strengths, and what can complement and reinforce them;

• Second, to focus explicitly on developing the national capabilities we need to maintain our success, given this positioning: the language and the STEM skills; our graduates base; our broadband network; our airports and ports; and our capacity to turn our strong science base into marketable products; encouraging clusters; developing stronger market based institutions; and

• Third, in the process we must do all we can to ensure the vulnerable do not bear an undue burden and that we meet global demand in a way that creates more and better quality jobs at home, making the most of everyone’s talents.

Proponents of business as usual – roadblocks to reform, reluctant to accept the need to change and modernise, wedded to the old orthodoxies – argue that the best Government can do is to stand aside and leave it to the market. This is the overwhelming view of the Conservative Party. But this attitude has held British business back from reaching its full potential for too long – I know this because you tell me so. Leaders of British industry – like the chairman of Babcock, the engineering group – are not calling for the abolition of the Business Department as some now argue but for a strong Business Department to adopt an “industrial strategy”.

And this outdated approach, wedded to old orthodoxies, increasingly lies outside the international mainstream. We have seen on our visits to Singapore, the US and Germany how, where there is market failure, they have a set of public institutions like the Small Business Administration, prepared to step in, fill the gap and adopt active government strategies and solutions.

In fact, since I got this job I have been struck by how business leader after business leader has told me they want to see an active government working in partnership with business in different sectors to step in and fill the gaps where there is market failure. That is precisely what Ed Miliband, Ed Balls and I will do – as Peter Mandelson said in the Times a couple of months ago, “ministers and markets can and should mix”.

And I should say this: it is as much about knowing when not to intervene, to let business and competition thrive in healthy markets, as it is about knowing when to intervene to address market failure where needed. Active, intelligent government, is understanding that there is a limit.

We already have a lot we can build on – sectors where the UK leads the world and where we have the potential to be among the best. These include automotive, biotechnology, business services, chemicals and pharmaceuticals, financial services, health, higher education – our 7th largest export – publishing, communications and the creative industries. Last week I attended the Brit Awards – our music industry generates £3.8bn per year and is the second largest exporter of music in the world with a 12% share of global sales of recorded music.

We remain the seventh largest manufacturing nation. We have the largest aerospace industry in Europe and the second largest in the world after the USA. In high technology manufacturing, the UK is second only to the US of major economies and ahead of France.

We must build on the lead that we enjoy in financial services – the City of London is a genuine one off world-class cluster which we should be proud of. And the great thing about agglomerations like this is that they are where they are, and they are not easy to replicate.

One thing we ask for though is for the City to better serve the rest of the economy and to take a longer term view of value creation – again, we make no apologies for seeking reform and that is one of the reasons I welcome Professor John Kay’s interim report on UK Equity Markets and Long-Term
Decision Making published today.

Rebalancing cannot be about trying to be quite good at everything – in a globalised economy there is a premium on being the best. Our challenge is to build on our existing strengths – in sectors, particular technologies and as parts of global supply chains – creating more sectors in more regions of the UK with firms that can compare with any in the world, in good times and in bad.

Not just in sectors that are tradable, but improving productivity across the whole economy. This means understanding the specific needs that each sector and region has, and using every lever that active government has to support their consistent, sustained and sustainable growth. And it can be done.

A good example is what we did in government with the automotive industry – establishing the Automotive Council, encouraging and supporting collaboration on research to benefit the entire sector – a collaboration that wouldn’t have happened without government using its ability to bring industry players together. Automotive now represents 10% of total exports and 80% of production is exported.

But as we point to a successful exporting industry, in other areas the Government is failing to learn the lessons. I touched on the damage being done to green industries through policy related uncertainty; defence is another example, where the Government is actively abandoning the industry, buying off the shelf from America and seeing no particular role for UK production. In contrast to this, we are adopting a joined up approach – so I am working closely with my colleagues in our energy, defence, transport and other teams to ensure we get the right policies for our industries and sectors.

Finally, underpinning this commitment to sectoral development must be a clear focus on healthy markets – open and competitive, where insurgents can challenge incumbents, innovation and long term value creation are rewarded, and consumers – through their choices and their voices – have sufficient power to shape markets. More competition to create the disciplines at home needed for success in global markets.

Labour has some serious thinking to do as a result of the changing landscape – I’m determined we do so with an open mind and that we learn the lessons of the past with a clear instinct that the old solutions won’t wash. This is why we argue for modernisation and reform. The prize is a UK economy that is richer, fairer and more productive; positioned to succeed in the growing markets of the future with the right capabilities to do so. I look forward to hearing your thoughts on how we can work together to achieve this.

CBI’s “Vision for rebalancing” report – response from Chuka Umunna

Friday, December 30th, 2011

Commenting on the CBI’s “Vision for rebalancing” report published today, Labour’s Shadow Business Secretary Chuka Umunna MP said:

“The CBI is correct to say that we must rebalance our economy which has become too concentrated in too few sectors, and in too few regions of the economy over the last 40 years under different governments.

“Government must use all the levers at its disposal to build a new economy and encourage businesses to invest for the long term so we can exploit the new high growth economies the CBI refers. But instead of providing the leadership and certainty needed to give companies the confidence to invest – the Tory led government has deterred investment by, for example, cutting investment allowances on capital expenditure over £25,000 and wrecking future success in our green industries with their disastrous changes to feed in tariffs.

“The CBI higlights the importance of infrastructure investment which is why we had been saying for months that the government should implement Labour’s five point plan for growth and jobs to kick start the recovery which includes bringing forward long-term investment projects.

“A new economy requires an active government working in partnership with British business to meet the aspirations of the British people – actions speak louder than words and by failing to provide leadership and to promote the certainty businesses need to invest, this out of touch government is failing to meet the challenges facing businesses and the UK economy.”