Where New Labour succeeded and failed on enterprise

By Luke Bozier and Alex Smith

Last time, we set out why we believe enterprise can be a key driver of social mobility and why, in the new economy, Labour must be unashamedly pro-business. We’re grateful for the many emails and messages of support we’ve received from across the party since then.

Our task with this pamphlet is to develop new thinking on the many forms of enterprise, and to help ensure that Labour has a narrative and a programme for government that understands the threats and harnesses the opportunities of our new economic, social and educational reality.

Since 1997, successive Labour governments have taken enterprise – and the potential manifold social benefits of small enterprise in particular – seriously enough to formulate a number of key policies. In many ways, the party has already changed Britain’s business culture: efforts were made early on after 1997 to look at cultural, legal and other barriers to small enterprise in the UK as part of the wider New Labour effort to modernise the British economy.

Internally, the party leadership also went to pains to express support for enterprise. The re-writing of Labour’s constitution in the 1990s, and indeed the 1997 election manifesto, put “a commitment to enterprise alongside the commitment to justice”. That same manifesto committed the Labour government to cutting red tape, to improving training and advice to small businesspeople through Business Link, for instance, and to providing more support for high-tech start-ups.

However, despite New Labour’s best efforts during its first term, enterprise in Britain isn’t currently as strong or dynamic as it should be. Unemployment amongst 16 to 24 year olds – a demographic that the first New Labour government sought to target with its pro-enterprise policies – has remained stubbornly, worryingly high; and economic growth remains at a standstill. Compared to other leading industrial economies with strong small enterprise and high-quality manufacturing cultures – Germany, for example, with strong recent growth – the UK economy just isn’t performing well.

When you consider that the majority of new jobs created anywhere in the industrial world are created by small enterprises (65% of new jobs in Britain are created by SMEs according to the CBI), you can’t help but wonder how different it might be today if we’d been more imaginative with our enterprise policies after 1997.

Yes, between 1997 and 2010 it became easier to set up a small business: it’s now possible to register a limited company in just a few hours, for example. And that it’s now possible for companies to submit accounts and tax returns via the web can help entrepreneurs saves time and money at a crucial phase in their business development.

But despite policies to cut red tape, not enough was done by the last Labour government to genuinely boost enterprise and to re-tool Britain’s enterprise culture for the twenty first century. Lip service was paid to supporting high-tech, green and new media start-ups, but too few resources and incentives were put in place to help people with good ideas and dedication to build businesses. Labour made some headway in improving the opportunities for 16-24 year olds to be entrepreneurial, and set the scene for supporting initiatives like “Make Your Mark” to take hold in schools across the country. It’s not hard, though, to look at these initiatives and think that a more energetic and creative approach would have been more successful.

And what about university places? Was it really good economics, or good educational and social policy, to dictate that 50% of young people should attend university? The net effect – clearly visible in foresight as well as hindsight – was that we ended up with a culture of targets rather than real, long-lasting attainment amongst pupils; a bloated and over-expensive university system, with degrees losing value in the marketplace; prohibitive tuition fees; and too little value placed on the type of manual and vocational professions that are vital to our economy and had for so long been the driver of opportunity and worth for the working and lower middle classes.

With graduate unemployment now higher than at any time since the Major years, Labour should have done more to develop enterprise as a realistic third career option for 16 and 18-year-olds (alongside university and apprenticeships); it’s something that could have spurred greater youth employment, expansion of opportunity and stronger economic growth.

It’s easy to look back and point fingers, but it’s also important to understand how things could’ve been done differently. And it’s important to look elsewhere to learn lessons. Since the mid-1990s authorities in Silicon Valley and Israel have supported, for instance, the creation of digital industries. Jobs and wealth creation followed. But the UK has been found wanting: despite our best recent efforts to re-brand Old Street in east London as the ‘Silicon Roundabout’, it only ever remained an afterthought to assuage our insecurity at not having our own global industry leader.

It didn’t have to be that way. The last Labour government missed a valuable opportunity to amend this deficiency, and to diversify our economy. Many of the web’s most successful companies were launched with very little money (consider the recent success of Tweetdeck); Labour could and should have set up a government-backed angel investment fund, managed by people from the industry, investing small amounts in hundreds of early-stage and exciting new companies in the online/digital/new media space. It’s a lesson the party should seek to remember as it carries out its policy review.

As we mentioned last week, being overly close to big business may also have distracted ministers in the last Labour government from looking further down the business chain when developing enterprise policies. Yes, it was important for both the style and the substance of the last government that the party focus some attention on the large corporations that do so much to employ so many and contribute so much to the national kitty, and you can’t be the moderate party of government in the 21st century without considering the interests of the large companies that provide the livelihoods of millions of families. However, it was a mistake not to put more emphasis on raising the number of small businesses in Britain, and encouraging and incentivising young people to create their own jobs when leaving school.

During and after the credit crunch and recession, the government ploughed billions into supporting businesses to stay liquid when the banks stopped lending. That decision is still playing out, politically as well as economically. But too little was done at this time to support people and groups of people who could have created thousands of new innovative and potentially high-value, small businesses in the pockets of the nation that suffered worst from recession; to help unleash a new small business boom.

All of this – the lack of adequate energy and ideas for promoting the creation of small businesses and self-employment; the cosiness to big business over small; and the approach to university as a panacea to employment, social mobility and careers – demonstrates how the last generation of Labour governments was myopic when it came to business and enterprise.

Despite best efforts, that old New Labour view of enterprise, distorted in favour of large companies, skewed in favour of appeasing the right-wing press with a short-sighted targets culture, led to missed opportunities further down the business ecosystem – opportunities which could have had real beneficial impacts on our economy and in the lives of the people our party seeks to represent.