New ideas for Labour’s fresh economy

By James Frith

Governments don’t like risk but growth economies need risk takers. So why is the default setting for debate on the needs of business stuck on red tape?

Small businesses are not just the engine rooms of an economy or one needing to grow. They are the nimble footed, responsive and resilient matter that help protect a stalled economy from falling back into recession and hold the potential to take an economy from good to great. Problems with cash ﬒ow, investment, the cost of recruiting talented people, and getting paid on time risk closing businesses, so causing a rise in local unemployment. With over 75% of the UK economy relying on small ï¬rms, the problems they overcome go further than any government policy to retain people in work, so protecting against greater unemployment.

Let me suggest thermal economics here, an economic equivalent to what physicists refer to as thermal expansion which can be described as: the general increase in the volume of a material as its temperature is increased. Our future economy relies on sectors which will expand in direct accordance with the attention they receive – not heat but investment.

Investment is not just money but priority and attention. The more time spent in research and development (r&d) the greater the prospect, potential and impact of the product or the scope of the industry in question. Concentrating on addressing this can provide Labour with a renewed economic vigour and a modern application of a Keynesian economic support for business. This direction would cultivate higher levels of employment, arrive at inventive solutions to modern life and better compete globally with emerging high spec technical, digital industries and manufacturing or green futures sectors getting the support they need. These sectors reward high levels of investment with high growth and increased employment.

Labour, as Her Majesty’s Alternative should outline investment plans to help create and sustain these fresh British economies. Labour must broaden its conversation with business. This is not about getting close to business but a closer understanding of the daily experience of running a business.

Labour’s record in government from 1997 to 2010 is a proud one in which Britain enjoyed more openness, greater prosperity and fairness. Indeed, at its most radical, Labour prevented a great depression with its swift, clear and precise recapitalising of the banks. Much of Britain’s improved settlement enjoyed by many during this period is now at risk by the Tory disassembling underway.

A swift return to power for Labour has to be our priority. Re﬒ections on most recent period of government provide us with new perspectives.

During Labour’s period of government, enterprise, aspiration and economic growth were the returns for the early prudence demonstrated in the ï¬rst term. The Labour government enjoyed the taxes taken from the city’s high value risk, ï¬nancial trading and booming house market. It also oversaw a public and unhealthy culture of large private borrowing against in﬒ated home values fueling weekend spending in out of town retail parks. This growth in consumption helped economic growth, the en masse purchase of furniture, white goods etc will always be a key part of any macro economic concern, but the borrowing by government and its citizens was never sustainable. It was an error to suggest boom came without bust, that spending came without a bill and appear to afï¬rm a view that high levels of borrowing, by us all, was sustainable.

Now, whilst Tory central and local governments line up to hand out private contracts for public services, Labour should provide a fresh approach to economic growth and public services and begin by offering a covenant to the nation.

Labour should write its public services covenant, setting out enshrined standards it would govern to deliver. This is an advance on the public, private funding models often far too heavily weighted in favour of the private capital investor. A balanced public and private funding approach provides the healthiest prospect for sustained investment in public services and aid economic growth. It is a Labour mind that agrees that towns shouldn’t have to wait endlessly for its hospital, new school or walk in medical centre. These funding arrangements shouldn’t come with a ten year proï¬t making sting in their tail for the taxpayer.

Deï¬ning Labour’s future offer should ensure any handsome agreements come with the state’s conscience. This includes determining sustainability, limiting proï¬ts, demanding reinvestment and focussing hard on competences to deliver minimum service levels as good or better than the entirely public provision preceding it. Labour’s covenant must include its unending support for workers and extend to a campaign to improve trade union representation in the private sector.

Labour must summon a dedicated enthusiasm and a central strategic vision to create new and private sector jobs if it is to offer a counter the shrinking proportion of private sector employees to public sector levels of employment over Labour’s decades in power. This will need to be a combination of investment in new economies, capital projects and public private partnership provision alongside a credible support for new economic and entrepreneurial activity. It is not enough to churn the money that exists or simply use government to plug future holes in demand.

New money is required from new ideas and a fresh approach to emerging sectors if Labour’s economic credibility is once again to become an attractive proposition for Britain.

This is an edited version of an essay from the book What Next For Labour out on Queensferry