Why people are still talking about Ed’s conference speech in Liverpool

Remember what happened in 2007 and 2008? We had the biggest global financial crisis since 1929. I am reminding you because lots of people have forgotten. For them, it’s back to business as usual.

What Ed Miliband did in his speech to the Labour Conference in Liverpool was make the stark point that this is not good enough.
And the people who want us to forget the lessons of 2008 hate it. They hate Ed for it because they thought they had got away with it.
Ed’s thesis did not come out of nowhere. In the immediate aftermath of the crash of Lehman Brothers and the nationalisation of Northern Rock, many argued that the system set up in the 1980s and maintained by Tory and Labour Governments in the UK since then had failed fundamentally.

These included Adair Turner, former Head of the CBI and Chairman of the Financial Services Authority, who said:

“…the more fundamental thing, especially for regulators like me, is to realise that what has occurred has imposed huge economic harm throughout the world and so we really do have to work out how to stop it happening again in five or ten years time. And that requires a very major reconstruct of the global financial regulatory system, and I don’t mean a minor adjustment.”

Another voice following the crash was that of Vince Cable, now Secretary of State for Business, who said of the failure in 2009:

“We have had a bonus culture in which profits were the only motivating factor, and bankers were getting enormous bonuses on the back of very highly leveraged deals. It’s also the case that even some of the bosses didn’t know the things they were trading in, because they had become so complicated. The banking regulators knew this and should have put a stop to it, but they didn’t.”

Senior figures in the Labour Party were also sounding warning notes. They all pointed out the short-termism of UK business, its failure to invest to produce and its addiction to instant profit-taking were central to our economic problems.

The Kraft takeover of Cadbury highlighted Britain’s inability to maintain and develop its leading businesses and its tendency to deliver control to overseas’ multinationals. Contrasts were drawn with the John Lewis Partnership and the Co-op, both of which followed distinct long-term business models and prospered during the recession of 2008-9.

Even David Cameron dallied with ideas of a more caring type of capitalism.

As a Minister in Peter Mandelson’s BIS, I saw at first hand the intense interest in improved stewardship models for investors and we investigated why it was that German and French companies have maintained ownership of many of their leading companies. We looked at company law changes to encourage long-term investment – such as those which exist in France. We looked at procurement rules to see why it was that the EU stopped us from selling our cars to the public sector in France but never allowed us to ensure that essential utilities stayed in British ownership.

As I worked with industrialists to overcome the consequences of the crash, I heard their frustration at the failure of British industry to maintain its manufacturing base. Frustration at skills shortages, procurement policies and lack of indigenous business investment combined to provide a chorus that we needed to do things differently.

And then, Labour lost the 2010 General Election. The central economic consequence of that defeat was that Government’s emphasis changed from an analysis of the long-term decline of UK business to a focus on deficit reduction at all costs. Despite superficial references to “rebalancing the economy”, the Government’s core belief is that if the deficit is reduced and Government gets out of the way, economic growth will follow.

The tragedy for the Liberal Democrats is that their leader on economic matters, Vince Cable, gained credit and respect for arguing for a policy which he has now jettisoned. The consequence is that he has lost the reputation he had established in opposition and is now a cheerleader for policies which, as we all know, are increasing unemployment and stifling growth.

Those of us who campaigned for Labour in the 1980s and 1990s learned the hard way that the economic settlement built during the 1980s was an enduring one: policies such as the demutualisation of building societies, subsidised sale of council houses and increased availability of cheap credit fuelled a consumer boom which was ultimately unsustainable but, politically, was very hard to argue against. Labour’s entirely understandable response was, ultimately, to come to support, not challenge, those policies.

The key is, however, that this was a settlement established by a Conservative Government and largely adopted by the Labour Governments up to the events of 2007-8. Labour’s mistake was to be so intimidated by the economic orthodoxy established during the Thatcher years as to come to believe that it was unchallengeable. We did not in Government, therefore, address the fundamental UK economic failures which made our economy vulnerable: over- dependence on financial services, over-availability of consumer credit, lack of long-term infrastructure investment in public housing, lack of appropriate business training and shortage of long-term lending for innovation.

This changed in 2007-8. The shock of the world banking crisis broke the consensus which had existed since the 1980s and created the intellectual space to address the fundamental weaknesses of that settlement. At last, we began to examine the short-termism of investment in the UK, the reasons for continuing skills shortages and the misguided concentration on sectors founded on unsustainable credit.

Labour began to believe that we could build an economy based on advanced manufacturing, green industries and innovation: the aerospace and automotive industries became examples of where the UK led and where Government worked with business to create the right conditions for sustainable investment.

The Conservative led Government has paid lip-service to the active industrial policy established by Labour since 2007-8. But it does not believe in it. It will not create an enduring settlement for the UK economy which will replace that established in the 1980s because it still believes in that settlement.

Ed Miliband’s vision is different. He understands that the key to building UK success is to move away from the model which created the conditions for the banking crisis of 2007-8. We need a model which is sustainable, economically and environmentally, and this depends upon fundamental change.

It means using finance, public and private, to encourage long-termism. It means focussing on educating young people in the skills needed to compete in a world where demand for products will be from all parts of the planet. It means working with the developing world to avoid the mistakes made by those who developed earlier.

It means a fundamental change which the Tories and those in the economic orthodoxy do not comprehend. It is why Ed Miliband is being attacked so vehemently by our opponents. It is why people are still talking about Ed’s conference speech in Liverpool.

Ian Lucas is the MP for Wrexham