Marrying social justice and economic efficiency: statecraft and skills policy under Labour

The period preceding the recession saw unprecedented investment in education and skills, including a raft of targets to increase the qualification rates of the population. This impressive effort was at the heart of Labour’s attempt to marry social justice with economic efficiency. Skills, it was said, would help drive social mobility and at the same time increase the competitiveness of the economy by providing businesses with an educated workforce that could innovate and raise productivity.

Yet the results of this approach were disappointing. Demand for higher level skills has been increasing since the 1980s, but low wage, low skilled work persists, contributing to stubbornly high levels of in-work poverty and stagnant social mobility. This is because a significant minority of UK firms adopt low value, low productivity business strategies: nearly half of jobs in the UK do not require post-secondary education and a third of firms offer no training to staff.

In an era of fiscal austerity and with little sign that the Coalition is changing tack on skills policy, it’s important to face up to the fact that, despite the cacophony of calls for ‘more skills’ from some employer representatives, many of these firms are simply not using the skills and talents of the workforce. The problem is mirrored across the pond, where recent analysis shows that minimum wage workers are better qualified than ever before.

This policy conundrum was clearly not for want of good intentions: spending on education and training rose by an average of 3.9% a year under Labour compared to just 1.5% a year under the previous Conservative administration, with further education benefitting from particularly large increases. A new report by IPPR argues that the disappointments of skills policy should instead be understood as a problem of statecraft – specifically that Labour’s reluctance to intervene in the market led to an overreliance on the state to fill the gap.

Labour, like the Conservative government before it, left decisions about training to the market, with weak requirements for employers to train even in sectors where low professional standards pose a risk to consumer wellbeing, such as the fitness industry and social care. Reluctant to be seen to be ‘meddling’ in the affairs of businesses, ministers shied away from intervening at the level of the firm or sector, to the extent that business support services ended up weak and generic. New Sector Skills Councils were given a remit only to articulate employer demand for skills, rather than drive improvements in business performance and job quality within their sectors.

Labour saw its role as generating transformational state action designed to support individuals to achieve their potential and respond to economic uncertainty. But clunky, large scale state-led workforce training programmes such as Train to Gain epitomised the problem with an entirely state-led approach. Train to Gain was based on low level NVQs that were cheap and could be delivered on a mass scale but did little to support employees’ prospects in the labour market. Developed largely without involvement from employer or employee representatives, Train to Gain had little impact on employers’ decisions to train and often subsidised existing low-level training by firms.

The narrow focus on either state-based or market-based change under Conservative, Labour and Coalition administrations means that not enough attention is paid to the quality of training, whether qualifications translate into better jobs and higher wages, and whether and how skills are used and managed in the labour market.

Our main competitors in northern Europe take a much deeper view of change, with powerful institutions that drive improvements in their sectors and supply chains by regulating training and offering tailored business support. These institutions are supported by state-backed finance, but they are nothing like the complex gaggle of quangos that make up the English skills system.

Built on partnerships between the state, unions and employer associations, skills bodies in the German-speaking and Scandinavian countries (among others) are deeply democratic. The social partners together determine labour market regulation and develop vocational education and training programmes, ensuring that the different interests of both employers and employees are genuinely represented and negotiated. Partnership bodies at sector and local level also support businesses to innovate, grow, and compete in higher value markets that support better quality jobs.

This not only explains why the German and Nordic firms are better at competing global markets in higher value sectors such as manufacturing. Greater employer commitment to training and workforce development also means that citizens in these countries receive a better service in domestic markets such as social care, construction and the fitness industry, while workers in those sectors also have more opportunities to use and develop their skills. Levels of training in these countries are higher on average than in the UK, and comparable firms and sectors also train more than their British counterparts.

Institutional change is a pre-condition for improving business performance and job quality in England. IPPR calls for reforms to democratise skills bodies, creating active partnerships between workers and businesses to improve job quality and business performance. The fragmented nature of the union movement and historic antagonism among many employer associations and unions towards partnership approaches mean ‘big bang’ reforms are unlikely to work, however. Instead, this requires creative experimentation with reforms carried out on an evolutionary basis.

New business support services, delivered by local and sectoral bodies that have operational knowledge of the firms and employees they represent, would offer a something for something deal to engage employers. To access public money for training and business support, employers would have to join local employer associations and commit to raising wages for trained staff or sharing the cost of training. But the specific deal would be left to local partners and employers to negotiate, taking skills policy and funding out of the hands of centralised quangos.

The lesson is that neither market nor state is sufficient in generating economic success or social justice. Employers, employees and the state have joint responsibility for developing and using skills in ways that improve productivity and create more opportunities for people to use their skills in the workplace. This demands a shift away from the state/market paradigm towards more collaborative and experimental approaches rooted in democratic partnerships between the different interests in the economy.

Tess Lanning is a research fellow at IPPR and co-author of the report ‘No Train No Gain: Beyond free market and state-led skills policy’, available here.