Why regional banks are radical, right and real

Last Thursday was a big day for the Labour Party. It was also a big day for my dad.

In an important speech to the British Chambers of Commerce, Ed Miliband outlined Labour’s plans for a network of local banks to back small business. In doing so, he gave an answer too many people have asked about Labour’s approach to our economy – well what would you do then?

It’s an answer my dad’s been waiting for. He runs a small (two-person) engineering firm in the West Midlands. He’s about to retire. But over the last twenty years he would have employed more people if he hadn’t been so isolated and so squeezed. It would have taken support and credit from an institution that knew his business.

On Thursday, Ed did more than just announce a new ‘policy’. The speech, and the work it drew from, marked a turn in how we conduct our political conversation. It was a move beyond merely diagnosing the problem and defining the ends we seek. It was a moment that talked about political action in a different way.

Of course, politics is about telling a compelling story about what’s wrong, and saying how you think things should be different. In the last few years, we’ve done both well. As Ed has argued, people are struggling because they’re disconnected from the firms and institutions that should provide work and support. We want to build one nation where people aren’t atomized and ignored, where we earn and belong by feeling part of something bigger than themselves.

But the last Labour administration and this coalition government forgot the bit in the middle: how you act. We, like this government, imagined the answer lay in a combination of the free market, transfer payments and government-imposed targets.

But faith in the ideology of the market doesn’t say what kind of market people need. We end up being dominated by the self-interest of people running international financial institutions instead of listening to local consumers or workers. Trust in regulation doesn’t guide people working in local institutions about how to implement government commands, as the scandal in the NHS in South Staffordshire shows. It is our governments’ reliance on managerialism and the ideology of the market that has created the distrust in politics so many people now feel.

A different idea has animated Labour’s renewal, in the seminars and pamphlets of the policy review and the new ways we’ve been campaigning across the country.

It’s this: to build a society where people earn and belong, where people feel part of one nation, we need places where people get together to create and act towards a common purpose. The common good isn’t something imposed by national politicians or the laws of the market. It comes from relationships and arguments, from the conflict and conversation that only happens in organisations rooted in the towns and cities of the country. As I argued in a recent Fabian pamphlet, it’s about building institutions, then Letting Go.

Regional banks put that idea into practice. They recognize that national economic growth can’t be created by manipulating big numbers about the money supply, tax or public spending. It relies on the condition of the local economy in the cities, towns and counties of the country.

Vibrant local economies need to be supported town by town, city by city. The lesson from the history of every instance of economic success is that good jobs and real growth depend on collective institutions that lend and train. They rely on institutions guided by people with experience of local circumstances. It’s about people trusting each other, then working together to unlock the passion we have for what we do and the pride we have in the place we work and live.

As Ed put it, the job of government is to ‘build new institutions out of the rubble of the old’. The role of the central state is to make sure those institutions governed by a balance of interests and help them access national capital markets. But then it’s to make sure they do their own thing.

For me, Thursday’s most radical moment came in an obscure sentence in the appendix to the brilliant report of Labour’s task force on small businesses that which Chuka Umuna and Ed Miliband launched alongside the speech. The sentence says that government should insist each regional bank has a ‘mandate to promote employment and economic growth through profitable lending’. Government would insist each was answerable to local interests. But then it would ensure each institution was ‘largely left to run itself’.

The report was Labour policy-making at its best. In contrast to this government’s practice of making policy on the hoof, it came from a sustained argument involving business, unions and local leaders about the conditions needed for local economic growth. It’s about politics as convening a conversation with people who have interests and experience, not just a chat between three people in the leaders’ office about hitting the next headline. The result is a report that could guide Labour in government better than anything Whitehall could have produced.

But if we get our story straight, all this could play brilliantly on the doorstep as well.

This government has cut spending in way that hasn’t only squeezed public servants but undermined the conditions that create investment in the economy. The coalition’s late answer to our sustained economic crisis is to print more money and throw cash at big infrastructure projects like airport expansion and HS2. Neither will do.

Labour is telling a different story. It’s about getting people together in the places they live in institutions that make a tangible difference to the economic life of a community. It’s a story that resonates with people like my father, who run or want to work for small firms in marginal constituencies like the one he lives in.

Regional banks aren’t the silver bullet which will win Labour the next election. But if we stick to the story, they’re the start of an approach to our politics and economy that will.