Labour’s “business problem” shows why a new approach is needed

Last summer, the Daily Telegraph offered advice to its readers on how to “Miliband-proof” their investments in the event of a Labour victory in May. The paper recommended “six funds to beat ‘Red Ed’” – proof that the media caricature of the Labour party as fundamentally a bad thing for British business is alive and well.

It was never meant to be this way. The core of Labour’s argument about creating a ‘responsible capitalism’ was that it was ‘anti-business as usual, not anti-business’. The financial crisis had made stark the limitations of New Labour’s economic strategy and being more ‘hands on with the market’ was not just the heartfelt desire of Labour’s left, but advocated by former New Labour ultras like James Purnell and David Sainsbury.

But the perception that Labour has a ‘business problem’ is proving to be a stubborn feature of political debate and there are concerns of a repeat of the 2010 election campaign where not a single major business endorsed Labour. How did we get here? Partly it is inevitable: if you are explicitly ‘anti-business as usual’, then there are going to be some ruffled feathers amongst the people for whom business as usual was doing rather nicely.

But this isn’t the whole story. While Labour has been in opposition it has devoted a great deal of energy to describing how it intends to make the UK economy fairer, with signature policy measures like raising the minimum wage, freezing energy prices, reintroducing the 50p top rate of tax and curbing excessive executive pay. But the party has been less explicit about is how it intends to make the UK economy richer. In reality, the party has put forward a number of sensible proposals for helping business to grow, with reviews on infrastructure, skills, industrial strategy and funding for small and medium-sized enterprises. What’s more, in stark contrast to the rhetoric of the current government, Labour also has naturally ‘business-friendly’ positions on a number of crucial issues like Europe and immigration.

Here is a strong basis for a positive business agenda. Yet these have felt like less of a political priority, technocratic add-ons to the main story. Ultimately, Labour’s headline policy interventions have been too easy for critics to cast as red in tooth and claw, crowding out the many commonalities that exist between the party’s agenda and what business wants. Labour is missing a trick, as within the idea of ‘responsible capitalism’ is the idea of balanced, sustainable growth, not just fairness.

There are good reasons why a new approach to business – where concerns around economic long-termism, public health, environmental sustainability and strong local communities become integral to a profitable British business model – should appeal to both the political instincts of the left and to the bottom line of businesses.

For business, maintaining a sustainable supply chain, a healthy customer base, a happy work force and a cohesive community to operate in are not just nice things to have but fundamental to profitability in the long term. They are also increasingly important to consumers.

For Labour, it speaks to the two key insights from the party’s recent period in opposition. First, there has been a reckoning with the limits of state-led redistribution as a mechanism for achieving social goals. Instead, social policy debate in recent years has been focused on moving ‘upstream’: preventing harms happening in the first place, rather than going through the expensive and cumbersome process of trying to repair the damage after the event. Second, the left has recognised that it too readily seeks to do things ‘to’ people, rather than attempting to achieve its goals in cooperation and partnership.

These insights have informed a shift in thinking to large swathes of public policy but have yet to be applied to the party’s approach to business. A Labour government is going to need all the help it can get to achieve its social mission and so needs business as an ally, not an enemy. Rather than seeing markets as needing regulation to prevent them being socially destructive, the left needs a greater focus on how they can be helped to create social good.

But there are currently two major obstacles to this happening. The first is relationships. Simply put, business doesn’t trust Labour. The second obstacle is perverse incentives. Short-termism is entrenched in parts of the British economy and damaging to our competitiveness. But maximising profit in the short term is often a rational response to the institutional incentives which present themselves to business.

So a Labour government would need to start by making it clear that it will take business to heart, not keep it at arm’s length. It then needs to focus its agenda on working with business to make it easier to do the right thing.

It should do this by making, much as David Cameron did to the Liberal Democrats in May 2010, a “big, open and comprehensive offer” to business on taking office that it will seek to govern in coalition with the private sector. This partnership would be founded on a clear set of principles of the government’s vision for the economy. These would be enshrined in a charter outlining what business could expect of government and what government could expect of business.

A new Fabian report published today sets out some ideas to form the basis of this charter, though agreement on the specifics is not what’s most important at this stage. What matters most is for Labour to engage business in dialogue and then ‘co-produce’ a set of solutions that can achieve its vision of a more responsible capitalism. Strong relationships are crucial to the effective delivery of this agenda. Too often, current debate has been a dialogue of the deaf, with each side sceptical of each other’s motives or expertise, rather than developing the common ground which exists but is often obscured.