Thank you for inviting me to come and speak to you this morning.
I can think of no better place to come and give this speech than one of the world’s leading providers of business news.
And we should be proud that Bloomberg’s European headquarters are located in our financial centre, indeed the world’s financial centre, here in the City of London.
We meet at a time when many of those who watch and subscribe to Bloomberg services will tell you how very hard it is being in business today.
That’s what so many businesses owners and business leaders tell me. They tell me they can’t remember another time when it was so difficult to grow their businesses. They tell me it is harder to build market share, harder to take on new employees, harder to deliver for their families and therefore, harder to provide for ou r country as a whole.
We have got to ask why this is.
We – policy makers and people in business – need to consider how we address this together.
We all know the situation demands urgency.
Our domestic economy has faltered. In a marked change of tone, the government is now predicting the worst and seeking to attribute blame, wholesale, to the Eurozone crisis. But our economy was faltering long before the crisis became such an issue, with stagnant growth for over 12 months.
The situation is likely to become more difficult going forward but this has been compounded by the government’s too far too fast approach to deficit reduction.
And we have seen dither and delay at an international level in resolving that crisis. Contrast the G20 of over a week ago with the example set at the April 2009 gathering in London. Then we saw concrete action thanks in part to the efforts of British government. Today one feels a huge sense of frustration th at this is not happening at the moment.
Now I could spend my time talking to you about the government’s failure to get our economy moving again here and the failure of the international community to resolve the ongoing problems on the continent.
That is what you would expect but that is not what I’m here to talk about today.
We have put forward a 5 point plan to get demand and growth back into our economy – including tax breaks for small businesses taking on extra workers, a temporary VAT cut, and a tax on bank bonuses to fund 100,000 jobs for young people. This is a plan that we say should be implemented immediately.
But the challenge is more than restoring the economy to growth in the next year – as vital as that is. We also need to confront head-on some of the longer-term issues exposed by the global financial crisis if we are to take full advantage of the opportunities of tomorrow – that is what I want to focus on.
During Labour’ s time in office we saw real growth in the economy leading to real improvements in living standards for people at home.
1.1 million businesses were created under the Labour Government and, on leaving office, the World Bank ranked the UK fourth in the world, ahead of the US and first amongst European countries, for ‘ease of doing business’.
We became and we still are a party of enterprise. We are proud to play our part in helping British business compete across the world. But the financial crisis exposed some long-term structural issues in our economy that cannot be ignored.
Growth was too concentrated in too few sectors, and in too few regions of the economy.
Despite a large finance sector, levels of investment in British business have been low compared with many of our competitors.
And many people have come to feel that, in the good times the economy did not really work for them, while in the bad times they were being made to carry much of the risk.
The truth is that not enough of the reward from rising productivity found its way into the wage packets of average earners.
Low earners did see improvement through the minimum wage and other measures Labour introduced. High earners saw their wages soar to such an extent that City professionals surveyed for a St Paul’s Institute report published last week say they think they are paid too much. But middle earners actually saw their wages stagnate from 2003.
So although we achieved a huge amount in office, lifting millions out of poverty, times have changed and new challenges present themselves. The question is: how we respond to this?
Perhaps the biggest challenge is the new world we live in.
It is a far more globalised and competitive abroad than it was when we were returned to office in 1997. If you look at the economies that are growing today and the businesses that are flourishing, you cannot help but see that it is the developing economies that are on the rise.
By 2050 the combined GDP of the seven largest developing economies is expected to be 50% higher than those of the current G7, with China forecast to overtake the US as the world’s largest economy by 2025 or even earlier.
Some watch the rise of these economies, China in particular, and see them as a threat to the established order. They are worried that the success of the new can only mean the failure of the old.
On the contrary, rising incomes in developing countries around the world offer whole new markets for British goods and services and we must be ready to exploit those opportunities that emerge.
Now is not a time to retreat and hunker down – we must be resolutely open for business, competing on the basis of our comparative advantage in high-value, high-skill sectors.
In many sectors – from advanced manufacturing to business services, from architecture to the creative industries, from pharmaceuticals to financial services – we already have companies that can compete with any in the world.
These British businesses make us proud. It is not that we don’t have examples of success to build on. We do.
But we need even more of our economy to look like this. We need more firms in more sectors at the leading edge in growing markets. This way we will see better outcomes being delivered at home and more competitiveness abroad.
To get there, we need a different approach.
We must reshape our economy for new demands and to create new opportunities. We must build a New Economy.
What is the Government doing? It has adopted precisely the wrong approach. It is making the wrong choices for our economy in the short term, choking off the recovery. But it is also making the wrong choices for Britain in the long term too.
Take the green economy – critical to our future growth. Where other countries are powering ahead, our Government’s lack of ambition and mixed messages are deterring investment.
Last year, the UK slumped from being third in the world in terms of investment in green growth, to only 13th place. The respected US Pew Environment Group blamed this on the uncertainty surrounding government policy.
For example, it has wrecked the Feed-in-Tariff system Labour established, leading to cancelled solar panel orders, threatening the viability of the solar industry. It has undermined developments in carbon capture and storage technology by cancelling the UK’s first carbon cap ture demonstration project at Longannet and failing to set out plans for the other three projects we were expecting. What message does this send to potential investors?
Leadership in science will be critical to our nation’s future. Scientific advance is a route to product innovation which helps us compete. Yet, new analysis by the House of Commons Library that we have published today undermines Government claims to be protecting science funding – it shows the total science and research budget is being cut by 15 per cent over the spending review period. How will this help ensure we innovate?
Above all, the Government is cutting investment in the very people we are looking to grow our economy in the future.
As so many CEOs tell me, our people are our greatest asset. They are right.
With competition in global markets increasing as I have described, we cannot afford to waste the talents of anyone. Making the most of all of our nation’s talents is not a charitable endeavour or a social policy – it is an economic imperative.
I am proud of our record on skills. Labour rescued apprenticeships from the scrapheap, quadrupling numbers from 65,000 to a record 280,000 young people doing apprenticeships a year. When we left office, there were two million people in higher education, more than ever before.
But there is far more to do.
Businesses – large and small – tell us they need better trained employees, ready and able to adapt to the new challenges – employees capable of taking on the best in the world. At the same time, half of all employees say that they have more to give – that their existing skills are under-utilised by their employers.
In this context, the government’s failure to secure more apprenticeships for young people under 25 not already in work is revealed for what it truly is: a terrible waste of the talent of this nation.
And the Government’s botched reforms to Higher Edu cation make no sense either – an unnecessary distraction for universities and an unnecessary deterrent for students. We said the tripling of tuition fees would put off students from applying to university and saddle them with excessive debts – early figures already show applications down by 12 per cent across the board.
We know that we did not get everything right in government. But the current Government is compounding its short term errors by making huge long term errors too.
Productive businesses creating long term wealth
So Britain needs a Government that is committed to economic renewal, committed to innovation, committed to training and to development.
More importantly, Britain also needs businesses that are committed to these things too.
Recently, in his speech to the Labour Party Conference, Ed Miliband described how the demand for a fast buck and immediate profit can often stand in the way of long-term business goals and responsible business pra ctice. Many leading business people have been saying similar things too.
Barclay’s Bob Diamond in his BBC Business Lecture called for British businesses to increase profits in a way that creates sustainable shareholder value in the long term, not just short-term gain.
He’s not alone.
McKinsey Consulting’s Dominic Barton has also argued strongly for a shift away from “quarterly capitalism”, towards a focus on long term profitability and a much broader view of value creation serving the interests of all major stakeholders – employees, suppliers, customers, creditors, communities, the environment. He is adamant this is not at odds with the goal of maximizing corporate value; he says it’s essential to achieving that goal.
Harvard University’s Mark Kramer and Michael Porter wrote a seminal piece in the Havard Business Review earlier this year and put it like this:
“At a very basic level, the competitiveness of a company and the health of the communities around it are closely intertwined. A business needs a successful community, not only to create demand for its products but also to provide critical pu blic assets and a supportive environment. A community needs successful businesses to provide jobs and wealth creation opportunities for its citizens.”
I share this view.
The work of people like Bob, Dominic, Mark and Michael illustrates the absurdity of claiming that ours is an anti business agenda – it is business’ agenda. How does this all translate?
Consider the day to day in a business. Happy, healthy, employees who arrive at work every day and are made to feel like they have a stake in the business, rather than being treated like cogs in a wheel, make for more productive employees. This in turn reduces absenteeism and lost work days. It is good for business. As management guru Charles Handy says, “a good business is a community with a purpose”.
A dedication to environmental sustainability can work in the same way. It is a moral claim. Resources on our planet are finite and scarce. But it is also good business. It can provide the spur and the focus for radical innovation in goods and services, to serve growing global as well as domestic markets. Viewed this way, the transition to a post carbon economy becomes an opportunity to be embraced, not a burden to be resisted.
Let’s think about suppliers and customers too. Squeezing your supply chain might increase profits in the short term. But in the long term, investing in it is likely to improve product quality, while creating social and economic value down the length of the chain.
Around Britain, forward thinking, dynamic and creative firms are already pursuing business models that embody these ambitions.
They know their people matter. They engage them.
They know that their business cannot stand aside from their community – local and global; that they have responsibilities to others and to future generations.
The best of British businesses know the value of building for the long term, of investing. They know the value of nurturing t heir supply chains.
They don’t rest on their laurels. They innovate, finding inventive ways to solve problems old and new and innovation is key to exploiting new markets.
They know the value of building long term relationships with their customers.
They understand the importance of consistency between what they say and what they do – all the way through their supply chains.
And they understand that doing right by their customers, their staff and their communities is not an avoidable cost but at the very core of their strategy and a source of competitive advantage.
Businesses pursue these kinds of long term, inclusive and socially responsible strategies because it is good for them. And it is good for the rest of us too.
The more businesses that pursue these kinds of strategies, the closer we will get to our vision of the good society. A Britain in which business prospers will be a Britain in which we all flourish together.
These long-term, productive business models, cultures and practices are at the core of Labour’s vision for the New Economy we need.
But they are also at the core of Labour’s vision for our society. If markets are generating greater wealth and distributing it efficiently, fewer people will have to rely on the state.
If companies are developing the skills of their employees, the skills acquired are more likely to be appropriate to the needs of the business.
If businesses are building sustainability into their business models of their own choice, they are more likely to do so in a way that adds more value than regulatory intervention.
But it isn’t easy. If the benefits of pursuing these kinds of long-term, productive business strategies were always self evident and easy to realise, even more companies would be doing so already.
There can be significant barriers to doing so.
The finance needed for long-term investment might not be there. Many SMEs with sound businesses tell me that this is their experience.
The market might hamper not encourage an innovative product or service. Particular taxes might be distorting and encouraging predatory behaviour.
There might be coordination failures across a sector or a region that no individual business could overcome. Dominant incumbents might block the entry of plucky insurgents.
None of us should stand idly by when responsible, productive businesses face thes e obstacles. We should all be proudly and unashamedly engaged.
Not working for one business over another.
Not through some sort of beauty parade, dividing the sheep from the goats.
Not by adopting a statist approach nor by picking winners, 1970s style. Not by telling businesses what to do.
But as Ed Miliband argued in his conference speech, in the way incentives are structured, in the types of behaviours that are supported: in the rules of the game. We can’t afford not to do it – it’s vital to paying our way in the world and it’s vital to an economy that works for all.
It is framing the rules of the game so that business which is most productive and most socially valuable is also most profitable.
From procurement to taxation; from competition to regional policy; from accountancy rules to governance arrangements; from financial reform to sectoral strategies, governments shape markets. They can’t help it. They often do it badly, unknowingly, randomly and clumsily. But they can also do it better.
Procurement strategies can be narrow in their focus on cost, or broad in their understanding of value.
They can encourage firms to train apprentices as we did with Olympic contracts, or ignore this as the Government has done.
They can offer markets for innovative products and services as we did when we introduced the Small Business Research Initiative, or they can reinforce the status quo.
This is why I have called on the Government to start using its procurement power strategically – to get more apprentices trained; to expand the value of contracts going to high-growth potential, innovative companies; to take account of the impact on employment when awarding contracts; and to signal future intentions so that business can plan ahead, develop the capabilities, build the capacity and nurture the supply chains that are needed. We don’t need to have another fiasco like Bombardier.
Sectoral strategies – developed with industry but given the full backing of government – can give business certainty. They help firms to plan, they give confidence to invest.
They help those leading divisions of global companies to argue for more investment in the UK – in new production facilities, in R and D capabilities – knowing that the Government is committed to the industry. It is what we did in the car industry through the Automotive Council and the Technology Strategy Boa rd.
It is what governments across the world are doing and have done for many years – from the US to China and Germany to Singapore. In these countries, active governments have created markets for innovative goods and services, guaranteed finance, and helped to coordinate across sectors. It is what Labour in its later years in government started to do, particularly under Peter Mandelson at BIS, working actively with business to develop sectors of the future. Done right, with business, it creates long term certainty and confidence.
In addition, government can provide incentives for long-term investment through the tax system or they can turn a blind eye to whether or not firms choose to invest. This is why we said it was a step in the wrong direction for this Government to bring down capital allowances.
And, just as clumsy regulation or clumsy enforcement can undermine business, smart regulation creates value. It makes markets function properly and safely i n the interests of all. Without it you risk the bad undercutting the good. It prevents, through a strong and robust competition regime, new entrants from being squeezed out by established players. And it can drive innovation by creating new markets.
Take our establishment of the future target for zero carbon homes. With plenty of time for business to prepare, it fostered whole new markets across a range of activities from architects to building technologies, from renewable energy supply to carbon offset mechanisms, which did not exist before.
Markets are healthiest when power is distributed, when competitive pressure is intense, and when incentives to innovate are strong. That is why Ed Miliband has called for the end of the monopoly of the big six energies companies and a fairer deal for consumers. Healthy domestic markets are good for business – creating the disciplines at home that will drive success abroad – and good for Britain.
It is not just about getting the parts right. It is about the what we can do to foster the right kind of business culture this country needs.
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It is about seeing the policy environment from the perspective of the firm – standing in their shoes, understanding what is limiting the choices they can make, and understanding what – if anything – government can do.
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It is firm centred, rooted in a clear overall vision for the economy, connecting the policy framework to the value creating business models we want to encourage.
Let me be clear – I am not arguing that businesses should do the job of governments, or that the interests of business and government are always perfectly aligned. They are not.
And just as the actions of government are not always benign, neither is business. Sometimes business must be restrained, just as voters – and financial markets – provide a discipline to governments.
But Government must set the social priorities. If it does not, th e worst of the market will.
It is the strength of this common ground that cries out for a new partnership between productive business and active government, in the interests of all.
Let me finish by making this point: some say that in this era of globalisation and increased global competition, the UK’s decline is inevitable.
But we know it doesn’t have to be this way – we can and should aspire to more given our history as a country and a people.
We never got on by thinking small and being defeatist. It was in Britain that the Industrial Revolution began. We gave the world the steam engine then the jet engine, the internal combustion engine as well as the electric motor; the light bulb and the lawn mower, the cats’ eye and the corkscrew, the telephone and the television. It was British ingenuity that created the world wide web.
So as we look to the future, we should do so with confidence in our ability to succeed.
The scale of our task is a big one but so is our ambition. A transformed economy, producing better and fairer outcomes for all of our people, paying our way in the world and working to ensure this new era of globalisation delivers wealth and prosperity for all. A stronger, richer, more dynamic society as a result.
It is a prize worth striving for.
Thank you.