Labour needs relentless focus on private sector growth

by John Denham

Over the last few months, Ed Miliband has set out three key challenges facing the country:

The problems faced by the “squeezed middle”, on low and middle incomes, who feel that the rewards of working hard are too little compared to those whose stellar salaries are not matched by results.

The threat to the British promise; our expectation that our children will enjoy better lives than we have done, because we cannot now pay our way in the world and create opportunities for them.

And the need to strengthen our communities, recognising that in myriad ways, not least in the way workplaces and working lives have changed, our confidence in a society of strong social institutions is being eroded.

We cannot deliver for the squeezed middle, revive the British promise or deliver strong communities without building an economy which looks and feels very different, with more opportunities to get better jobs.

We have developed an economy that is dangerously dependent on too many low skilled jobs. We cannot promise a better future for the next generation unless we can pay our way and create the skilled, well paid jobs which make the most of, and properly reward, their skills and abilities.

In building a different and stronger economy, the growth and jobs we need will be private sector growth and private sector jobs. The next Labour government will need to have a relentless, single-minded focus in creating the conditions for private sector growth. That means creating the conditions in which companies compete within fair markets and make profit by being the best in those competitive markets.

The Tory-Lib Dem notion is that support for market-led growth means that the ideal state is one in which government does as little as possible. In truth, markets are inevitably and unavoidably shaped by what governments do, and by what government doesn’t do.

The powers of government go way beyond establishing the right fiscal conditions for the macro-economy, or supply side measures like investment in skills and infrastructure. Indeed, without the effective use of all the tools available to government, supply side measures cannot have their full impact.

Government policies determine to a significant extent the size and shape of key domestic markets, the sectors which attract investment and the opportunities to ensure that research is exploited within the UK economy to develop successful companies with new products which can achieve world markets.

Government policies can shape the balance between short term pursuit of profits and the long term growth on which greater profits and greater tax income can be based.

Government can create market certainty or uncertainty. For years, uncertainty about nuclear power depressed investment in nuclear technology and nuclear related skills. As certainty grew, private investment grew and investment followed in the skills and technologies we need. Competition and pricing policy in energy can determine which technologies attract investment, and determine the opportunities for domestic companies to develop new and internationally competitive strengths in green technologies.

More generally, competition policy will set the balance between the smaller and the larger company – between banks and small businesses, between supermarkets and farmers, between the innovative insurgent company and the established market leaders.

Government procurement will play a significant role in deciding whether the benefits go only to established companies, or whether there is a guaranteed flow of funds – albeit on a small scale compared with overall investment – which can provide the opportunity for new and innovative companies, technologies and services.

Government regulation can create markets for new businesses and new solutions, as the establishment of the 3G standard for mobile phones gave the European mobile phone industry a significant market advantage over its rivals in other countries.

The establishment of a target for zero carbon homes fostered whole new markets across a range of business activities – from architects to building technologies, from renewable energy supply to carbon offset mechanisms, and the demand for new skills – which would not have otherwise existed.

Green technology examples also underline how little the current government understands of the impact of its policy decisions on the private sector. The zero homes policy has been abandoned, and feed-in tariffs for photo-voltaic installation have been slashed. The failure to create market certainty only damages private entrepreneurs and deters investors.

Labour came late to effective active government policies to create a balanced economy, less dependent on the financial services sector. But this Tory-led government does not grasp how active government policies can foster the right conditions for successful private companies to grow.

We are currently seeing a badly-managed retreat from an active government strategy – with business support dismantled, incoherent policy making in the green economy, uncertainty over key infrastructure like broadband, confusion over planning policies, reduced investment in regional growth and in the hi-tech economy. The government has scrapped regional development agencies, the strategic investment fund and grants for business investment, while it has effectively cut regional funding by two-thirds.

But an active government strategy should not be defined by either the amount of public money which is spent, nor just the public investments which are made.  When Vince Cable told the Financial Times that “growth is not something concocted by the state”, he was speaking both a self-evident truth, and demonstrating a profound and dangerous misunderstanding of how the most competitive economies will succeed.

Government cannot substitute its own activity for the growth that must come through the numerous decisions of private sector entrepreneurs and businesses. Nor can, or should, governments try to pick and foster individual companies for protected and special treatment.  But they can and should act as enablers and shapers of the conditions for that growth.

Governments also shape the institutions which support private companies. One of the tragic side effects of the bungled reform of higher education finance is that so many vice chancellors have been diverted from forging the business links and knowledge transfers which are so vital to growth, to trying to work out how to survive in the new regime.

In considering the future structure of banks, we will need to look at whether competition alone will meet the long standing gap of long term finance for regional economies and smaller companies – the federation of small business has called for regional equity funds to help SMEs. Can we learn from the USA and European countries how public and private together can create successful new lending institutions?

At the heart of an activist approach to business and enterprise policy is the recognition that, used wisely and intelligently, these areas of government influence can be used to create the markets which foster the successful companies, in the key sectors, which we need. It means understanding what business needs, and making sure that public policy is properly aligned, properly coordinated, to deliver the confidence and certainty business needs.

There are indeed huge opportunities within our grasp as a country, but getting bits of it right is not good enough – we need leadership and a coherent strategy as well. Leaving the rest to chance will not produce the growth that we need to pay our way in the future, or ensure that the British promise is realised for the next generation.

John Denham is Labour MP for Southampton Itchen and shadow secretary of state for business, innovation and skills.

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13 Responses to “Labour needs relentless focus on private sector growth”

  1. David Talbot says:

    If Denham is serious about Labour embracing the private sector, then it is to be welcomed.

    Labour, rightly or otherwise, gained a reputation over its 13 years in power as a party of – and almost solely interested in – the public sector. A decade ago, there were 5.2m public sector employees. In 2009, there were 6.07m – an increase of 849,000. At the same time, the total number of private sector jobs went up from 21.8 to around 22.8 – a jump of 911,000. So, whilst the job creation in each sector was almost totally equal the political fallout was anything but.

    While under Labour the number of jobs in both the state and the private sector increased, with John Major the recovery was powered by business not government. Between 1991 and 1997, around 800,000 public sector jobs disappeared, while around 1.7 million private sector jobs were created. This is, I imagine, what Cameron wants to do today.

    As a private sector Labour-supporting, card carrying member of Unite I’m someone of an anomaly. Only 15% of private sector workers are members of trade unions and, whilst I can’t find that exact figure for the general election, pre-election polling showed that only around 25-29% of private sector workers intended to vote Labour. Denham has a real job on his hands to boost those figures and changed the ingrained impression in the public that Labour doesn’t care about private sector growth.

  2. skeptic says:

    Did you not see ‘poor kids’ on bbc 1 last night? Whilst the middle classes are worried about not being able to afford that second european holiday this summer, millions of children across the country are struggling to eat and clothes themselves. After 13 years of a labour government it is a disgrace that we have failed the poorest in society. By all means do not surrender the middle classes to the tories, but we need to make a commitment to aid the poorest in society, that starts with providing adequate housing, and to get them out of the cycle of poverty the government needsa to provide jobs. I don’t just mean average public sector jobs but actually create industry. If the private sector is not using the workforce, the state should step in and compete.

  3. iain ker says:

    ** feed-in tariffs for photo-voltaic installation have been slashed **

    Quite right too, in fact they shouldn’t have been slashed they should have been abolished. Already you could see the shysters moving in – ‘we’ll install free and we’ll take the tarriffs’. And * we * the mug taxpayer cough up for the next 25 years as Britain tries to reach some pointless EC target by pretending to be saving the planet.

    Excuse me while I snort at the hippies’ wet dream of ‘millions of new green jobs’. The Japanese patented this nonsense by paying people to concrete river beds and building roads, tunnels, bridges to nowhere all to create these ‘millions of jobs’.

    But to get back to the main thrust : Government can do this, government can do that, government can do the other. You would rather expect an MP to say this.

    The trouble is governments aren’t too smart, and the easiest and best thing they can do is to get out of our hair and let us get on with it.

  4. william says:

    Bravo,Mr. Denham.Once the Opposition talks seriously about encouraging the private sector,FIRST,before the usual waffle about fairness,redistribution and so on,then the electorate, over time,will take you seriously:the role of government is not to dominate,but encourage and cajole in a subtle manner,with a clearly expressed long term mindset.

  5. Old Holborn says:

    After 13 years of interfering in every single aspect of the economy and our lives, is it too much to ask that you just leave us alone to repair the damage you did?

  6. iain ker says:

    …and as a PS, I sincerely hope that when Scottish Power customers get their next dual fuel bills (gas up 19%, electricity up 10%) that we start to see some severe resistance to the enabling and shaping government throwing our money at wind farms, solar panels and sundry other eco-nonsense, which are nothing more than hugely expensive vanity projects.

  7. Geoff H says:

    Hmmm. A bit of a smorgasbord this. Industrial policy through regulation is good – 3G, zero carbon homes – but industrial policy in general is bad. But regional equity funds would be good – even though presumably they would still have to “pick winners” to be the beneficiaries of publically supported financing.

    I suspect that winning the support of SME people needs more than soothing noises. Where’s the analysis? What’s holding Britain’s small businesses back? What policies could a Labour government put forward to change this for the better?

  8. Mike Killingworth says:

    There’s only one wee problem. If you ask the private sector – and, more specifically, entrepreneurs – which Party will provide the best conditions for them to grow – they will almost with one voice say “the Tories”. So – if John Denham is right – they don’t know their own business best.

    It would be a good deal more helpful if Denham and all the other “blue Labour” crowd crossed the floor. I’m sure Cameron would welcome them with open arms, not least because he could then ditch Clegg and company, who clearly don’t understand how government works.

  9. AmberStar says:

    This is a great article by John Denham although I think we want to hear about a bit more than just Green energy (again); it’s not going to employ the whole ‘private’ sector but to listen to the SNP & some Labour/ LibDems you’d think it could. 🙂

    Manufacturing is becoming cleaner & greener; it need not be filthy factories & dangerous chemicals. I think people would like to have the skills to make things again. That could be kick-started by having college courses that teach such skills – with a view to groups or individuals starting a business as part of their college course.

  10. Ash says:

    This is a welcome article. However, a few things need to change:

    1) The Labour Party needs to purge itself of the large numbers of senior Labour politicians who when asked about private sector job growths will go of on a rant about human rights

    2) Between 1997-2007 the region of Yorkshire and Humber saw no new private sector job creation!! I dread to think of the North East

    3) For the past 30 years Britain has run a balance of trade deficit every year. The only reason why 20years ago we had a surplus was because of north sea oil. We need to accept that our economy has been failing for decades. We are not even in the top 30 countries for GDP per capita.

    4) We cannot continue to punch above our weight with disproportionate spending on ‘defence’.

  11. Merseymike says:

    The problem is that this sector appears to have little interest in any other area except the south east. And how many actual jobs are created ?

  12. Richard says:

    “After 13 years of interfering in every single aspect of the economy and our lives, is it too much to ask that you just leave us alone to repair the damage you did?”

    Is that why there has been a power grab in nearly every government department with the mass creation of new central powers?

  13. Richard says:

    Oh dear Ian Ker, find yourself something new to be embittered about. Can’t be a happy life you lead, forever moaning.

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