Monday, 27 February 2012

In praise of ‘anti-business snobbery’

Post for LabourList
This afternoon, David Cameron gave a speech condemning what he called “anti-business snobbery”. This comes after months of self-pity in the business community over rescinded bonuses and the ‘responsible capitalism’ agenda.

This is likely to find a receptive audience in parts of the Labour right, many of whom have spent much of the past 18 months trudging around assorted conferences and events wearily rolling their eyes and waving uninspiring documents that urge the Labour party to match George Osborne every step of the away in his quest to be “relentlessly pro-business”.

The trouble with all this, and with the Prime Minister’s speech, is that in modern day parlance ‘pro-business’ is more often than not a proxy for the total abdication of critical faculties in the face of anyone with a bit of money.

Running through Cameron’s speech is the familiar premise that what is good for business elites and profits is always and inherently good for social progress and the economy at large. This logic has run through the approach politics has taken to economics over the past 30 years, as successive governments went weak at the knees at the sight of anyone calling themselves a ‘business leader’. The corollary is that all the state can do is remove countervailing forces to the ‘creative destruction’ of capital and just shadow it in awe – skill workers up appropriately, provide a basic safety net, and so on.

But all this is just not true. Three different phenomena that have emerged in the past ten years prove it so. Firstly, the unchecked growth and detachment of the financial sector from the real economy, leading directly to the financial crisis, deficit and drying up of credit for small businesses. Secondly, the separation between ‘wealth creation’ and wage growth, and the resulting explosion in inequality and damage to domestic demand. Thirdly, the slow polarisation of the labour market whereby middle income jobs are increasingly outsourced or replaced, leaving a bulk of low-paid, un-unionised jobs at the bottom and a tiny professional-managerial elite at the top; in short, a ‘social mobility’ ladder with the middle rungs knocked out of it. On top of all this, energy and train companies have turned their respective markets into effective cartels.

Some of this is the result of technological change it would have been hard to prevent. But much of it is a result of decades of deference to ‘business leaders’, an unshakeable faith that what is good for them is eventually good for the rest of us, and the hands-off approach to the private sector and globalisation which flows from it.

But none of the resulting damage should even come as a surprise to any progressive. It is in capitalism’s DNA to maximise profit and short-term ‘shareholder value’ by pushing down labour costs and wages. While there remains no coherent alternative to capitalism, this profit motive is regrettably necessary – but it should not be allowed to go unchecked or unquestioned. The business community is an interest group like all the rest. If we let their leading lights dictate economic policy, we’d be reducing the top rate of tax and abolishing the minimum wage. Does anyone outside of top two tax brackets think this is really the route back to prosperity?

It is the job of the CBI and their ilk to scaremonger and threaten – on the rare occasion the left has the confidence to persevere we find it is a rouse, as it was with the minimum wage in the 1990s. It’s only an outburst of ‘anti-business snobbery’ which forced Tesco to pay a wage and offer a job to the unemployed – I haven’t noticed their business model collapsing overnight. Similarly, the austerity agenda (complete with cuts in corporation tax) endorsed by our business establishment has proven a total failure.

A fair and functioning economy needs entrepreneurs, yes, but it also needs workers on decent wages with decent security and job prospects. This is a caveat we too often neglect when we fetishise ‘wealth creators’. Real wealth creation should be a collaboration. If someone wants to found the next Apple or Dyson, fine – good for them – but it is the role of the state and organised communities to ensure they pay tax, good wages and don’t try to monopolise the meaning of public good. If that makes me a snob, then sign me up.

Sunday, 12 February 2012

Four reasons why 'the squeezed middle' should be at the heart of Labour's thinking

This appeared on LabourList

Four reasons why 'the squeezed middle' should be at the heart of Labour's thinking

With the budget fast approaching, the Deputy Prime Minister’s moves on the personal allowance last week make it clear that the government is making a push to be seen to stand on the side of those on low and middle incomes. This is a demographic Ed Miliband has until now been able to make his own, and must now move quickly to reclaim.

We shouldn’t be surprised that the government confident enough for a land grab. Ed’s own approach on this subject over the past year has been a bit frustrating. He introduced the squeezed middle to our political lexicon, but that is largely where it’s remained. Beyond one speech, he hasn’t built on it or fleshed out its implications, just flung it into the odd soundbite or interview. Hence it’s become a sort of ephemeral buzzword; a phrase used to describe the world, but not change it. Neither is a “blitz of interventions” on it enough, as his aides promised. He needs to put it at the heart of everything he says and does, as the problem which ‘responsible capitalism’ seeks to solve rather than just as a point of reference.

This is not because, as some have argued, it is some buzzy catch-all phrase, but because it’s a serious economic phenomenon affecting the lives of low-to-middle income earners across the country (e.g couple earning between £12,000-30,000 per year, or a family with three kids on £20,00-48,000). The average wage has been flat in real terms since 2003. The Resolution Foundation’s recent findings highlight again that these people are now badly struggling, just about keeping their head above water – most are struggling to pay bills and are having to cut back, and inevitably feel the pain of inflation, wage freezes and cuts even more acutely.

For Labour, the faltering living standards of this group are also a real political phenomenon, spanning the whole of the country, including the South and the Midlands where the party’s greatest challenges lay. The much cited Southern Discomfort series found ‘the squeezed middle’ “hold the key to Labour’s recovery” in these areas; around halve of floating voters say they do not have enough money to make ends meet. While some move up the earnings scale, many stay put – they remain the centre of gravity on the income spectrum.

But what should all this mean in practice? A hazy appeal to these people is not enough – Ed has to put them at the forefront of his strategy, especially on the economy. They need to be at the heart of every reaction to events, every press release, every PMQs, every speech. He shouldn’t be afraid to define the group if pressed, but it would also appeal to many others who feel like they work hard, pay taxes, but get little out of it. This would open up space for a distinct and coherent alternative to the Tories, in a number of ways.

1. A simple argument on the economy which resonates.

The fact is, most people are broke. Stagnating wages play a big role in explaining this, and are a significant underlying weakness in the economy (as Bill Martin and others have argued) – they have left consumer confidence perilously low, with obvious knock on effects for productivity and employment. Miliband should point out that the Tories’ economic approach is failing because the scale of their austerity measures take yet more money out of ordinary people’s pocket – the very people who drive the economy – for instance the VAT rise, cuts to child benefits and tax credits. This shifts the focus of the economic conversation away supply-side fetishism and on to what we have – a demand crisis.

2. Bold, short-term policies which also address the party’s economic credibility.

Shockingly, most polling shows the views of ordinary voters are not the same as Westminster insiders. Most are not besotted with deficit reduction time-tables (hence ‘too far, too fast’ polls well in abstract) they just don’t trust the Labour party with their money, unfair as it may be. It’s this which the Tories have exploited to push their message as the only credible approach. But there are more progressive ways of neutralising this issue. Labour should advocate a cut to the bottom rate of income tax as a means to stimulate the economy. This must be costed; so Ed should suggest partially doing so through increasing the top rate of tax by the same basic amount (e.g 2p on the top for 2p off the bottom) – then challenge the Tories to oppose it. A more vocal campaign for a living wage should be his next step, as a means of making work pay. This, on top of Labour’s other work challenging train and energy companies, would hammer home the message that the party’s economic priority is the back-pockets of ordinary people, not the wealthy elite. This is the surest route back to economic trust, not trying to out-posture the Tories on cuts.

3. Some coherence on cuts

If Ed wants to stick to his underlying position on cuts, there needs to be more logic to those he supports and those he doesn’t. Putting those on low-to-middle incomes at the heart of Labour’s thinking would mean opposing those cuts which most directly add to the squeeze on these families (for instance child benefits, housing benefits and tax credits) while supporting them in areas where they have the least impact on this group and thus on demand (for example, International Development or Defence). This doesn’t obviate the need for touch choices, but protecting living standards should replace the more scatter gun approach adopted thus far.

4. Long term vision (which goes beyond just spending)

The squeezed middle also lends itself to a long-term argument for the run up to the next election. At the heart of the this pithy phrase lies the failure of an entire economic model. Even when the economy was booming in 2003-2004, growth had stopped translating into wage gains for many ordinary people. They were working harder, but gaining less. The benefits were increasingly skewed towards the top: while the share of GDP going to low-to-middle income earners steadily declined over the last 30 years, it soared among the top 10 and 1%. For all the growth in the last eight years and in the next eight (if any), average real disposable household income will likely stay around the same. Neither is growth in new industries or technologies per se bound to aid employment – well paid working class and lower middle class jobs have steadily been sucked out of Anglo-Saxon economies (as the story of the iPhone in the US illustrates), replaced by more insecure, lower paid work. It is to this backdrop, to fill the gaps and make ends meet, that many have borrowed up to their eye-balls.

This is the most significant long-term trend occurring in theUKtoday. Finance-led growth, the decline of trade unions, and a hands-off, self-regulatory approach to the market and globalisation have all played a major part in getting us here. For a generation, all of this – the dominance of big money, inequality and excess at the top – has been sold with the promise that the benefits will ‘trickle down’. Now, for the heart of our working population, that trickle has dried up. Livelihoods and the economy at large are being now undermined. New Labour’s more redistributive measures mitigated the effect of this, but never re-shaped it. A return to the old growth, in the long-term, won’t be enough. The system is broken, and there’s an obvious need to re-think the entire way we do capitalism in this country.

Unlike other party leaders, Ed at least gets this, and has a critique of modern capitalism which accounts for it. His ‘responsible capitalism’ agenda is a good start, but he needs to state the problem more clearly: it is not an abstract issue of morality, or heart over head, but efficiency, real jobs and building an economy which serves everybody. Neither does this have to all be about spending – to the vogue question, ‘What is Labour about when there’s no money?’, pre-distribution should be the answer – getting up stream to better shape economic outcomes. Greater economic organisation in the workplace, a more active state ‘picking winners’, the separation of casino and high-street finance, national and regional investment banks, the protection of industry from predatory takeovers, new procurement rules, measures to deter outsourcing, and much more all have a role play a role.

But no space for any of this can really exist unless the broader trend it seeks to address is more widely known and prioritised. Inconsistency, not ideology, has long been Labour leader’s biggest problem – picking themes up, making a speech, then not building on it. He has done well to redress that over ‘responsible capitalism’ and bankers bonuses, but he now urgently needs to build that within a bigger argument about living standards, and hammer away at it day after day. For Labour, the way to the British people’s hearts is through their wallets.