Jonathan Todd

I had this on Labour Uncut a few weeks ago.

The Labour front bench might not welcome advice from retirees, no matter how dignified. But they’ve got some. “Be a little bit more interesting”, said Peter Mandelson, in response to a question at a recent Progress event. National recovery from the major economic crisis of recent years requires big, bold ideas. He wants Labour to rise to this challenge.

This is the stuff of pragmatic radicalism on economic rebalancing. Pragmatism demands workable solutions to national concerns. The support that politicians, of all parties, proclaim for rebalancing the economy indicates that this is such a concern. The persistence of the imbalances in our economy – between domestic consumption and exports; finance and manufacturing; the south east of England and much of the rest of the UK – attest that this support is inadequate to purpose. A dash of radicalism is needed, for not only rebalancing to be achieved, but for Labour’s arguments to cut through the white noise of mainstream politicians professing support and delivering so little.

Many more elected city mayors are the stuff of this radicalism. Our top heavy state is a drag on economic performance. Elected city mayors are the next step on the devolution journey begun by the last government. The centre for cities and the institute of government recently called for their powers to be beefed up – through, amongst other things, chairing integrated transport authorities and co-chairing local enterprise partnerships. The common sense of people in cities voting for their leaders and retaking command of their destinies should be a truth loudly proclaimed by Labour – as should be the common sense of rewarding hard work.

The tax system can further help to make us into a nation of grafters. This means less tax on income and more on wealth. A land tax could form part of this transition. It would do something to dampen the British tendencies towards property speculation and bubbles. It might also form part of a Labour drive towards tax simplification. Because taxation of land is simple, it would be difficult to avoid.

Labour could win friends from UK uncut to the CBI with a considered drive towards tax simplification. UK uncut should appreciate simplifications that make tax harder to avoid and the CBI should value simplifications that support economic growth. A land tax offset by reductions in taxation on employment would reduce the capacity of the rich to avoid taxation and increase the extent to which everyone keeps the fruits of their hard work. Tax simplification should not be owned by the right. Nor should backing for dynamic financiers and entrepreneurs.

Labour should insist that the Vickers review ends with rock solid retail banks. These, and an expansion of our credit unions, are needed to support household saving. This isn’t just important for households themselves, but to generate funds to be recycled by financiers as investment in firms. Alongside this we need a flourishing of nimble financial services firms prepared to provide capital to enterprising SMEs. Such small businesses must be developed in green manufacturing but they will be more likely to do so if a credible price for carbon can be established.

At the moment this price comes from the ineffective EU emissions trading scheme (EU-ETS). Its failure merits much stronger condemnation, which should come from Labour. It either needs meaningful reform or replacement by a carbon tax. Either approach should be taken forward at the EU level, rather than in the form of the cack-handed move towards a carbon price contained in budget 2011. The likes of Bill Cash bar sensible policy from David Cameron on this. The prime minister is unable to lead in Europe but securing a robust carbon price should be part of the more tightly focused Europe that Labour champions.

Most immediately, the eurozone needs to face up to the tough choices of its on-going crisis. The EU also needs to recalibrate itself to our Asian century. The turbocharged development of the BRICs (Brazil, Russia, India and China) and similar does much to explain the expectation of Gerard Lyons, chief economist at standard chartered, that the global economy will at least double in size between now and 2030. Europe, though, will be in the slow lane unless trade links deepen with the rapidly developing world.

This means more EU activity where it can add value – a properly functioning EU-ETS, completion of the single market in energy, and a sticks-and-carrots offer to all Mediterranean countries equivalent in ambition to that given to eastern Europe on its transition from communism – and much less where it provides little but muddle and duplication. Subsidiarity needs to be taken much more seriously. Not just in terms of Brussels deferring to member states, but to regional and local bodies, such as elected mayors, and, in turn, to communities and individuals themselves.

This hard edged devolution would be driven by a sense of mission. This is what fires the best of the private and public sectors. It’s making Apple great that motivates Steve Jobs. The profits are a by-product. The Steve Jobses of a reformed British state have to be Labour politicians. The government are u-turning themselves into an ever decreasing circle of failed reforms and unfulfilled ambitions, and not least among these is their commitment to economic rebalancing.

Labour can do better. And we will be very “interesting” indeed when we do so.

This is a shortened version of an essay that appears in the new Pragmatic Radicalism publication.

Jonathan Todd is Labour Uncut’s economic columnist.

I wrote this on Labour Uncut recently:

Labour has to be the party of optimism. Which should include being optimistic about the ingenuity of business, especially when combined with extraordinarily lax monetary conditions and a low pound. George Osborne anticipates Labour pessimism on this and we should deny him.

We know that the cuts are too deep and fast. We know that the best government response to economic challenges isn’t brutally to minimise government, but strategically to target the state’s resources to maximum effect. Having emphasised these points, we can be confident that the public know that we know this.

But in stressing these points we should avoid creating a blind spot: that our only economic expectation for coming years appears to be unremitting disaster. This would have us seem to be talking the country down, which is never a good thing, and undermine our claims to optimism. Also, if this expectation turns out to be false, it would leave us – to apply Peter Mandelson’s one club golfer analogy – on the 18th green of this parliament with only the driver of big government in our club bag.

Of course I’m not endorsing Osborne’s masochistic cuts.  I’m not convinced that they will lead to a sustained, job-creating recovery. I am, however, stressing the first point of futurists: in an uncertain world, it isn’t a case of the future but the futures. And a future exists, while not the most likely future, in which low interest and exchange rates, as well as possible further quantitative easing, more than compensate for the loss of output and employment wrought by the cuts.

The existence of this future was hailed by Fraser Nelson after the CSR as Osborne’s secret master plan:

“Here’s something you won’t read in the papers: in the fiscal consolidation of the Major years some 700,000 jobs were lost in the public sector (way more, note, than we’re discussing now). But two million more jobs were created in the private sector. The 3-1 ratio worked in Britain last time, and there’s every chance it will do again. But Osborne, I suspect, doesn’t want us to know about this strong likelihood. It would spoil his wee trick. Ruin the surprise.”

The government was hardly hiding its faith – and it is a faith – in this future. The first page of its White Paper on local growth stated:

“We have good reason to be confident that the private sector can lead the recovery. When general government employment fell by more than 0.5 million after the 1990s recession, following a period of transition, private sector employment added almost 1.5 million jobs in four years.”

The Tory-Lib Dem government is playing political-economic poker. Osborne has all his chips on this version of the future. It’s a huge gamble. In this future he’ll be able to argue that his gamble was calculated not based only on his weak hand – the deficit-burdened British economy – but his faith in the cuts and the vigour of business.

While I doubt his vision of the future, there is rarely only one possible future. Given this, it would be as unwise for us to have all our chips on the reverse position.

We avoid this by nuancing our position and giving proper weight to various economic risks. Yes, if we cut too deep and fast we risk withdrawing vital stimuli from a tentative recovery. Osborne’s chips are positioned to place no weight on this whatsoever. However, there is also a risk that if fiscal consolidation were to procede too slowly it would push up interest on government debt. This would raise interest rates across the economy, making it harder for businesses to access credit and households to service mortgages. All Osborne’s chips seek to counter this risk in anticipation of being credited with leading a robust private sector recovery.

We, too, should keep faith in the private sector, acknowledging the importance of monetary conditions to business and the interdependence between fiscal (controlled by the treasury) and monetary policy (determined by the bank of England). This means, in addition to warning about the pace and depth of the cuts, having a strong account of how we would reduce the deficit – recognising that fiscal discipline helps interest rates remain low and that businesses and households benefit from this.

Without this, we risk the perception that we see fiscal stimuli as the only motor of growth and monetary and exchange rate conditions as irrelevant. In opposition, we can only impact how we are perceived, not policy outcomes. So, as well as raging against iniquity, we should kill this perception now.

I had the piece below published on Comment is Free on 12 June 2010:

David Cameron has argued that our economic fortunes have become “hitched to a few industries in one corner of the country, while we let other sectors like manufacturing slide”. His business secretary, Vince Cable, has since bemoaned “deep-seated problems: a dysfunctional banking system; an economy that is seriously unbalanced”. The previous business secretary, Peter Mandelson, wanted “more real engineering and less financial engineering”. The political consensus seems clear: our economy should be rebalanced away from finance and in favour of manufacturing.

This seeming either/or approach to finance and manufacturing says nothing about business services, which fall into neither category. London’s streets remain, as the Economist notes, “thronged with lawyers, management consultants, accountants and ubiquitous marketing types”. Statistically, these “types” may be classified in our blossoming creative industries, not business services. Concluding that comparative advantage can only accrue to us in finance or manufacturing risks missed opportunities in other sectors. This will be increasingly detrimental as technological advances make ever more goods and services internationally tradable.

 Another problem with an either/or approach is that it presumes finance and manufacturing are substitutes. As we have more of one, it is thought, we must have less of another. The scale of the City of London supposedly explains the decline of British manufacturing. This thinking contains two kinds of misconceptions.

 First, that British manufacturing is in decline. It isn’t. We’re the world’s sixth largest manufacturer. This isn’t to say that performance can’t be improved. But this objective isn’t helped by a false narrative of decline.

 Second, that finance and manufacturing cannot be complements. It makes no more sense to argue that the sectors are inevitably complementary than to argue that they must be substitutes. What we should be asking is: what kind of financial sector would be most complementary to our manufacturing in particular and our wider economy in general? And how can public policy best encourage such a financial sector?

 The passions of political debate on the future of banking generate more heat than light when it comes to these questions. If this were not the case, perhaps, the consensus on rebalancing would give way to divergent views on the proper role of finance in developing manufacturing.

 Green manufacturing is heralded by politicians of all stripes as a manufacturing sector ripe for advancement. Blythe Masters, global head of commodities at JP Morgan, claims: “You can’t have a successful climate policy” – nor, by implication, a successful green manufacturing sector – “without the heavy, heavy involvement of financial institutions.”

 Precisely how heavy and in what form are debates that are being played out on both sides of the Atlantic, particularly in deliberations over carbon trading. Green manufacturers will require capital and ability to manage risk, especially around the price of carbon. These requirements create important roles for financial institutions; no matter what exact form these carbon trading mechanisms take.

 Given the significance of these mechanisms, the relative lack of protest and comment on the highly disappointing European Union emission trading scheme (EU-ETS) by British politicians is as depressing as it is deafening. We are more likely to be treated to glib remarks on the sexiness and potential of biosciences and such like. But, we are unlikely to be told that it is no coincidence the world’s most successful biosciences industry is found in the country – the USA – with the largest venture-capital industry. And we certainly shouldn’t hold out any expectation that the policy implications for British industry of this will be unpicked. Yet, it is this kind of thinking which needs to be spelt out if politicians are to move beyond broad-brush commitments to rebalance our economy.

 The failure, until now, of politicians to move beyond such commitments creates an opening for Labour leadership contenders. The Milibands et al could define this terrain and, in so doing, provide part of the answer to the biggest and most pressing of economic questions: how will we generate the economic growth that will make the deficit more manageable and spread jobs and hope to our communities? Rebalancing the economy sounds good, and in a basic sense is good, but it is an incomplete response to our economic growth challenge. In addition, we require the necessary policy means for the creation of a financial sector that will do most to aid our wider economy, particularly manufacturing.

 It’s easy for Labour politicians to feel good about the provisions of the Climate Change Act 2008 and for Labour activists to cheer wind farms and similar. But without the regulatory infrastructure that will allow manufacturers, through financial institutions, to adequately manage their carbon price risk, we won’t give ourselves the best chance of meeting the emission targets contained in that act, pioneering more advanced technologies than wind farms and really growing employment in green manufacturing. Labour would be best served by a leader who understands that if we want to help manufacturing, we shouldn’t simply bash bankers, but seek to create bankers best able to serve manufacturing – and who is able to convincingly tell their party and country how they would do this.

Ok, I’ve been to dinner parties. But not in Islington. Though, I probably am in the “chattering classes”. Still, I’ve never been at dinner parties where “innate and uninformed” prejudices against London comprehensives have been expressed, the superior virtues of Harriet Harman to Peter Mandelson have been extolled or Polly Toynbee, Greg Pope, Barry Sheerman and Charles Clarke – aka Mistletoe & Whiner according to John Prescott - have been lavishly praised. In the past day or so, I’ve noticed, without trying, that all of these things have been said to occur at the dinner parties of the chattering classes.

I can only wonder at what horrors would be alleged to occur at these parties – if that is the right word – if I made my observations more dedicated and maintained them for a longer stretch. Thankfully I have better things to do.

Nonetheless, I have to ask: What is going on? Can the honour of non-chattering class status be bestowed on me? I do hope so. Or, alternatively, is all of this chattering classes stuff just a term of lazy journalism and thinking?

If the clattering classes do exist, perhaps, we’d all be better off if they could take out their frustrations at “murder cafes”, rather than having their frenzied wrongs spill out at their so-called ”dinner parties” (Is food even served? Aren’t parties meant to be fun?) The “murder cafes” concept is explained 5 minutes 20 seconds into the video below, which also contains many ideas that David Cameron might want to take up as he takes forward the promised beefing up of his policy platform in the new year.

[youtube=http://www.youtube.com/watch?v=qE5sxADDhew]

The video of the Spectator/Threadneedle Awards is fun and worth watching. It features a classy speech from Politician of the Year, Peter Mandelson, who said that he shares with Boris Johnson, who presented him with the award, ”a driving ambition to do all we can to undermine David Cameron.” This brought roars of protest from Boris. Perhaps, as Lord Mandelson said, these protests were a little too loud, not least given what could be read into the sub-text of the speech which Mayor Johnson had earlier given on the same stage.

He referred to wisteria in the midst of a riff on MPs expenses. Now just as clearly as porno video equals Mr. Jacqui Smith, so wisteria brings to mind the leader of the opposition. May be, I’m just being paranoid on Dave’s behalf, but, quite possibly, Boris is doing his bit to try to keep alive this unfavourable image of Dave.

Should Boris fulfil what we are to take as his long term ambition, to succeed Dave as Tory leader, the bedrock of his support is likely to come from those Tory MPs who were annoyed by Cameron’s alleged double standards and poor handling of the MPs’ expenses scandal. So, Boris’ wisteria reference is a shout-out to those MPs; a not so subtle “I am your man.” Yes, somewhat less mega-phone and more subtle than the same such shout-out that Boris gave at Tory Party Conference with his remarks on the Lisbon Treaty. But a shout-out, nonetheless. And a rubber ring for himself; a rubber ring to carry his not inconsiderable girth from where he is now (City Hall) to where he wants to be (Number 10 or at least the Tory leadership). 

At the award ceremony, the Newcomer of the Year, Ken Clarke, described where Boris is now as “the world of buses and bus lanes.” When his current station is put like that, despite affording him the third largest personal mandate in Europe after the French and Portuguese presidents, it is easy to understand why Boris grasps for that rubber ring. After all, any man using a bus over the age of 25 is a failure.

The stage of Brixton Academy has been the pinnacle of many careers but on that stage last Monday night, for People’s Question Time, Boris didn’t cut the figure of someone who has achieved any kind of pinnacle. Indeed, it often seemed so much of a chore for the Mayor. Tony Blair and Ken Livingstone, unlike Boris and Dave, share little in terms of background and inclinations, but when Ken was Mayor they formed a great working relationship. This might be because Blair was confident throughout that Livingstone wasn’t after his job and had achieved his pinnacle. The same can’t be said of Boris and Dave.  Probably the battle of Waterloo was won on the playing-fields of Eton, but a war that began on those same fields has many more bus lanes and rubber rings to travel before it reaches its (inevitably bloody) conclusion.