John Denham: Britain needs coherent policy in battle for business growth

OVER the past few months, Ed Miliband has set out the three great challenges facing the country.

The squeezed middle – that large group of people working on low and middle incomes who feel that the rewards of hard work, paying taxes and playing by the rules are too little, and in stark contrast to both those who enjoy stellar salaries not matched by results, and those who claim benefits too easily.

The British promise – that nagging and deep seated fear that our children will not enjoy better lives than we have done because we cannot pay our way in the world and create opportunities for them.

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Strengthening our communities – recognising that in myriad ways, not least in the way workplaces and working lives have changed, our sense of communities with strong social institutions and common institutions, is being eroded.

How can we resolve these challenges? Those questions lead us to radical conclusions about what needs to be done.

We embarked on our policy review a few months ago. Having lost an election badly, time is needed to engage fully with voters.

But the Business and Enterprise Review will make a significant contribution to each of Ed’s three challenges.

We cannot deliver without an economy which looks and feels very different, with more opportunities to get better jobs.

Let’s be very clear about one thing. The growth we need, the jobs we need, will be private sector growth and private sector jobs. We will compete in the world but only if private companies win market share and successfully seek profits in tough global markets.

The next Labour Government will have to be relentless, with a single-minded focus, in creating the conditions for private sector growth.

That means, without any ambiguity, creating the conditions in which companies compete within fair markets; and in which companies make profits by being the best in those competitive markets.

The only companies which will succeed will do because the market challenges them to be better, more innovative, and better able to deliver what their customers want.

It’s a long time, thank goodness, since Labour was seen as anti-business party. Our record speaks for itself, with over one million additional small businesses successfully established. And we want to see more businesses, more people leading business and more people working in business.

But if market-based growth and competition are the key to future economic success, there are two dangerous fallacies to be avoided.

Firstly, the idea that deficit reduction should be the only aim of economic policy.

Like every other country we need to get the deficit down and that means cuts – but the Tory-led government is cutting too far and too fast – hitting families and costing jobs. The Government is getting us into a vicious circle – more people out of work and on benefits, will make it harder to get the deficit down.

Secondly, that supporting free markets means that the ideal state is one in which government does as little as possible. If the banking failure teaches us anything, it is that unrestrained free markets can lead to catastrophic economic failures.

In truth markets are inevitably and unavoidably shaped by what governments do, and by what government doesn’t do. The trick is to understand the impact of what government does, and to make sure it fosters the right type of markets.

Given that Vince Cable repeatedly called for the abolition of the old Department of Trade and Industry, it’s perhaps no surprise that he is leading a weak department which shows no sign of understanding the potential power of intelligent government activism to shape the economy.

Labour came late to effective active Government policies to create a balanced economy, less dependent on the financial services sector.

But the Tory-led Government does not grasp how active Government policies can foster the right conditions for successful private companies to grow.

We are 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, and universities focused entirely on the new fees rather than working with business.

It is an approach rooted in a dismal and pessimistic view of Britain’s future workplaces, where any growth depends on making working lives less secure and less well-rewarded.

The Government has scrapped regional development agencies like Yorkshire Forward with reckless speed, leaving no effective organisations in place.

RDA assets, built up for economic development, like business parks, are being sold-off in a fire sale, while Local Enterprise Partnerships are hobbled by the Government’s decision to leave them powerless – a failure that’s dismayed many LEP participants as well as key business organisations.

The Strategic Investment Fund, and Grants for Business Investment, have both been scrapped, while the government has effectively cut regional funding by two-thirds.

It is clear that the Government has turned its back, in principle, on the type of launch aid and strategic investments which have enabled the UK to secure key foreign direct investment in this country. In the North East, Nissan has been explicit about the importance of such support to its investment decisions.

No wonder the Regional Growth Fund was 10 times oversubscribed; it would have been more if they had allowed SMEs to bid. In truth there were more losers than winners.

An active government strategy should not be defined by either the amount of public money which is spent, nor just on 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.

Self-evident truth in that Government cannot substitute their 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 as the condition for that growth. Getting bits of the overall strategy right is not good enough. It’s the coherence that counts.

John Denham MP is the Shadow Business Secretary. This is an edited version of a speech that he delivered yesterday to the Institute for Public Policy Research.