Liam Byrne: The market is failing - we need a new way forward

A fresh consensus is emerging about how Britain must think long-term to remain globally competitive

Future vision: technology and globalisation offer business riches but risk greater inequality too (Picture: Getty)

Getty

17 July 2014

The puppets are for the chop. Earlier this week, Wonga’s loveable grandparents flogging payday loans on children’s TV were dispatched in the UK by the firm’s new chairman. It comes at a time when shareholder activism is on the rise, with a number of eye-wateringly large pay deals for top executives shot down by shareholders. The conscience of corporate Britain is rumbling as unease with Britain’s malfunctioning marketplace deepens.

So it should. With this week’s good job news has come fresh evidence of the squeeze on pay packets. Inflation has jumped to a five-month high. Meanwhile, the Institute for Fiscal Studies reports that the under-30s lost 13 per cent of household income, from 2007 to 2013 — nearly twice the hit taken by the older generation.

It is becoming harder than ever to earn a decent living — and if we don’t fix this soon, we’ll face not just an economic problem but a profound moral challenge. Hard work is hard-wired into Britain’s psyche and our moral code. This was supposed to be the deal: hard work got you on in life. Yet Britain’s families are working harder and going backwards, £1,600 a year worse off now, on average, than in 2010.

It’s not just a question of fairness: it doesn’t make business sense either. As someone who established my own company, I know very well that virtues such as trust, integrity and stability drive consumer confidence. They are the keystone of capitalism.

We can’t go on like this. Nearly 30 years ago, Ronald Reagan spoke for a new generation of neo-liberals, declaring that “government is not the solution to our problems, government is the problem”. Today the market is the problem: together, business and policy-makers are going to have to fix it.

So this week a cross-party group of parliamentarians has come together to find answers to the challenge of how we fix our malfunctioning markets and reconnect hard work with getting on in life. Our goal is simple: to build a new consensus on how we can change the rules of the game.

Since the Second World War we’ve enjoyed two grand phases of consensus that connected business and government in pursuit of the common good. After the war, we called it “Butskellism”, a marriage of ideas epitomised by the calm moderation of the Tories’ Rab Butler and Labour’s Hugh Gaitskell. The second phase was the neo-liberal consensus, born in the storms of the late Seventies and now in its death throes.

It’s time for a new approach: a “third wave” of consensus to reset the rules. There’s already plenty on which we can agree.

First, business and politicians know money markets need to act for the long term rather than the short term. The disastrous behaviour of the interest-rate riggers and the high-frequency traders portrayed in Michael Lewis’s new book Flash Boys epitomises a fill-your-boots piracy that destroys a firm’s ability to think long term.

It’s not just capital markets that need reform — it’s labour markets too. Unless we boost skills, it’s hard to give workers a pay rise. I think there’s wide consensus about what needs to change.

Lord Baker’s work on university technical colleges exemplifies an ambition to build a high-quality vocational route to better skills. Ed Miliband, Tristram Hunt and I have put that at the core of a new offer for a vocational path to degree-level training for the “forgotten 50 per cent”, those who do not want to pursue the traditional academic route.

Third, we can agree that a bigger, better business-government partnership in science and technology is vital to winning the race to the top, boosting productivity and jobs in and around Tech City, the Crick Institute and the spin-outs around London’s universities. The foundations of this “supply side” boost were built by Peter Mandleson and Lord Sainsbury, and were respected by the Tories’ David Willetts, who left government this week.

Abroad, business and government should agree that “good growth” is easier if markets are bigger, which is why we should be at the heart of Europe. At home, there is broad agreement that a radical devolution of power is vital if big parts of Britain aren’t left to languish. “Inclusive growth” is not just about who prospers, it’s about where prospers — an idea championed by Lords Adonis and Heseltine in their plans to return power to our cities.

We cannot avoid some issues where consensus will be harder but where the status quo is not an option: making sure companies pay their taxes and don’t rig markets to short-change consumers and cheat their competition.

Indeed, hard-headed Tories such as Lord Heseltine and Richard Harrington, who have real experience of running large businesses, recognise that the market needs to work in a more sustainable way. It needs to respect its consumers and its employees, making a profit while not becoming immersed in a race to the bottom that, in the end, hurts most businesses as much as it hurts working families.

From boardrooms to Westminster, we need to crystallise this “new consensus”. For a decade and more, the price and prize of globalisation have not been fairly shared. Yet we risk a new era of inequality if we don’t get our act together. The new potential of trade and technology is accelerating the “second machine age”, where from driverless cars to automated checkouts, technology wipes out both blue and white-collar jobs, concentrating riches in the hands of a tiny global elite.

The founders of the greatest traditions in British capitalism — leaders such as George Cadbury, William Lever and John Spedan Lewis — knew that “enlightened self-interest” was always the best way to do business. If we want to build a great society in a global economy, reformers need to join together now: we’re running out of time.

Rt Hon Liam Byrne MP is chairman of the newly formed All Party Group on Inclusive Growth.

Liam Byrne: The market is failing - we need a new way forward

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