Patrick Diamond & Roger Liddle: The British centre-left must espouse a practical vision of a progressive capitalism

 

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Among the most insistent questions in British politics is what model of capitalism the UK needs to remain a wealthy and cohesive society. Since the financial crisis, public disquiet about avaricious global capitalism has been palpable. The growing unpopularity of business and large corporations risks undermining the moral compact in favour of open markets. The backlash against the private sector is hardly surprising: when financial institutions broke down following the collapse of Lehman Brothers in 2007, the costs fell not on wealthy financiers but society as a whole in an era when middle income households were suffering an unprecedented squeeze.

The irony is that both bankers and the left have faltered in the wake of the crash. Far from gaining politically from the "crisis of capitalism", the Labour Party has been left utterly disorientated. The New Labour model of political economy was shaken to its core, having pledged allegiance both to Thatcherite deregulated markets and an overly complacent social democratic model of tax and spend. Despite delivering 44 consecutive quarters of nominal GDP growth, Labour’s embrace of 1980s neoliberalism guaranteed neither economic stability nor the sound productive base necessary to sustain long-term social investment.

Ed Miliband plausibly argues that to return to pre-2008 "business as usual" will not convince voters that Labour has learnt lessons from past mistakes. However, the party has to fight on ground it can realistically win: Labour has to make its central critique of Coalition economic management the failure to address the underlying structural weaknesses of an unbalanced economy, low productivity, and weak balance of payments – all of which limit Britain’s productive potential and accentuate the long tail of inequality. More than that, the British centre-left must espouse a practical vision of an inclusive capitalism around which a lasting public consensus can be built.  

A progressive capitalism can only be forged with an enabling state that understands the global environment in which today’s business leaders operate: where survival depends on profitability, where the world is awash with investment opportunities beyond the UK, and where arbitrary interventions in markets and constant changes in government policy discourage the long term investment Britain needs. Businesses that act against the public interest should not escape regulatory action. But it is not the job of governments to pick and choose between predators and responsible capitalists. Nor is it sensible to treat smaller firms as inherently more virtuous than larger ones: what matters is setting a stable framework in which making a reasonable profit is compatible with the public interest. Labour will not win elections as an anti-business party. The vast majority of the workforce is employed in the private sector. On principle, social democrats have long believed in a flourishing market economy generating the fruits of growth to invest in a dynamic public realm.    

Defining a model of inclusive prosperity and progressive capitalism that treats business as part of the solution rather than the problem ought to be at the forefront of Labour’s approach. The party’s challenge is to position the active state and responsible ownership as essential prerequisites of business success in an age of intensive global competition. The aversion to risking public money in order to back British growth companies has to be reversed. Such activism is viewed as too derivative of 1970s-style "picking winners", while at the same time it is acceptable for public policy to artificially inflate the housing market.  

Labour needs to secure the backing of business for a model of inclusive capitalism that restores public confidence in the moral virtue of wealth creation where doing well, and properly paying all taxes due, is seen as a societal as well as private, benefit.  Labour should win the backing of a new generation of entrepreneurs whose business success depends on building partnerships within their company with committed and highly trained staff, developing long-term relationships with their customer-base. Any viable project to forge a progressive capitalism needs a new model of the firm. Companies may not want to follow the model of the John Lewis Partnership, but its success demonstrates that there are alternatives to the conventional limited liability company which should be actively encouraged. We need a step change in employee ownership throughout the British economy, ensuring that wealth is dispersed into many more hands. 

There is a new dialogue to be opened up between business and the centre left about what kind of modern welfare state a vibrant progressive capitalism needs. The downside for individuals of a dynamic, innovating economy is that rapidity of technological change threatens incumbent companies, making skills redundant and destroying jobs in ways no one can presently foresee. Just as the NHS was founded on the principle that no one can have perfect knowledge of whether they will enjoy good health, and therefore collective insurance is the best solution, social security needs to be rethought for an age of ever more rapid economic change, as individuals seek more choice as to how to balance work and family life.  

A progressive capitalism needs long-term investment in infrastructure and productive assets through new approaches to financing public services. It requires world-class health and education investing in skills, science, knowledge and innovation. And it must be complimented by a fairer distribution of capital and assets, an "ownership revolution" that locates control over wealth throughout society instead of narrowly rewarding the political and economic elite.

The danger of globalisation is that it will amplify the gaps between the winners and losers of change, creating a permanently marginalised minority with no stake in the nation’s economic future. The aim is to create balanced and sustainable growth, improving the living standards of those on middle incomes while ensuring that Britain grows together. It requires genuine partnership between the public and private sectors where the state actively invests in economic potential.

No party has yet succeeded in filling the void in Britain’s political economy that opened up in 2008 between the emphasis on central planning and nationalisation, a policy applied between 1945 and 1979, and the market liberal laissez-faire approach pursued in Britain ever since. The ideas around progressive capitalism offer the opportunity to define a more robust and substantial prospectus for the British centre-left. Social democracy wins where it projects an uplifting, optimistic vision of Britain’s future, a conception of national modernisation allied to a vision of social fairness. Ironically, just at the point when some doubt whether government has any future, it has never been more necessary in fashioning a new economic model for the post-crisis age.

Patrick Diamond is vice-chairman and Lord (Roger) Liddle is chairman of the Policy Network think tank

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