A "one nation market" could turn the economy on its head

Far beyond calls for a "responsible capitalism", Miliband should push for a "one nation market" that can really benefit the many, rather than the few.

We have absorbed the narrative and enjoyed the dynamism, but the great challenge will now rest in its practical execution. In the run up to the next election, the crucial divergences between the major political parties will concern the conversion of their philosophy into practice. While the underpinning philosophy can lend itself to subtlety, its execution will inevitably be quite different.

We have only glimpsed forthcoming Labour policy this conference season, but perhaps enough to gauge its general direction and approach. From Caroline Flint, the shadow energy and climate change secretary, have emerged plans to abolish the present energy regulator, Ofgem, and impose greater regulation on the country's retail energy market. And Gareth Thomas, the shadow minister for civil society, and Chris Leslie, the shadow financial secretary, have called for more stringent requirements on the banks to deliver on transparency and to invest a proportion of profits in communities - much like the Community Reinvestment Act pioneered in the US.

All of which is very well for those footing the bills. But for the "one nation" philosophy to really succeed, Ed Miliband - and those of all parties and none - must complement such regulation with a far more ambitious agenda. Far beyond calls for a "responsible capitalism", Miliband should push for a "one nation market" - a market that can really benefit the many, rather than the few.

Increased regulation of the energy retail market, for example, could see caps on energy bills and a relief for consumers, but will not in the long-term decentralise electricity distribution, or create greater retail competition to break up its supply. Policy should instead seek to grant "the many" the power to take hold of such markets and indeed open up the opportunity for communities and smaller groups to enter in.

As argued in a ResPublica paper published earlier this year, communities could  themselves be perceived as the potential producers and owners, rather than simply passive consumers, of their electricity generation and supply. A recent growth in co-operative energy models and a greater interest in community shares, have really revealed the nation's appetite for such widespread ownership and devolved investment to take place. "Responsible capitalism" may hold large energy companies to account, but a "one nation market" could turn a consolidated economy completely on its head.

Miliband's "one nation" call, coupled with Jon Cruddas's drive for a politics of the "common good" and a better "big society", has opened up the opportunity for such an agenda to emerge. Turning the philosophy into transformative practice will now be the challenge, and may indeed be the pivot upon which the next election is won or lost.

Caroline Julian is a senior researcher and project manager at the think-tank ResPublica, and co-author of Re-energising Our Communities: Transforming the energy market through local energy production

Ed Miliband applauds shadow home secretary Yvette Cooper at the Labour Party conference in Manchester. Photograph: Getty Images.

Caroline Julian is Deputy Director, Head of Policy and Strategy at the thinktank ResPublica.

Alison McGovern
Show Hide image

Forget universal basic income - this is how we can include voters in economic growth

The links between economic growth of the country and that of the people, families and towns have broken. The state can fix them again. 

Economic policy is always boring, until it’s too late.

Pensions. How they are funded, who they cover, what happens if they fail. Boring. Until it was too late.

Mortgages. Who has them, who needs one, who should have one. Boring. Until it was too late.

Finance. Capital markets, their products, their structure, their risk profile. Boring. Until it was too late.

You see the point I’m making. It’s easy to look away from numbers. The data doesn’t necessarily tell us an obvious story. And then one day, a catalyst sparks an unforeseen, if, with hindsight, predictable event, and we all wonder why we didn’t see it coming.

Something similar happened with the Brexit vote. Of course, it was a perfect political storm: an overconfident Prime Minister calls a referendum that he only needs to have to pay off his right flank, safe in the knowledge that the mainstream voters and the leadership of the Labour party will carry him through. Except he forgets that there is someone more despised than even his right flank - him. 

But beneath all of that, the Brexit vote revealed a divided country. Between those who felt that Britain as it was before the referendum offered them a decent enough – if imperfect - future, and those who felt it offered them nothing of the sort. 

Could we have seen it coming? Perhaps we could. Take two graphs.

Real wages are still, today, on average below what they were in 2008, nearly a decade ago. At the point of the referendum, average wages were yet to return to the level they hit eight years earlier. The difference between real and nominal wages is inflation. People have watched prices steadily drift up while their wages have remained stubbornly flat. Not an overnight shock, but a long drawn out crisis all the same.

Vast numbers of pensioners (over 60 per cent of them) voted to leave the European Union, and pensioners incomes have not seen the same fall as incomes for the working age population (in fact they rose by 19 per cent in real terms in the last 10 years). But it is important not to overinterpret the data with hindsight. After all, there are nearly 32m British people of working age. That surely should have been enough to carry the vote, had far too many people had so little reason to back the status quo.

In the years running up to the crucial Brexit vote, the economy was, by and large, moving ahead. But in the case of the most crucial, most noticeable, economic transfer - a person’s wages - the economy was not moving ahead at all. In fact between the crash and the 2015 general election, wages largely only fell, and since then, pay has struggled to make up ground, against a picture of an otherwise ‘growing’ economy.

Worst of all - nearly 4m households in measurable (and therefore known) poverty include someone at work. Of the 17m Brexit voters, some were wealthy retired voters who always hated Brussels. But how many more simply had too little to lose, and couldn’t stand David Cameron?

The problem with all this though, and the reason we didn’t see it coming, is that no one’s life is a graph. I mean, we are all data points. But no one feels like a data point. And people are notoriously bad at providing logical, graph-like, mathematical reasons for their political judgements. "My individual wages have failed to keep pace with growth in the economy at large," said no person on no doorstep, ever. Unhappiness with what is on offer manifests itself in lots of different ways but it isn’t likely to be an analysis of the macro-economy.

We all know of course that people are much more likely to connect with politics (and politicians) emotionally. That is how we make our choices. But our emotions are informed by the facts of our life and are responses to the facts we see. So, whilst the graphs above cannot tell us all we need to know about why Remain lost, they do tell us about some facts likely to impact on the choices we make.

The challenge is to work out how we can change the trends shown on the graph, and how this in turn will affect those who lost out over the past decade. What can be done to repair the link between economic growth and economic growth for all?

This challenge is to create "inclusive growth". Or as I think of it, making sure there is a hard chain which links growth in the economy overall to the growth of wages and incomes of the many. When the country rises, so must all within it.

The hard links in the chain are what should have kept our country together. They are the rules that should have meant that the British economy doing better meant individuals, families, towns, cities all doing better too. You can see from the graphs above that the rules worked between 1997 and about 2005. Our country grew, and we all grew in capacity with it. But then the model stopped working. And 11 years later people were asked to vote for the status quo, even though the status quo was clearly failing the many.

We will never be able to see the trends until it is too late. We need rules that shape our markets, including the labour market, to achieve an outcome that people can see and feel in their pockets. Analysis of the past is only any good if it can help shape the future. 

It’s not enough to say that somehow our economy is rigged against people, as if this was one great fiddle. Rather, we should remember that policy choices have consequences. 

Now some people suggest that the correct response to falling wages, and precarious work, is some sort of universal benefit, or citizens’ income. But recent Fabian Society research demonstrated that the vast majority of people – about 80 per cent - feel positive about their work even despite the story told here about wages. So even if it were practical for government to raise taxes in order to transfer something in the region of the state pension to every person in our country, it hardly seems like it would be popular. 

If people, in general terms, actually like their work, the problem is then making sure they get paid enough and get promotions. It means recognising what the past decade has taught us: that the growth of the economy must mean economic growth for all within the economy, or else there will be consequences.

So, the question remains: what are the hard links in the chain between the economic growth of the country as a whole, and economic growth of the people, families and towns within it?

Unfortunately, this is where the boring stuff still matters. You can get paid more if you have better prospects. That means a buoyant labour market, and the skills to participate in it.

Now the government say that they are addressing the challenges in our economy by investing in infrastructure, through an industrial strategy. And along with buzzy new ideas like universal basic income (where citizens are guaranteed a certain income), everyone in politics loves announcing campaigns for new railway lines (me included). Trains are big, fast, expensive and showy. But travelling to work by train tends to be the preserve of those who already have a high-skilled job and are commuting some distance. We should worry a little more about those who get the bus to work.

Then take those who work in low-pay sectors like care, retail, hospitality, or construction. Each sector has its own challenges, but one thing that unites of all these sectors is the likelihood of people working in them to be working below their potential skill level. Hopefully our new metro mayors will be able to provide better education opportunities for those at or near the minimum wage. But what about in those areas without mayors? Do they fall even further behind? Skills transfers matter much more for future growth than a massive financial transfer like universal basic income.

And in case anyone should think that I have forgotten, with less than 15 per cent of people in the private sector represented by a trade union, it is little wonder that workers have insufficient power to command better wages. Our labour market leaves too many people on their own, without the strength of collective bargaining to get them a good deal.

Universal basic income fails for another crucial reason. It would fail for the same reason that tax credits were economically effective but open to political challenge. For most people, the part of government, of the state, that they wish to defend are the things they can see, they can touch, emotionally engage with. The hospital their child was born in, that cared for a sick parent, the school they went to, the park they played in with their grandchild. They prefer to earn their wages, and do a job they enjoy. Transfer payments from the state are always harder to defend, as the history books attest. 

So for me, truly inclusive growth means making the most of the institutions we already have – colleges of further education for example – and building new ones like universal quality childcare. Many members of our workforce are prevented from returning to work after the birth of a child, simply because of the cost of childcare. Universal free childcare would allow many more women to go back to work or have the time to gain more skills, should they want to. Moreover, good quality childcare would benefit all of our children by narrowing the attainment gap. These hard links in the chain - the links that ensure that growth in Britain involves economic growth of all of those people and places within it - are, in fact, the institutions of the state. 

These are the platforms Labour governments have built for ordinary people to stand on. But these are the very institutions under attack from current government policy. If we’re going to rebuild the chain, then the government must change tack. We need to develop new ideas and solutions and the all-party parliamentary group on inclusive growth can be a place to bring people together across the party divide. Theresa May has spoken about an economy that works for all. Now’s the time to protect the institutions that can deliver that economy and inclusive growth, before it is too late.

The APPG on Inclusive Growth's 'State of the Debate' event with the OECD, World Economic Forum, RSA and IPPR is on Tuesday 21st February at 6.30pm at Parliament. See www.inclusivegrowth.co.uk for full details.

Alison McGovern is Labour MP for Wirral South.