Time to talk human, Ed

Abstraction hides Labour leader’s message

What is the “squeezed middle”? Is it:

(a) a socio-economic phenomenon characterised by median wage stagnation combined with real terms rises in the cost of living affecting middle and lower income deciles.

Or is it:

(b) Getting to the supermarket checkout and having to take items out of the basket; paying for school meals a week at a time when you used to pay up front for the whole term; dreading the arrival of the postman each day because you know he’s bringing more bills?

What is “responsible capitalism”? Is it:

(a) A paradigm shift in the balance of economic power recognising the dysfunctionality of an obsolescent neo-liberal model that has embedded structural inequalities.

Or

(b) Having someone in the bank who actually listens to you and wants to help you develop your idea for a new business; a gas company that is as quick to cut bills when the oil price falls as it is to hike them when the price rises; a rail company that doesn’t make you sit on hold on a premium rate number to book a ticket.

What is “predistribution”?

(a) A conceptual framework for the pursuit of social democratic ambitions for social change at a time when conventional models of tax-ands-spend redistribution are rendered inaccessible by enduring fiscal constraints.

(b) A decent wage for a decent day’s work; a place in a brilliant nursery that doesn’t cost the earth so you can go to work, knowing that your kids are getting the best possible start in life.

Trick questions, obviously. In each case, it is both. They are all Ed Miliband buzz phrases – although it would be a grotesque misreading of national preoccupations to say any of them has generated a buzz outside the Labour party. The reason for playing that little linguistic game of parallel definitions is to illustrate a problem that Miliband badly needs to overcome if he is to advance his ambitions to run the country. There is the abstract, wonkish, analytical idiom – answer (a) – and then there are real people who cast real votes – answer (b). Until Miliband finds a way to transfer his ideas from one to the other, he will not persuade people that the Labour party is ready for government. It is hard to win a campaign when no-one has the faintest idea what you are on about.

Miliband’s allies and the people who help draft his speeches will respond that he does, in fact, anchor his ideas in the real world. This is just about true at a rhetorical level. The speech he gave on 6 September on the subject of “predistribution” contained studious references to ordinary human experience: there were “struggling small businesses [that] they have fewer people coming through the door” and “young people scouring the Jobcentre for work [who] know that there aren’t enough vacancies.”

That is an advance on his now famous (in rarefied political circles) party conference speech last year, when he introduced the idea of “predatory” and “productive” businesses without apparently having prepared for the inevitable subsequent demand that he identify concrete examples of each.

To be fair, the most recent speech was delivered at an economic conference hosted by a think tank. It wasn’t an election rally or a rehearsal for this year’s annual conference. But it was part of a concerted campaign of autumn re-entry into the political game; a setting out of the stall and a bid to demonstrate that there is more to Labour’s offer than simply waiting for the coalition to fall apart. Part of that campaign included an interview with the New Statesman in which Miliband explicitly and vigorously rejected the charge that he was quietly hoping to resume where Labour left off in 2010.

That much should be obvious. The budget situation that a Labour government would inherit – brutal spending constraints lasting for a decade or longer – mean the old model of ever-expanding social intervention, mediated by the Treasury and bankrolled out of general taxation, is not an option. That may be substantially George Osborne’s fault if, as Labour alleges, it  is his policies that have suffocated growth. But it is still Ed Miliband’s problem. It is good that he says as much.

The charge that the Tories hope to bring at the next election is that the country cannot afford another Labour government and that Miliband doesn’t know how to deliver any of the social benefits he promises without confiscating money from you and me or borrowing it. Debt aversion is a powerful driver of conservative impulses. (Yes, I know the macroeconomic arguments that distinguish the national finances sheet from a household budget, but until someone finds a way to express Keynes’s paradox of thrift in a pithy soundbite, Labour look like the party of wild national sprees on the never-never.)

Miliband recognises that he needs a convincing account of how Labour can realise its traditional aims of social regeneration in recognition of limited government means. Inevitably that will require some account of budget priorities, which in turn will demand some reconciliation with harsh decisions made by the coalition. The Labour leader and the shadow chancellor have so far tiptoed up to that conversation but not, in any meaningful sense, joined it. One justification for that caution – as I have written before – is that premature professions of fiscal rigour could easily be twisted by the Conservatives to look like confessions of responsibility for the deficit. Explicitly promising to spend less in the future risks polluting Ed Balls’s argument (supported by a regiment of non-partisan economists) that cutting “too far, too fast” is the very reason we are in a double dip recession. The question that many in the shadow cabinet ask with increasing urgency is when, exactly, the Labour leadership  intends to make the transition from short-term macroeconomic prescription (the Five-Point Plan) and abstract ambitions for socio-economic revolution (Responsible Capitalism) to actual policies that campaigners can deploy on the doorstep. The answer I get when I pose this question to people at the top of the Labour high command is “not yet.”

This is a straightforward gamble. It assumes that the coalition has more unravelling to do and the Tory party has some way further to go in its perverse journey of brand recontamination, obviating the need for Labour to surrender detailed policy hostages to fortune. Jon Cruddas’s policy review is meant to be looking at ways to translate the Miliband agenda into real world messages that resonate around kitchen tables and its work has only just begun. The next election is, in all probability, still more than two years away. There is time.

The risk is that the pace of coalition meltdown brings Miliband’s offer under sustained interrogation long before he is ready to answer difficult questions about his intended stewardship of the nation’s finances. At the moment the appetite for rigorous thinking and the exercise of tough choices is strongest among people broadly sympathetic to Miliband’s programme. Policy minds of the left and centre left are engaging constructively with the challenge that they see stretching out before the Labour party.

There is, for example, an important essay coming up in the forthcoming edition of Juncture, a journal produced by the Institute for Public Policy Research, co-authored by Nick Pearce, IPPR director, and Gavin Kelly of the Resolution Foundation (writing in a personal capacity). They were two of the most senior figures in the Downing Street policy unit under Labour and are highly respected in Whitehall and across party lines in Westminster. The article explores in new detail the options available to a government of the centre-left that is both realistic about the fiscal situation and ambitious in effecting radical structural reforms to the economy. It deserves and will no doubt get close attention from the Labour leadership.

Unless embraced and acted upon, that spirit of helpful engagement could quickly be overshadowed by more hostile interventions. The derision initially heaped on Miliband’s conference speech last year was checked by a dawning recognition among critics that the Labour leader, for all the flaws of his presentation, might actually have been on to something. There was even a moment earlier this year when it looked as if Miliband had started something of an intellectual arms race for ownership of the “moral/responsible capitalism” agenda. Conservative engagement on that front withered in the radioactive fall out from George Osborne’s disastrous budget.

Yet the reprieve for Miliband is temporary. He might have persuaded a few people that he has an interesting analysis of what is wrong with the British economy, but if he can’t then turn that into a credible prescription for fixing it, the scorn will return with renewed force. Instead of attacking him for having no ideas, the Tories can attack him for having unworkable ideas, at best, or – more likely – just talking high fallutin’ gibberish that doesn’t contain a credible promise to bring home the national bacon. It is a law of politics that when a candidate fails to give his agenda definition, his enemies will gladly define it for him in the worst possible terms. That, broadly speaking, is what happened to Cameron’s Big Society. (I wrote more about the lessons for Miliband from that project here.)

Which brings us back to Answers (a) and (b) to those questions at the start. Miliband is immensely comfortable with the language of ideas and theory. He knows he has to express himself also through experience of the real world, which is where politics has to operate to be in any way effective. But it is hard to escape the impression from his speeches and media performances that he finds the gear change awkward. It is as if he is running a constant process of simultaneous translation in his head from the (a) answer to the (b) one … or relying on aides to do the translation for him.

The problem is not insurmountable. It helps that Cameron has his own very different problems indicating that he understands the pain and insecurity that a stagnant economy inflicts on people who have not benefited from a charmed cruise up to the highest office in the land. But when he performs at his best, Cameron is fluent in answers (b). His difficulty, as some more thoughtful Tories recognise, is that he didn’t bother even thinking through answers (a) in opposition.

And yes, I recognise that this long, rambling blog post has hardly been a lesson in accessible prose, for which apologies to anyone who has read this far. The point is that Miliband has launched himself into the new political season invigorated and confident with what he sees as a bold new message. He believes it is exciting, challenging and disruptive to conventional thinking and stale orthodoxy. All of which might be true. But there is a kind of radicalism, especially on the left, that, when neatly encapsulated in abstract theories, is also a place of retreat, a kind of shying away from the grim, hand-dirtying business of making political choices and rough compromises that affect people’s lives. So, a question for the Labour party conference this year - is Ed Miliband:

(a) The leader who took the first steps to set Labour on a course of recovery from the divisions of the Blair/Brown era and established an interesting intellectual framework for his successors to build a credible platform for 21st Century social democracy in an age of austerity?

Or can he be:

(b) Britain’s next Prime Minister?

Ed Miliband - "immensely comfortable with the language of ideas and theory." Photograph: Getty Images.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

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Let's turn RBS into a bank for the public interest

A tarnished symbol of global finance could be remade as a network of local banks. 

The Royal Bank of Scotland has now been losing money for nine consecutive years. Today’s announcement of a further £7bn yearly loss at the publicly-owned bank is just the latest evidence that RBS is essentially unsellable. The difference this time is that the Government seems finally to have accepted that fact.

Up until now, the government had been reluctant to intervene in the running of the business, instead insisting that it will be sold back to the private sector when the time is right. But these losses come just a week after the government announced that it is abandoning plans to sell Williams & Glynn – an RBS subsidiary which has over 300 branches and £22bn of customer deposits.

After a series of expensive delays and a lack of buyer interest, the government now plans to retain Williams & Glynn within the RBS group and instead attempt to boost competition in the business lending market by granting smaller "challenger banks" access to RBS’s branch infrastructure. It also plans to provide funding to encourage small businesses to switch their accounts away from RBS.

As a major public asset, RBS should be used to help achieve wider objectives. Improving how the banking sector serves small businesses should be the top priority, and it is good to see the government start to move in this direction. But to make the most of RBS, they should be going much further.

The public stake in RBS gives us a unique opportunity to create new banking institutions that will genuinely put the interests of the UK’s small businesses first. The New Economics Foundation has proposed turning RBS into a network of local banks with a public interest mandate to serve their local area, lend to small businesses and provide universal access to banking services. If the government is serious about rebalancing the economy and meeting the needs of those who feel left behind, this is the path they should take with RBS.

Small and medium sized enterprises are the lifeblood of the UK economy, and they depend on banking services to fund investment and provide a safe place to store money. For centuries a healthy relationship between businesses and banks has been a cornerstone of UK prosperity.

However, in recent decades this relationship has broken down. Small businesses have repeatedly fallen victim to exploitative practice by the big banks, including the the mis-selling of loans and instances of deliberate asset stripping. Affected business owners have not only lost their livelihoods due to the stress of their treatment at the hands of these banks, but have also experienced family break-ups and deteriorating physical and mental health. Others have been made homeless or bankrupt.

Meanwhile, many businesses struggle to get access to the finance they need to grow and expand. Small firms have always had trouble accessing finance, but in recent decades this problem has intensified as the UK banking sector has come to be dominated by a handful of large, universal, shareholder-owned banks.

Without a focus on specific geographical areas or social objectives, these banks choose to lend to the most profitable activities, and lending to local businesses tends to be less profitable than other activities such as mortgage lending and lending to other financial institutions.

The result is that since the mid-1980s the share of lending going to non-financial businesses has been falling rapidly. Today, lending to small and medium sized businesses accounts for just 4 per cent of bank lending.

Of the relatively small amount of business lending that does occur in the UK, most is heavily concentrated in London and surrounding areas. The UK’s homogenous and highly concentrated banking sector is therefore hampering economic development, starving communities of investment and making regional imbalances worse.

The government’s plans to encourage business customers to switch away from RBS to another bank will not do much to solve this problem. With the market dominated by a small number of large shareholder-owned banks who all behave in similar ways (and who have been hit by repeated scandals), businesses do not have any real choice.

If the government were to go further and turn RBS into a network of local banks, it would be a vital first step in regenerating disenfranchised communities, rebalancing the UK’s economy and staving off any economic downturn that may be on the horizon. Evidence shows that geographically limited stakeholder banks direct a much greater proportion of their capital towards lending in the real economy. By only investing in their local area, these banks help create and retain wealth regionally rather than making existing geographic imbalances worce.

Big, deep challenges require big, deep solutions. It’s time for the government to make banking work for small businesses once again.

Laurie Macfarlane is an economist at the New Economics Foundation