Miliband needs entrepreneur evangelists

The Labour leader's critique of "predatory" capitalism would be more effective delivered by experien

In a speech yesterday Ed Miliband set out in more detail the economic thesis he first outlined in his speech to the Labour party conference. It is, in essence, that there are deep structural flaws in the way British capitalism works. There has, the Labour leader believes, been too much emphasis on short-term profit-seeking and not enough consideration for long-term investment. The UK economy has become host to too much "predatory" behaviour and should foster more sustainable, responsible, "productive" business practices.

When Miliband first set out this predator/producer distinction he was quickly ridiculed by commentators and savagely attacked by the Conservatives. His critics presented the Labour position as wanting to install some moral arbiter in the Treasury passing judgement on good and bad businesses - rewarding the former with tax breaks and punishing the latter with, well, who knows?

That, Labour insists, is a crude caricature of Miliband's argument, but privately senior party figures accept that they left themselves open to such an attack by failing to flesh out the idea in more detail and, crucially, by failing to follow up the leader's conference speech with more concrete examples of what he had in mind. Many in the shadow cabinet also feel that the speech itself suffered from being re-written too many times with input from too many people, so the core argument was buried in caveats and digressions.

Yesterday's speech was certainly clearer and more focused - a virtue, perhaps, of being dedicated to one subject and so relieved of the pressures of a leader's speech at a party conference, which, convention dictates, has to cover absolutely everything from foreign policy to lame jokes and semi-fictional anecdotes that "personalise" the policy along the lines "I met a brave woman in Dudley ... her struggle demonstrates why ..."

Miliband is not a natural performer, so that idiom doesn't suit him. He is more effective when simply making a straight argument, as he did yesterday, although of course far fewer people are listening when it is just another speech on a Thursday lunchtime. Miliband is also helped by having Chuka Umunna installed as his shadow Business Secretary, making very much the same argument, as he did in a speech on Monday. Umunna is young, unfamiliar to the voters - so can plausibly represent a new chapter in the Labour story - and a fluent television performer. When he was elevated to the shadow cabinet last month there was a fair amount of whispering about over-promotion (he was elected to parliament in 2010). It is fair to say that Umunna's rapid rise and supreme confidence have ruffled a few feathers. Politics, like every other profession, is hardly free from envy. But many critics are already being swayed by what is generally felt to be an assured start by the shadow business secretary.

An essential part of Umunna's brief is to go around persuading businesses small and large - and the City - that Labour has a credible position not just an elaborate whinge. In that respect, his youth is a handicap. Business audiences are always deeply suspicious of politicians who have no experience of enterprise themselves ... which, these days, is most of them. George Osborne was routinely dismissed as a lightweight until the moment he became Chancellor.

For Labour this is a particular problem as the party is dominated by career politicians and people who have risen up through the trade union movement. It was a noticeable feature of the party's conference this year that hardly anyone spoke from the platform with long experience of the private sector. It is a gap that Ed Miliband urgently needs to fill, both in the way the party presents itself to the public and on his own staff. He is getting better at explaining his "predatory v productive capitalism" idea, but that will have limited effect unless it is bolstered by actual business people saying the same thing. Speeches will never be enough. He needs some heavyweight capitalists joining in to say, in effect, "yes, we are with Ed on this." And he needs someone in his immediate entourage, currently full of academics, think tankers and ex-journalists, who can bring the experience of running a business to the heart of the leader's operation. There are ethical, conscientious, socially responsible entrepreneurs out there. Ed Miliband needs to be recruiting them as evangelists for Labour's vision of a better capitalism. Otherwise his position on the economy will struggle to graduate from being an abstract critique to being a serious political proposition.

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