To have a clear line on the economy, Miliband needs a line on the unions

Labour policy formation is one long seminar that skirts around an obvious obstacle to reform.

It is good news that unemployment has fallen again. The government will be pleased; Labour will counsel caution. It is too early to identify a trend in employment growth. Inflation was up yesterday, so the decline in real wages and the squeeze on low-income households continues. The Bank of England has downgraded its growth forecast for 2013. Only around 20 per cent of the cuts originally envisaged in George Osborne’s "Plan A" have been implemented so far and a whole new set of cuts will be announced in the Autumn Statement on 5 December. There are always reasons not to be cheerful.

But that is a substantial part of Labour’s problem when it comes to the economy. It has become tactically reliant on gloom, even when Ed Miliband insists his strategic vision – the "One Nation" proposition – is inspiring and optimistic.

A hazard for the Tories, as I’ve noted before, is that the economy will appear to recover a bit on paper, in a way that emboldens ministers to tell people they are better off and that the plan is working, but without the public experiencing a tangible improvement in their circumstances. Wage stagnation makes it quite likely many people will feel poorer in 2015 than they did when the coalition came to power. The Chancellor or Prime Minister insisting voters are better off than they know – because, for example, the long-term prospects for fiscal sustainability are mildly improved - will just reinforce the sense that Conservatives dwell on a different, more expensively furnished planet.   

For Labour to capitalise on that weakness they need to meet certain tests. They need to demonstrate that they understand that public money doesn’t grow on Treasury trees; that it comes from real people’s pockets. Even if the pooling of that resource for good social ends is a desirable political project, consent for that harvest can’t be taken for granted. Crucially, the mechanism for allocating those funds cannot be seen as wasteful or self-serving.

In other words, Labour needs to sound assertive in its ambitions to reform the state. (That isn’t the same thing as shrinking the state, but it probably requires some recognition that the urge to expand the state as the default answer to social problems looks implausible in the current climate.)

There has been a whole lot of discussion in this area recently. See this from earlier in the week, via the IPPR, and screeds on Labour List, guest edited this week by Jon Cruddas.  Reinforcing the urgency of the whole conversation is this report from the RSA and the SMF.

An essential, albeit quite technical observation from that analysis is that falling unemployment suggests that the "output gap" – the gulf between the economy’s current performance and its potential – is smaller than the Treasury has estimated. Crudely speaking, that suggests the portion of the deficit that won’t be simply burnt off by a return to growth is higher – it is structurally baked in harder than previously thought. On top of that are all sorts of bleak accounts of the mounting demographic pressures on society – the hard, upward pressure on health spending and pensions in particular.

One political conclusion from all this is that Labour should speak more openly and frankly about the scale of the fiscal challenge ahead and the requirement that public service delivery change in response. That has to be the safer option than the current trajectory, which is to concede in the vaguest possible terms that budget discipline is a recognised yet distasteful obligation without really engaging in the conversation about how it will be enacted.

In a perverse way, the difficulties presented by the long-term outlook give cover to Labour to move on from the necessarily short-term and abstract macroeconomic argument it has been engaged in for the past two years. It is entirely possible that Ed Balls has been right about the need for fiscal stimulus and also that no-one cares. The non-existent growth we might have had if different policies had been pursued in 2010 can’t be presented on the doorstep as a reason to vote Labour in 2015.

The Tories have a very different problem. No-one doubts their determination to make cuts, but their underlying motive and, increasingly, their competence in administering austerity are in doubt. The Conservatives have to tread carefully when it comes to advertising their intention to reform the state, because for many people that sounds like a euphemism for indiscriminate privatisation and public sector redundancies. That suspicion, expressed in opinion polls and focus groups, was a significant factor in decisions last year to scale down ambitious plans to reconfigure vast swathes of the public sector – with much more outsourcing to private companies – under a "Big Society" rubric. Such caution was a source of frustration to Steve Hilton, David Cameron’s strategic advisor, and a factor leading to his departure from Downing Street. Without Hilton the impetus for dramatic, visionary reform of the state has largely gone. The Tories' difficulties in persuading people they are reliable stewards of services will be exacerbated as budget pressure and a disorderly restructuring wreak havoc in the NHS.

There is an opportunity there for Labour, presuming Ed Miliband has the courage to seize it. Voters know that Labour cares about the public sector. Of course it does. Miliband could use that confidence as a cudgel to beat the coalition, accusing them of senseless vandalism. He could also use it as a platform to win support for what would be advertised as a fairer, more compassionate approach to reform  - one that is conducted with deference to the ethos of public service, without a fetishistic faith in private enterprise but in recognition of the fiscal challenge ahead.

In so doing he could kill the Tory charge that Labour are in denial about the deficit and national debt. Instead of saying, in abstract terms, that a Miliband government would take tough decisions, the opposition leader should talk up exciting ideas for innovation in the way services are delivered. He needs to find dynamic charities and social enterprises and go on about how their creativity shows the way forward. The very fact of advertising an interest in better, more efficient, more effective ways to get the kinds of outcomes Labour has traditionally relied on Whitehall to deliver contains in it the recognition of the need to get more for less out of public services. It swallows up the deficit denial charge whole without even having to rebut it directly.

There is an obvious obstacle to this path: trade union leaders won’t like it. Once you start talking about alternative mechanisms for delivering services, there will be people in the labour movement who smell Blairite conspiracy and crypto-Toryism under the bed. That will be the case even if Miliband goes out of his way to emphasise that reform will be conducted wholly in keeping with the traditional values of fairness and equality that have historically animated the left.

Senior figures around Miliband privately concede that this is a problem. They know that moving the party’s economic story beyond outraged rejection of the decisions George Osborne is making will require some account of public sector reform. They also know that the broad "One Nation" vision is hard to turn into a practical agenda for changing the way the state and the economy are organised without also having an agenda for the way labour is organised. As one shadow cabinet friend of Miliband puts it: "Before the election we’ll need a positive story about the role of unions in responsible capitalism." The Labour leader knows that story needs writing, but there never seems to be a good time to sit down and write it.   

Miliband’s cheerleaders on Labour blogs and in think tanks and seminars are the same – long on paradigms and re-imaginings of the role of government, short on specific reference to the unions. That will have to change before the party can draft a manifesto. Ideally, the unions themselves could start talking seriously and practically about imaginative ways to innovate in the provision of public services. They should do. They probably won’t. 

Ed Miliband addresses TUC members in Hyde Park last month after an anti-austerity march. Photograph: Getty Images.

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

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Michelle Obama's powerful speech demolishes Donald Trump without even mentioning his name

This is one speech he won't be able to steal. 

After her stirring speech at the Democratic Convention, Michelle Obama can be sure of one thing - Melania Trump won't be able to copy it.

Obama, like her husband, is a fine orator, so much so that the wife of Republican nominee Donald Trump was widely suspected of borrowing from her speeches.

But those who crowded into the audience on Monday night could be sure of the real deal. 

Obama did not mention Trump by name, but in an implicit criticism of him, she spoke passionately about the responsibilities of the Presidency, and how the United States had moved on since the days of slavery and oppression. 

The Obamas knew their kids were watching them, she said: "We know that our words and actions matter." 

And in a reference to Trump's Twitter obsession, she declared: The issues a President faces "cannot be boiled down to 140 characters".

Obama, whose husband fought a fierce campaign against Hillary Clinton to clinch the Democratic nomination in 2008, now heaped praise on his former rival. 

Clinton was a "true public servant" who "did not pack up and go home" after losing to Obama in 2008, she said. She had carried out "relentless, thankless work" to actually make a difference in children's lives. 

And she reminded the audience the Presidential election was not just about left-right politics: "It is about who will have the power to shape our children for the next four or eight years of their lives."

But the African-American First Lady's most powerful statements were a reflection on race, gender and social mobility - issues far outside of Trump territory. 

In a reference to Clinton's 2008 concession speech, where she talked of making "cracks in the glass ceiling", Obama declared: 

"That is the story of this country, the story that has brought me to this stage tonight, the story of generations of people who felt the lash of bondage, the shame of servitude, the sting of segregation, but who kept on striving and hoping and doing what needed to be done so that today I wake up every morning in a house that was built by slaves.

"And I watch my daughters, two beautiful, intelligent, black young women playing with their dogs on the White House lawn.

"And because of Hillary Clinton, my daughters and all our sons and daughters now take for granted that a woman can be president of the United States."

She also recalled the little black boy who made headlines around the world when he visited the White House and asked the President: "Is my hair like yours?"

Obama's calm but intense delivery brought the packed arena to its feet, and earned her several standing ovations. Bill Clinton, former President and husband of Hillary, was seen to say "wow" from his place in the audience.

She ended with a final dig at Trump's slogan "Make America Great Again". Obama told the crowd:

"Don’t let anyone ever tell you that this country isn’t great, that somehow we need to make it great again. 

"Because this right now is the greatest country on earth."

Michelle Obama's speech: The best quotes

On Obama's 2008 victory

I will never forget that winter morning as I watched our girls, just 7 and 10 years old, pile into those black SUVs with all those big men with guns.

And I saw their little faces pressed up against the window, and the only thing I could think was, what have we done?

On bringing up kids

We insist that the hateful language they hear from public figures on TV does not represent the true spirit of this country.

How we explain that when someone is cruel or acts like a bully, you don’t stoop to their level. No, our motto is, when they go low, we go high.

On Hillary Clinton

What I admire most about Hillary is that she never buckles under pressure. She never takes the easy way out. And Hillary Clinton has never quit on anything in her life.

On who shouldn't be President

When you have the nuclear codes at your fingertips and the military in your command, you can’t make snap decisions. You can’t have a thin skin or a tendency to lash out. You need to be steady and measured and well-informed.

On equality

I wake up every morning in a house that was built by slaves. And I watch my daughters, two beautiful, intelligent, black young women playing with their dogs on the White House lawn.

And because of Hillary Clinton, my daughters and all our sons and daughters now take for granted that a woman can be president of the United States.

On the US

Don’t let anyone ever tell you that this country isn’t great, that somehow we need to make it great again. Because this right now is the greatest country on earth.

You can read a copy of the full speech here.