What does a left-wing 'rebalancing' look like?

To stand apart from Cameron and Clegg, Miliband needs a radical agenda for the bottom half of the labour market.

With a little over two years until the next general election, Labour's objectives for economic reform feel ambitious yet vague. We can all sign up to the UK being a bit less reliant on the financial sector, but then what? When people on the left talk about rebalancing the economy we need to understand what it is we are trying to rebalance and how - and say loud and clear why the right's version of rebalancing will fail. This weekend Ed Miliband needs to respond to this challenge, when he addresses the Fabian New Year Conference on his plans for 'one nation' Britain.

In his recent speeches, Miliband has used words like "responsibility" and "rebalancing" a lot, but they raise as many questions as they answer. Economic rebalancing can’t be achieved by a few eye-catching attacks on gas companies or millionaires’ pension funds. Reforming capitalism so that it works in everyone’s interests, which is what ‘one nation’ must mean, implies the UK turning its back on its 30-year mid-Atlantic experiment and transforming itself into a mainstream north European economy.

The coalition loves to talk about our unbalanced public finances but every pound borrowed is a pound lent, so Miliband must retort that excessive saving by companies is the flip-side of excessive public borrowing. Labour should promise to unwind the economic forces which have led companies to accumulate and lend so much cash, by creating the conditions in which firms want to investment for the long-term. This will mean sweeping reforms to the financial system whose short-termism has incentivised corporate executives to deliver fast profits not long-term value.

Labour also needs to expose the coalition’s ill-disguised plot to turn temporary deficit reduction into a permanent contraction of the state. Rather than aiming for public spending to return to the long-term average of 42 to 43 per cent of GDP, the chancellor plans a retreat from the crisis peak of 47 per cent all the way down to 39 per cent. Miliband has little choice but to argue for a different path because he believes that public spending matters for economic growth as well as social justice. For George Osborne’s cuts make it almost impossible to spend decent amounts on infrastructure, housing, science or skills.

The coalition has set the terms of the debate so well that retaining public spending at more than 40 pence in the pound has become a controversial proposition. But with Obama-style tax rises for the rich, Labour can set out an alternative route to sound public finances that avoids ’overshooting’ Britain’s historic levels of spending.

This is not to say that Miliband should defend every corner of public spending. This week’s debate on benefit uprating focused on how many working families receive tax credits, but it dwelt little on why so much money needs to be spent topping up low pay in the first place. The truth is that Britain has the highest share of low paid workers in any EU country outside eastern Europe. The Treasury would save huge sums on in-work benefits if rather than having 21 per cent of workers on low pay we could match Finland’s eight per cent.

So Labour’s next priority for a rebalanced economy must be a radical agenda for the bottom half of the labour market. Jobs need to be designed and people trained so work is more productive and secure, which in turn can bring about better pay and progression. This is about culture not just economics, because there are huge disparities in the pay, status and value of low earning  ’women’s work’ across Europe.

Labour must accept that transforming the bottom of the labour market will take change within companies, including laws to require greater worker representation and ownership. And Miliband should say that if industrial sectors and supply-chains do not work together to improve conditions he will impose new public solutions like wage councils or training levies.

But he also needs to promise a decent floor on low pay for everyone. Miliband has talked a lot about the ‘living wage’ but has never quite embraced it as a national policy.  This week he should promise an ‘escalator’ to take the minimum wage, in small increments over five years, to the level of the living wage, which is £7.45 per hour today. Even for the worst hit sector, hospitality, this would mean an increase in payroll costs of a little more than one per cent per year.

If Labour’s ‘one nation’ version of economic rebalancing is to mean anything, it must be about reducing the entrenched inequality of the British labour market and making it harder for employers to make a profit through public subsidies on poverty pay. To stand apart from Cameron and Clegg, this should be Miliband’s first step in a concrete plan to change the character of British capitalism and take the country towards the mainstream of northern European economies.

Andrew Harrop is general secretary of the Fabian Society and editor of the Fabians’ new pamphlet The Great Rebalancing: how to fix the broken economy

"We can all sign up to the UK being a bit less reliant on the financial sector, but then what?" Photograph: Getty Images.

Andrew Harrop is general secretary of the Fabian Society.

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Leader: Trump and an age of disorder

Mr Trump’s disregard for domestic and international norms represents an unprecedented challenge to established institutions.

The US presidency has not always been held by men of distinction and honour, but Donald Trump is by some distance its least qualified occupant. The leader of the world’s sole superpower has no record of political or military service and is ignorant of foreign affairs. Throughout his campaign, he repeatedly showed himself to be a racist, a misogynist, a braggart and a narcissist.

The naive hope that Mr Trump’s victory would herald a great moderation was dispelled by his conduct during the transition. He compared his country’s intelligence services to those of Nazi Germany and repeatedly denied Russian interference in the election. He derided Nato as “obsolete” and predicted the demise of the European Union. He reaffirmed his commitment to dismantling Obamacare and to overturning Roe v Wade. He doled out jobs to white nationalists, protectionists and family members. He denounced US citizens for demonstrating against him. Asked whether he regretted any part of his vulgar campaign, he replied: “No, I won.”

Of all his predilections, Mr Trump’s affection for Vladimir Putin is perhaps the most troubling. When the 2012 Republican presidential nominee, Mitt Romney, warned that Russia was the “number one geopolitical foe” of the US, he was mocked by Barack Obama. Yet his remark proved prescient. Rather than regarding Mr Putin as a foe, however, Mr Trump fetes him as a friend. The Russian president aims to use the US president’s goodwill to secure the removal of American sanctions, recognition of Russia’s annexation of Crimea and respect for the murderous reign of the Syrian president, Bashar al-Assad. He has a worryingly high chance of success.

Whether or not Mr Trump has personal motives for his fealty (as a lurid security dossier alleges), he and Mr Putin share a political outlook. Both men desire a world in which “strongmen” are free to abuse their citizens’ human rights without fear of external rebuke. Mr Trump’s refusal to commit to Nato’s principle of collective defence provides Mr Putin with every incentive to pursue his expansionist desires. The historic achievement of peace and stability in eastern Europe is in danger.

As he seeks reconciliation with Russia, Mr Trump is simultaneously pursuing conflict with China. He broke with precedent by speaking on the telephone with the Taiwanese president, Tsai Ing-wen, and used Twitter to berate the Chinese government. Rex Tillerson, Mr Trump’s secretary of state nominee, has threatened an American blockade of the South China Sea islands.

Mr Trump’s disregard for domestic and international norms represents an unprecedented challenge to established institutions. The US constitution, with its separation of powers, was designed to restrain autocrats such as the new president. Yet, in addition to the White House, the Republicans also control Congress and two-thirds of governorships and state houses. Mr Trump’s first Supreme Court appointment will ensure a conservative judicial majority. The decline of established print titles and the growth of “fake news” weaken another source of accountability.

In these circumstances, there is a heightened responsibility on the US’s allies to challenge, rather than to indulge, Mr Trump. Angela Merkel’s warning that co-operation was conditional on his respect for liberal and democratic values was a model of the former. Michael Gove’s obsequious interview with Mr Trump was a dismal example of the latter.

Theresa May has rightly rebuked the president for his treatment of women and has toughened Britain’s stance against Russian revanchism. Yet, although the UK must maintain working relations with the US, she should not allow the prospect of a future trade deal to skew her attitude towards Mr Trump. Any agreement is years away and the president’s protectionist proclivities could yet thwart British hopes of a beneficial outcome.

The diplomatic and political conventions embodied by the “special relationship” have endured for more than seven decades. However, Mr Trump’s election may necessitate their demise. It was the belief that the UK must stand “shoulder to shoulder” with the US that led Tony Blair into the ruinous Iraq War. In this new age of disorder, Western leaders must avoid being willing accomplices to Mr Trump’s agenda. Intense scepticism, rather than sycophancy, should define their response.

This article first appeared in the 19 January 2016 issue of the New Statesman, The Trump era