Once derided as “picking winners”, industrial policy is the acceptable face of post-crash capitalism. Governments of all stripes want to deliver growth and rebalance their economies now that they have learned the hard way that, left to their own devices, markets pick expensive banking losers. That is going to require intervention. But if we are to deal with high unemployment, rising inequality and falling living standards we cannot dust down the old tools. If universal political franchise was the main achievement of the past century, democratising the economy must become the defining goal for this one.
In recent TUC polling, an intelligent industrial strategy emerged as just about the most popular policy response to recession. The campaign to save the Bombardier train-making plant in Derby hit a nerve. This is not Little Englander protectionism. Bombardier is a Canadian-owned multinational. But the British public, unlike too many politicians, instinctively understands the importance of defending decent jobs and protecting the UK’s strategic manufacturing capability.
For those interested in a new industrial policy, the story is instructive. First, Britain’s notoriously stop-go approach to government procurement led to lower levels of long-term investment in the plant than for its French and German counterparts. Second, rather than awarding the contract on best value and manufacturing quality alone, the contract was skewed in favour of companies with an in-house financing facility. And third, using the false alibi of EU competition rules, the government took no account of the long-term value to the Exchequer of protecting relatively well-paid, skilled jobs and apprenticeships in an area of growing unemployment.
The union campaign began in the normal way as an action to defend jobs, but it quickly raised broader issues. If we want to decarbonise the economy, shouldn’t we nurture those parts, such as public transport, that support this goal? Surely the state has a responsibility for the long-term public interest, not just the bottom line? And, given this real-life demonstration of UK management and unions’ capacity to bargain over different interests and make common cause, why not guarantee the workforce a voice in corporate decisions, such as investment, that affect people’s lives and local communities?
If rather late in the day, the last Labour government reawakened its interest in industrial policy. The result, New Industry, New Jobs, set out themes since taken up by the Business Secretary, Vince Cable, if not always with No 10’s support. This approach is based on identifying the UK’s comparative advantages, an active procurement policy and investment in skills. There is nothing wrong with any of that, but it is not enough. The challenges we face are just too great. The destructive power of global financial capitalism and the growing threat of climate change leave its prescriptions for rebalancing the economy looking a bit thin. In particular, we need to reform the finance and banking system, corporate governance and taxation, and reassess the nature of what it is that companies do.
The UK has a poor investment record. According to IMF data, we have come seventh out of the top seven industrialised countries since 1999. TUC analysis shows that the collapse of investment in the depths of the 2008/2009 crash accounts for nearly half of the drop in GDP. Yet, despite a falling wages share contributing to the catastrophic drop in demand, non-financial corporations are sitting on a cash pile of £724bn, equivalent to half of UK GDP.
There is little chance of our banks voluntarily riding to the rescue. For all the fanfare surrounding Project Merlin, and even though the taxpayer still holds a significant stake in our banking system, relatively few loans go to the kinds of companies that it is generally agreed would rebalance the economy. On the contrary, the latest figures show that banks lend more than three times as much to real-estate and financial companies (40 per cent) as to those in the real economy (12.6 per cent). Little wonder that the call for a new state investment bank, with lending targets for small and medium-sized enterprises, infrastructure and the regions to help bridge the north-south divide, is gaining ground.
Unless the Chancellor buckles under lobbying by the City, the implementation of the recommendations by the Vickers commission will require the ring-fencing of retail banking and tougher capital requirements. However, the next big question is how to guarantee more investment in the real economy – and that will take tackling the financial sector’s compulsive gambling habits. Greater diversification of ownership (including mutualisation), tougher regulation of derivatives and a ban on proprietary trading, as well as a “Tobin” tax on financial transactions to raise funds and curb speculation, are among the answers.
Turn up the heat
On the totemic issue of controlling top pay, successful shareholder rebellions are still rare. Remuneration committees’ obligations to take account of workforce concerns are easily disregarded. While pressure groups and pension trustees have turned up the heat on fund managers, for the most part success is measured by the media coverage of protests, rather than actual changes to boardroom decisions.
In free societies, collective bargaining is seen as an essential brake on unbridled corporate power and a means to ensure a fairer distribution of wealth between wages and profits. In the UK, however, collective bargaining coverage in the private sector is down to 17 per cent and looks set to shrink further unless new institutions are developed to shore it up. German-style worker representation on supervisory boards is only one model, but a commitment to exploring the principle of codetermination, and how corporate governance must be reformed to enact it, would be a good start.
Free-market critics of industrial policy are fond of pointing back to the 1970s as a time when taxpayers’ money was wasted on bailing out lame ducks. Any industrial policy involves risk but its detractors omit to mention that among those “lame ducks” was Rolls-Royce, now seen as a British industrial success.
Now, the unions are calling for “a just transition”. This involves putting decent jobs, fair wages, high skills and a voice for ordinary workers at the heart of a green industrial strategy for change. Most people want to feel proud of the work that they do and the companies for which they work. They deserve a seat at the table where decisions are made.
From the ashes of a financial crash, there is a chance to create a new economic settlement that is more equal, sustainable and democratic.
Frances O’Grady is deputy general secretary of the Trades Union Congress and will become general secretary at the end of 2012