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Frances O'Grady: how to rebuild Britain

Britain urgently needs a new economic settlement, argues Frances O’Grady of the TUC. That calls for a strong industrial policy, with brakes on the banks, revived collective bargaining and support for small business.

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

This article first appeared in the 16 July 2012 issue of the New Statesman, Age of Crisis

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The Conservatives have failed on home ownership. Here's how Labour can do better

Far from helping first-time buyers, the government is robbing Peter to pay Paul

Making it easier for people to own their own first home is something to be celebrated. Most families would love to have the financial stability and permanency of home ownership. But the plans announced today to build 200,000 ‘starter homes’ are too little, too late.

The dire housing situation of our Greater London constituency of Mitcham & Morden is an indicator of the crisis across the country. In our area, house prices have increased by a staggering 42 per cent over the last three years alone, while the cost of private rent has increased by 22 per cent. Meanwhile, over 8200 residents are on the housing register, families on low incomes bidding for the small number of affordable housing in the area. In sum, these issues are making our area increasingly unaffordable for buyers, private renters and those in need of social and council housing.

But under these new plans, which sweep away planning rules that require property developers to build affordable homes for rent in order to increase the building homes for first-time buyers, a game of political smoke and mirrors is being conducted. Both renters and first-time buyers are desperately in need of government help, and a policy that pits the two against one another is robbing Peter to pay Paul. We need homes both to rent and to buy.

The fact is, removing the compulsion to provide properties for affordable rent will be disastrous for the many who cannot afford to buy. Presently, over half of the UK’s affordable homes are now built as part of private sector housing developments. Now this is going to be rolled back, and local government funds are increasingly being cut while housing associations are losing incentives to build, we have to ask ourselves, who will build the affordable properties we need to rent?

On top of this, these new houses are anything but ‘affordable’. The starter homes would be sold at a discount of 20 per cent, which is not insignificant. However, the policy is a non-starter for families on typical wages across most of the country, not just in London where the situation is even worse. Analysis by Shelter has demonstrated that families working for average local earnings will be priced out of these ‘affordable’ properties in 58 per cent of local authorities by 2020. On top of this, families earning George Osborne’s new ‘National Living Wage’ will still be priced out of 98 per cent of the country.

So who is this scheme for? Clearly not typical earners. A couple in London will need to earn £76,957 in London and £50,266 in the rest of the country to benefit from this new policy, indicating that ‘starter homes’ are for the benefit of wealthy, young professionals only.

Meanwhile, the home-owning prospects of working families on middle and low incomes will be squeezed further as the ‘Starter Homes’ discounts are funded by eliminating the affordable housing obligations of private property developers, who are presently generating homes for social housing tenants and shared ownership. These more affordable rental properties will now be replaced in essence with properties that most people will never be able to afford. It is great to help high earners own their own first homes, but it is not acceptable to do so at the expense of the prospects of middle and low earners.

We desperately want to see more first-time home owners, so that working people can work towards something solid and as financially stable as possible, rather than being at the mercy of private landlords.

But this policy should be a welcome addition to the existing range of affordable housing, rather than seeking to replace them.

As the New Statesman has already noted, the announcement is bad policy, but great politics for the Conservatives. Cameron sounds as if he is radically redressing housing crisis, while actually only really making the crisis better for high earners and large property developers who will ultimately be making a larger profit.

The Conservatives are also redefining what the priorities of “affordable housing” are, for obviously political reasons, as they are convinced that homeowners are more likely to vote for them - and that renters are not. In total, we believe this is indicative of crude political manoeuvring, meaning ordinary, working people lose out, again and again.

Labour needs to be careful in its criticism of the plans. We must absolutely fight the flawed logic of a policy that strengthens the situation of those lucky enough to already have the upper hand, at the literal expense of everyone else. But we need to do so while demonstrating that we understand and intrinsically share the universal aspiration of home security and permanency.

We need to fight for our own alternative that will broaden housing aspirations, rather than limit them, and demonstrate in Labour councils nationwide how we will fight for them. We can do this by fighting for shared ownership, ‘flexi-rent’ products, and rent-to-buy models that will make home ownership a reality for people on average incomes, alongside those earning most.

For instance, Merton council have worked in partnership with the Y:Cube development, which has just completed thirty-six factory-built, pre-fabricated, affordable apartments. The development was relatively low cost, constructed off-site, and the apartments are rented out at 65 per cent of the area’s market rent, while also being compact and energy efficient, with low maintenance costs for the tenant. Excellent developments like this also offer a real social investment for investors, while providing a solid return too: in short, profitability with a strong social conscience, fulfilling the housing needs of young renters.

First-time ownership is rapidly becoming a luxury that fewer and fewer of us will ever afford. But all hard-working people deserve a shot at it, something that the new Conservative government struggle to understand.