Full transcript | Chuka Umunna | Speech on Labour and business | CBI | 29 February 2012

"Business leader after business leader has told me they want to see an active government working in

Introduction

It is really wonderful to be back here at Exchange House - this is the first time I have been in the building since I left just under 6 years ago.

I am very proud to be able to say I started my legal career and qualified at Herbert Smith, a world class firm. I worked - yes, occasionally on the odd "all nighter"- on contentious and non contentious matters, the domestic and the international and it gave me a real grounding in the worlds of business and finance.

I would also like to thank, John Cridland and the CBI for inviting me to speak today. We attach huge importance to our relations with the CBI and the wider business community. And before I turn to the subject matter of my speech, let me say a little bit about our relationship with you.

Labour's relations with business

During our time in government, Labour had a good record on business. An additional 1.1 million new businesses were created under Tony Blair and Gordon Brown. By the time we left office, the World Bank ranked the UK the best country in Europe for "ease of doing business", and fourth best in the world, ahead of the U.S. However, clearly we did not get everything right and we must have the humility to say so.

The brutal truth is that by the time of the last election we had lost the trust of many of you - trust we had worked so hard, over so many years to earn. There weren't many prominent business people prepared to come out for us in 2010.

For someone who has worked for business and is immensely proud of what British business has achieved over the decades, that was a source of great regret to me as a humble parliamentary candidate in May 2010. Why? Because I know that when it comes to politics, the support of the business community does not belong to any one particular political party.

Most business people tell me what matters to them is not party politics - I find there are not on the whole partisan - but what policy makers are going to do to foster the conditions for your businesses to prosper and grow. And just as there is a diversity of views in politics about the best way forward in different policy areas, so there is a diversity of views in business. Take the debate around executive remuneration. On the one hand, you have Richard Lambert, the former Director General of the CBI, Sir Mike Darrington, who turned the Greggs bakery chain into the huge success it is now, and others, talking in bold and radical ways about the need for change and reform. On the other hand, other people have argued against reform.

To win back that support, we must rebuild trust. The huge regard I know there still is for my predecessor in government, the noble Lord Mandelson, demonstrates to me that it is possible to earn that trust by listening to you, building the strong relationships upon which trust is forged and being your voice in Opposition and hopefully Government. You very much appreciated the access Peter gave you, the focus he brought to your concerns, and the fact that he got things done when you said they were needed. Unlike today when senior government backbenchers are arguing for the abolition of the Business Department, your voice in government, when Peter was in charge the Department had real clout across government. I intend to follow Peter's example and, I should say, that as a pro business party we would not dream of abolishing the Business Department. In fact, I ran into Peter the other day and, as ever, he was full of sage advice - as we parted, he said with a wry smile, "Chuka, make sure you don't squander your legacy."

Our role as an Opposition

We are in Opposition now, and so I find myself shadowing the Business Secretary, Vince Cable. On my appointment, a journalist pointed out that not only is Vince twice my age but, during his lifetime, he has been a member of the Labour Party for longer than I have.

As Her Majesty's Opposition we have a constitutional duty to hold Vince and the Conservative led Government of which he is a member, to account. To ask why, when they inherited a growing economy, we have seen almost no growth for a year? To ask why, when unemployment was falling in 2010, it is rising again today? To ask why, the Government has had to revise its borrowing up by £158bn?

We cannot perform this constitutional duty without reflecting your views when we do so - we want the Government to do the right things for you because it is essential if we are to get growth back again. And I will be as constructive as it is possible. When they are doing the right thing, I will not oppose them for the sake of it. So, for example, I said in the House of Commons earlier this month that the government deserved credit for establishing the Independent Commission on Banking - frankly, it is something we should have done ourselves.

But we don't just aspire to be an effective opposition; we must demonstrate that we offer a clear and credible alternative government. That is why we are undertaking the biggest review of our policy programme since Tony Blair became our leader in 1994.

We are not only doing this given the thumbs down we were given at the last election. But because the challenges facing the nation are changing. We need a new set of policies to build a better, more responsible and productive capitalism, fit for our times and for the future - a New Economy offering fairness at home and competitiveness abroad.

I've now been in the job for just under 5 months and have talked to a lot of people in business about where we are as a country. This speech builds on what I said in my first major speech in this role, at Bloomberg in November. There I highlighted the long-term, value creating approaches of many of the UK's best companies, and the role that government can play in supporting and spreading the kinds of policies, practices and behaviours they pursue. I called this a new partnership between productive business and active government.

Today I want to explore how we develop the foundations for this New Economy in the context of seismic, rapid, global and technological change. I will start by looking at the pace of this change; then I will consider our current position and place in the global economy, before considering what we must do as we look to the future: to position our economy for sustained success and to develop the national capabilities we will need. In coming months, colleagues and I will be making further interventions - on infrastructure, skills, access to finance and other relevant issues, developing these themes.

The pace of global change

I think the extent of change since Tony Blair became Prime Minister is easy to forget - we should consider for a moment the magnitude of what has happened. When I went to university in 1997, I had never even sent an email. Hotmail had just been launched. There was no Google, no You Tube, no Wikipedia, no iPods let alone smart phones. E-commerce was still in its infancy. Mark Zuckerburg was 13.

Fast forward to today - technology has fundamentally changed our world. I currently have 22,000 followers on Twitter whom I tweeted earlier to say I would be speaking to you - that is nothing compared to the 130,000 people that now follow Ed Miliband and, yes ...some politicians and celebrities have discovered this instant, direct way of communicating is not without its risks but communicating in this way would have been unthinkable in 1997.

And just as technology is changing what we do, it is also changing business organisation and consumer behaviour. It is intensifying the value of time; changing the relationship with distance and space; blurring the boundaries between production and consumption; increasing the size of potential markets. The competitive advantage of nations will increasing lie in the very specialised but distinctive contributions they can make to global supply webs - the particular components, technologies and processes where they are the best in the world.

It has spurred a new wave of globalisation. Back in 1997, China's GDP was less than $1 trillion - it is now more than six times larger. Chinese companies accounted for 1% of global equity capitalisation in 2000 - by 2010 this had risen to 11%. Goldman Sachs estimates that by 2030, Chinese companies will be worth $43 trillion, well above the US.

So there has been huge and rapid change. The signs are that it will continue. India and Russia are coming up fast too and at the turn of this year, Brazil's economy overtook the UK's in size. And it is not just about the aggregate size of the economy. Think about this: imagine two children born today - one in the UK and the other in Brazil; it is estimated in 16 years, each will be enjoying the same material standard of living and, by 2029, the standard of living of the child born in Brazil will be higher than that of the child born in the UK. Who would have thought it?

With the government pursing a deficit reduction strategy that we have argued goes too far and too fast, people wonder where demand will come from; while the hundreds of thousands of young people out of work is shattering confidence and could place a lasting drag on our future prosperity.

Taking a longer term and global perspective, the focus of the Government on the deficit almost to the exclusion of everything else seems short sighted and narrow. In less than 20 years there will be a global middle class that has expanded from 1.8 billion to 5 billion. That's a whole lot of demand that we should be preparing our economy to meet, investing in now, so that we are ready for the coming explosion in global demand from emerging economies.

And at the same time that these new markets emerge, there is another outstanding challenge - to meet the new demand in a sustainable way with new green technologies. It is deeply worrying that on this Government has created so much uncertainty in the policy environment that the UK has slipped from third to thirteenth in the world for investment in green growth.

So we have a big task and, looking at our trading performance today, we see just how much work is needed.

Our international competitiveness

In 2010, our exports in goods and services of £437 billion, equivalent to around 30% of our GDP, showed how important open borders and free trade are to our economy and our way of life. We have a large surplus in services but, overall - you will all know - we have an overall, persistent balance of payments deficit, of £48 billion in 2010.

And half our exports go to other EU countries. This shows the importance to the UK of maintaining constructive working relationships with our European partners; of resolving the Eurozone crisis collectively; and, in the longer term, of completing the Single Market. This is why we were so critical of the approach adopted by the Prime Minister at the EU Council last December - it did not help safeguard the estimated 3.5 million jobs that depend on our EU exports.

But what is striking is this. We export more to Ireland - albeit a proximate and historically close trading partner but still a nation of only 4.5 million people - than we do to the 4.2 billion people in the BRIC countries. Business as usual is not good enough - change and reform are needed.

As the volume of global trade in goods has expanded rapidly, Germany has largely maintained its share of this trade. We haven't. There are some specific explanations for this, such as Germany's comparative advantage lying in exports like machine tools that are much in need by industrialising economies investing heavily in productive capacity. But it is not just that: Germany, US, Singapore, Korea, and China are all taking a more aggressive approach than us to maintain and build their competitive advantage.

So it means we need to be faster out the blocks with a reformed approach as attention shifts to the so-called "Next 11"- the next group of fast emerging economies including other countries with close historic ties to the UK such as Bangladesh, Nigeria, Pakistan, Egypt and Turkey - we must be ready to take advantage of further new opportunities.

British export success

There are companies ready to do so. As I talk to businesses up and down the country I am proud of the export success that many enjoy.
Recently I visited Strip Tinning in Birmingham, a fantastic company with over 50 years of engineering history. You know when the windscreen on your car freezes up, and you push a button to clear it? Strip Tinning makes those tiny strips of metal ribbon that heat up and melt the ice. In fact, their parts are in 95% of the world's car windscreens - an astonishing figure. Even in difficult economic times they achieved 75% growth in the last year through their export success. By the way, if you look at their website, you can view it in Chinese as well as in English, which tells its own story.

Then there is Carrington Career & Work wear Ltd, who I visited in Adlington in Lancashire - they are the largest supplier of work wear, corporate wear and technical fabrics to the UK garment industry, a market leader in Europe, and with customers in over 70 countries around the world.

Just two examples of export success - firms making good quality, innovative and reliable products that the world wants. We need more businesses to replicate their success - for exporting to become hard wired into our business culture. It should be as easy to begin exporting from the UK as it is to set up a business in the UK.

Breaking down the barriers

Recently, I met with a group of small and medium sized export businesses at the Chamber of Commerce in Hertfordshire. They said we could export so much more, if we had the support to do so and barriers were reduced. Having the confidence to start was important - the first export always being the hardest.

Things like information on routes to market - with many SMEs not knowing where demand for their products might lie, or having the contacts or networks that could guide them. As well as securing inward investment, the RDAs used to be there to help with things like this.

Many talked about issues of export finance support, highlighting the lack of understanding or support from the banks and schemes like the Export Finance Guarantee not being suitable for smaller volume exporters. This is, in part, why we are looking at proposals for a British investment bank to help with business financing.

Others suggested large companies should be incentivised to take their supply chains with them when seeking out export opportunities. Many complained how changes in immigration policy have not only made recruitment more difficult, but also have sent a signal abroad that the UK is less open for business.

A lot of businesses do not seem that familiar with the service UKTI offers. Of those that are, some are glowing about the service they receive, others less positive and speak of inconsistency of service. Some worry about staff turnover, others have been put off by form filling requirements. The relatively high fees for the Overseas Market Introduction Service and market reports seem to be a particular issue for SMEs. I met with UKTI's senior management last month to raise these issues with them for you.

A major concern is the relative lack of foreign language skills in the UK, which limits firms' abilities to make and maintain direct links abroad. Traditionally, we have tended to focus on French and German, with a much greater focus on Spanish in recent years. Now we need to ask which additional languages will equip us to compete in emerging markets and give much more focus to them.

We should think more creatively about how to use Diaspora communities to boost trade performance. For example, in Lambeth - the Borough where my constituency is located - we have one of the largest Portuguese speaking populations in the country, offering a unique link to Brazil. We do not make nearly enough of this.

Active government working with in partnership with business

In fairness, some of these issues that businesses raise with me are things that the Government is already trying to address. But their approach - of trade missions and the like - are what you might call "point of sale" strategies: they help existing firms to sell more of what they already produce into new markets. This has merit as there is clearly much greater exporting potential among UK companies than is being exploited. But in the longer term it is not nearly enough.

As a nation, we have a job of work to do to modernise our economy. The market alone won't get us there; government alone can't do so either. It will take a degree of calculated risk. But it must be a national mission where productive business and active government work together in partnership:

- first, to reposition our economy to succeed in this context of change: understanding with business the markets in which demand is set to grow, where our particular sources of comparative advantage lie in those markets; and how we can broaden our areas of global leadership. It means understanding what underpins our existing strengths, and what can complement and reinforce them;
- second, to focus explicitly on developing the national capabilities we need to maintain our success, given this positioning: the language and the STEM skills; our graduates base; our broadband network; our airports and ports; and our capacity to turn our strong science base into marketable products; encouraging clusters; developing stronger market based institutions; and
- third, in the process we must do all we can to ensure the vulnerable do not bear an undue burden and that we meet global demand in a way that creates more and better quality jobs at home, making the most of everyone's talents.
Proponents of business as usual - roadblocks to reform, reluctant to accept the need to change and modernise, wedded to the old orthodoxies - argue that the best government can do is to stand aside and leave it to the market. This is the overwhelming view of the Conservative Party. But this attitude has held British business back from reaching its full potential for too long - I know this because you tell me so. Leaders of British industry - like the chairman of Babcock, the engineering group - are not calling for the abolition of the Business Department as some now argue but for a strong Business Department to adopt an "industrial strategy".

And this outdated approach, wedded to old orthodoxies, increasingly lies outside the international mainstream. We have seen on our visits to Singapore, the US and Germany how, where there is market failure, they have a set of public institutions like the Small Business Administration, prepared to step in, fill the gap and adopt active government strategies and solutions.

In fact, since I got this job I have been struck by how business leader after business leader has told me they want to see an active government working in partnership with business in different sectors to step in and fill the gaps where there is market failure. That is precisely what Ed Miliband, Ed Balls and I will do - as Peter Mandelson said in the Times a couple of months ago, "ministers and markets can and should mix".

And I should say this: it is as much about knowing when not to intervene, to let business and competition thrive in healthy markets, as it is about knowing when to intervene to address market failure where needed. Active, intelligent government understands its limits.

Our areas of comparative advantage

We already have a lot we can build on - sectors where the UK leads the world and where we have the potential to be among the best. These include automotive, biotechnology, business services, chemicals and pharmaceuticals, financial services, health, higher education - our 7th largest export - publishing, communications and the creative industries. Last week I attended the Brit Awards - our music industry generates £3.8bn per year and is the second largest exporter of music in the world with a 12% share of global sales of recorded music.

We remain the seventh largest manufacturing nation. We have the largest aerospace industry in Europe and the second largest in the world after the USA. In high technology manufacturing, the UK is second only to the US of major economies and ahead of France.

We must build on the lead that we enjoy in financial services - the City of London is a genuine one-off world-class cluster which we should be proud of. And the great thing about agglomerations like this is that they are where they are, and they are not easy to replicate.

One thing we ask for though is for the City to better serve the rest of the economy and to take a longer term view of value creation - again, we make no apologies for seeking reform and that is one of the reasons I welcome Professor John Kay's interim report on UK Equity Markets and Long-Term Decision Making published today.

Rebalancing cannot be about trying to be quite good at everything - in a globalised economy there is a premium on being the best. Our challenge is to build on our existing strengths - in sectors, particular technologies and as parts of global supply chains - creating more sectors in more regions of the UK with firms that can compare with any in the world, in good times and in bad. Not just in sectors that are tradable, but improving productivity across the whole economy.

This means understanding the specific needs that each sector and region has, and using every lever that active government has to support their consistent, sustained and sustainable growth. And it can be done. A good example is what we did in government with the automotive industry - establishing the Automotive Council, encouraging and supporting collaboration on research to benefit the entire sector - a collaboration that wouldn't have happened without government using its ability to bring industry players together. Automotive now represents 10% of total exports and 80% of production is exported.

But as we point to a successful exporting industry, in other areas the Government is failing to learn the lessons. I touched on the damage being done to green industries through policy related uncertainty; defence is another example, where the Government is actively abandoning the industry, buying off the shelf from America and seeing no particular role for UK production. In contrast to this, we are adopting a joined up approach - so I am working closely with my colleagues in our energy, defence, transport and other teams to ensure we get the right policies for our industries and sectors.

Finally, underpinning this commitment to sectoral development must be a clear focus on healthy markets - open and competitive, where insurgents can challenge incumbents, innovation and long term value creation are rewarded, and consumers - through their choices and their voices - have sufficient power to shape markets. More competition to create the disciplines at home needed for success in global markets.

Conclusion

Labour has some serious thinking to do as a result of the changing landscape - I'm determined we do so with an open mind and that we learn the lessons of the past with a clear instinct that the old solutions won't wash. This is why we argue for modernisation and reform. The prize is a UK economy that is richer, fairer and more productive; positioned to succeed in the growing markets of the future with the right capabilities to do so. I look forward to hearing your thoughts on how we can work together to achieve this.

Thank you.