or - Two big cheers for
Vince
Vince Cable gave a
speech at the Cass Business School today.
It’s the first speech by the self-styled minister for growth that actually
starts to flesh out how he intends to encourage that growth. What follows below
is an annotated version of the speech, with my comments
in red.
Cable gets two big
cheers from me. One for shooting the paper tiger of “picking winners”, one for
taking the question of economic growth into the rules of the Takeover Panel.
Both suggest the beginnings of a serious attempt to work out what we’d have to
do if we really wanted to rebalance the economy, and not just in the narrow Mervyn King way.
*
Well, the first
thing you may have noticed is that I am not Peter Mandelson. For one thing, I
am a better dancer. Or at least I have actually passed some exams, which may or
may not be the same thing.
It’s been an
interesting month…I teased David Cameron the other day by suggesting that it
may be too provocative to describe a Conservative leader as a
revolutionary.
But this government
is revolutionary – at least for anyone less than pensioner age. A full
coalition. A policy platform based on compromise rather than
first-past-the-post force majeure. And it’s a good thing. The
British public clearly see it as a good thing – in marked contrast to some of
the carping, tribal commentators.
But we face
deep-seated problems. A very fragile recovery – both at home and in our
continental European neighbours. A massive budget deficit. A dysfunctional
banking system. An economy that is seriously unbalanced both in its sectoral
mix and in its regions.
This is
the same formulation used by David Cameron in his speech on the economy at the
weekend, combining regional and sectoral balance. But Cameron also talked of
“rebalancing” the economy. Cable - the man with the department that actually
would have to do any rebalancing - doesn’t go quite so far. Is he trying to
dampen expectations? [1]
That’s why we have
deliberately projected this coalition’s ambitions over a full Parliament,
because the task is that big.
I don’t want to
just set out a work programme today. You’ve had a Queen’s speech. I want to
complement and develop the ideas which David Cameron set out in his speech on
the economy last week.
As this is my first
speech in Government I want specifically to say something about the approach I
plan to bring to the department of Business, Innovation and Skills. Or ‘BIS’,
in the inevitable Whitehall abbreviation. This will not be a speech about
policy detail. It is necessarily broad brush. But it will tell you what
kind of policy you can expect from me.
BIS
Now, I used to work
for the Department of Trade, one of the forerunners of BIS, as a Special
Advisor in the 1970s. I worked for the late John Smith, whom I much
admired.
Some of you might
remember that I actually later called for the DTI to be abolished. I think I
said it was “drifting with no sense of purpose”. It drifted, subsequently,
under a succession of Ministers for the best part of a quarter of a century.
Well, today BIS is
very different. So my civil servants can relax. Briefly.
In part because the
mission of the department and its mandate have changed radically since the DTI
days. And the key to this is that it is no longer just a department of Business
and Trade.
By bringing
together university policy, skills policy, business, regulation and competition
policy, science and research policy, it has become in effect, the department
for economic growth. When Ed Balls used the phrase post-neoclassical
endogenous growth theory he was, unwittingly, explaining the rationale for my
department.
This is
odd. Labour adopted “post-neoclassical endogenous growth theory” and then
created BIS to do the kind of things that theory suggests. There doesn’t seem to be any any lack of witting there. Even more
intriguingly, this seems to suggest Cable is quite happy fulfiling the role
that Labour identified for BIS. Did he really mean to say that? [2]
It is, in any
event, a major economic department, complementary to the Treasury. A key
measure of the success of this government is that both succeed. We cannot have
sustainable growth without fiscal stabilisation. And fiscal stabilisation will
only be successful if it leads to growth.
There is a critically
important issue of timing. There is a balance of risk. If deficit reduction
comes too rapidly there is a danger of deeper recession and even bigger
deficits. But like the Governor of the Bank of England, and like the OECD, I
have been persuaded that early action on the deficit is essential. Going
forward, policy must be driven always by the same rational calculation of
economic risk and benefit.
Early exposure to
the agenda of cuts means that from day one I have been looking at ways of
saving money in my own – very big – department which spends more than £20
billion a year. It is a good discipline: forcing me to think clearly about what
BIS is for in an age of austerity.
The right balance
The Department’s
central task, and my central task, is making sure that Britain is a place where
enterprise and innovation are made easier and can succeed. Where ideas are
generated and are turned into jobs. Where people have the skills we need.
The basic
reality is simple: government is no longer in a position to promote growth
through fiscal stimulus. Private consumers are debt-laden. Growth will have to
come from the business sector. It will need to come from trade.
This is
rebalancing as defined by Mervyn King, not Will Hutton. Again, he’s taking a
narrow, cautious position. [3]
And of course that
means making this country a good place to do business. Where it’s easy to start
a business or invest from abroad. Where regulation is proportionate (and there
is less of it than now.) Where starting an enterprise or creating a job – even
just one job – is genuinely valued by society.
And the reality
is that sometimes that means standing up to business. Arguing for more
competition instead of cosy cartels. Arguing for better protection for
consumers from shady practice. Rejecting special pleading.
This is
standard Lib Dem fare. It will be interesting to see what comes of it when push
comes to shove. [4]
Radio 3 listeners –
I believe they do exist – may have heard my recent lecture on Adam Smith, whose
ideas I taught to economic students in Glasgow early in my career. Amongst his
many wise words which have stood the test of time is this: “the interest of the
producer ought to be attended to, only so far as it may be necessary for
promoting that of the consumer”. And the consumer is all of us.
Smith – and this is
often forgotten – also argued trenchantly that successful capitalism rested on
a sense of morality, not on unfettered greed.
So I see my role as
weighing the needs of small businesses and big businesses, sole traders and multinationals,
the City and regional manufacturing. The short against the long term. Getting
the right balance.
Banks
And yes, that means
taking a tough line with parts of the banking system, which have not served
enterprise in this country as well as they could. Or operated in the long term
interests of our economy.
I respect and
admire a lot of what is done in the City – much of which has nothing to do with
banking. I do believe that it is one of the UK’s most valuable clusters of specialist
expertise.
Yet I know that my
insistence on pushing this agenda is being presented by some as a grudge
against the City. So it is important to draw a distinction very clearly between
financial services as an industry and those banks that are trading and making
substantial profits with an implicit promise of public rescue if it all goes
wrong.
And in some cases
of course it did go terribly wrong, inflicting huge costs on the British
taxpayer – who are ultimately paying the costs of the banking collapse and the
recession it caused.
That is a situation
that should outrage the most red-blooded capitalist every bit as much any
left-leaning radical. Few people are more outraged than those responsible
bankers who managed their depositors’ money carefully, were content to pursue
long term shareholder value, maintained close relationships with their
business, customers and were not tempted by the lure of the casino.
So as part of the
coalition I have three big priorities here. First – the question of structural
reform - separating retail and investment banking, which we will address
through the Banking Commission whose membership and terms of reference will be
announced shortly. This exercise matters not only to make banks safe but to
ensure that our banks are equipped to provide a range of funding streams, on a
competitive basis, for the UK economy to function successfully.
Second - the
question of a levy on the banks to reflect the fact that – at least until banks
are made safe through structural reform – the taxpayer is providing insurance:
protection for which the banks should pay.
And third – perhaps
most important for early economic recovery, I will redouble our efforts to
ensure that bank lending agreements from banks that have benefited from taxpayer
subsidy are being honoured – especially for SMEs. We do not expect to see
viable businesses deprived of credit or working capital by banks that are
largely owned by the taxpayer, or the general beneficiaries of wider public
support.
The banks claim that
there is no demand. That is not right. If the bar is set too high, of course no
one is willing to jump. The current risk aversion by banks in the SME sector
will stifle recovery and, if it does, will actually rebound on the banks
through bad debt.
The right role for
government
I hope what is
emerging from this is a clear sense of how I see the market and the government
and the limits of both.
I’m not
sure there’s anything here that Tory, Labour or Lib Dem would disagree with.
The interesting bit is where the limits are, and that can only really be
answered in the detail, and on that we’re still in the dark of early days. [5]
Why I think being
pro-enterprise, pro-trade and competition – doesn’t just mean being the voice
of business.
I sometimes find
myself described in the unfriendly press as some kind of socialist. They
should refer back to the Orange Book I co-authored with David Laws six years
ago.
Hmmm.
True he’s a Liberal not a Socialist, but...
I am a liberal. I
am a free trader. I believe in open markets. Anyone who doubts the clarity and
consistency of my views should look up my writing on trade policy from the 70s,
attacking protectionism.
I think the WTO is
a good thing, not a neoliberal conspiracy and I will be pushing hard to get the
Doha world trade round revived this year and next.
Nor do I have a
philosophical problem with big business. I spent years working for one – a big,
controversial oil company no less - and I’m proud of the world-class managers
and engineers I worked alongside.
I do however
think that the market economy has to deliver opportunity rather than constrain
it. It has to spread wealth around, not concentrate it at the top or siphon it
off to tax havens.
...that
kind of language is why he gets labelled left wing! [6]
It should be a
place where value and reward are transparently linked. I think that it has to
be a route to social justice as well as economic efficiency.
For example,
Government invests in the education and skills that build up human capital and aim to
make the job market a level playing field for all of us.
And it helps
provide the infrastructure and science and research that the market exploits
but won’t always fund itself. And which are critical to our competitiveness in
a knowledge economy.
I go back again to
Adam Smith, who acknowledged the importance of public goods two and a half
centuries ago.
The debate about
industrial policy always raises the spectre of ‘picking winners’. But in a
globalised economy its time to move this debate on a bit – be clear about what
this means. Because in some ways we have to be picking winners.
We have to make
choices about allocating the training budget, or funding certain kinds of
science or research, or promoting science, technology, maths or engineering
degrees for higher education. We have to make some strategic choices. We can’t
avoid that.
But the
‘winners’ in this sense are the skills we judge we will need for the future,
and the sectors they support. Because while we can’t divine the future, we can
recognise in a broad sense what Britain is good at and likely to become good
at, and the areas where the changing nature of the global economy make it
futile for us to try to compete – our comparative advantage in economic
jargon. We can and must allocate scarce public resources on the basis of
this evidence.
What we
shouldn’t be doing is trying to micromanage the economy at the level of
individual companies or so-called national champions: trying to supercede the
judgement of markets.
“Picking
winners” is a big deal. The phrase dredges up the ghosts of Tony Benn and
Margaret Thatcher and has scared the wits out of Conservatives for a
generation. It can easily be invoked even now by the Conservative right to
discredit precisely the kind of sectoral intervention Cable is enthusing about
here. Even after 13 years, I feel Labour still lived in the shadow of this
phrase and I don’t think Mandelson or any of the others said anything nearly as
clear as Cable has here. So this seems to me quite a significant departure for Cable.
As a
statement of government policy, this phrasing would pave the way for the
development of policy in many spheres aimed at rebalancing the economy. But is
it a statement of government policy? When are we going to hear Willetts or
Osborne or Cameron saying the same thing?
At the
Royal Society in May, Willetts only emphasised the other side of the coin, that
we have to avoid picking winners (by which I think he meant individual
companies). That night, both Herman Hauser and John Browne were at pains to
draw the kind of distinction that Cable has here. But the Conservative
minister, unlike this Lib Dem one, didn’t bite. [7]
The green
technology revolution is a good example, and a potential source of huge
opportunity for Britain. The Government is, and should, support development in
a variety of renewable energy technologies and a variety of environmentally
friendly vehicles – it does not have to be prescriptive.
By contrast, I
recall debates with lobbyists in the 70s arguing in all seriousness that it was
strategic to have a protected underwear industry, or to revert to wartime food
production. That kind of argument is far from dead.
Going back even
further, I think of the shipyards in Glasgow where I taught economics and
worked as a Councillor and as someone who identified very strongly with workers
trying to save their manufacturing jobs and skills, I have to ask how much we
have to show today for the grand and well-intentioned attempts to stand in the
way of the economically inevitable when we should have been investing in
change.
My general approach
going forward will be supporting enterprise, but rarely selecting individual
enterprises for support.
I do think we
can look at countries like Germany and Korea that take science and technical
education and infrastructure and long term finance for industry incredibly
seriously and learn some lessons.
The issue
of long term finance for industry is new. Germany’s banks have been famous for
it, but the whole industrial ecosystem works differently there - up to and
including rules on takeovers. I think in the British economy we need to get
more capital invested in manufacturing, and less in housing, shopping and
financial chicanery. This seems to open the door a crack to that. [8]
But when these
policies are effective they almost always target capabilities, not companies.
And I do think the last government blurred that line.
The
coalition seems to believe Mandelson was guilty of chucking money about to
individual firms at the end. No names have been named yet. But it will be
interesting to see if and when Cable actually cancels some of the promises
Mandelson made. [9]
Part of the problem
more widely is what I’ve called the New Interventionism – the philosophy that
interprets the banking crisis as a failure of markets in general rather than
financial markets in particular. That leaps straight from a discredited
approach based on the naivety of “efficient markets theory” to a statist
approach based on economic nationalism and protectionism.
And that has to be
resisted, especially in our European backyard, where the protectionist instinct
is often worryingly strong. In my book ‘The Storm’ published at the height of
the crisis I warned of this threat. The fact that it has not yet materialised
does not mean that the threat has gone away.
Some priorities
So on the basis of
this general approach there are a few things you can expect from me over the
months ahead.
First, as I’ve
already argued, an agenda for cuts has to be offset by a clear focus on policy
designed to be a stimulus to growth. Our challenge is to redefine growth
policy for an age of constrained public spending. I want a genuine audit
of what the state has taken upon itself to do in business support, higher and
further education, science and research over the last decade and how it does
it. This is our window for transformational change. You’ll see the results in
the weeks ahead.
This
audit puts a huge amount of activity at risk. Tax credits for R&D and the
RDAs we already knew about. But this covers a whole range of innovations Labour
put in place to support business in various ways, including the TSB, NESTA, KT
spending at the research councils, RAE incentives for academics to engage with
industry, dedicated funding from HEFCE in various forms. We’ve yet to hear any
minister say anything positive about the TSB. [10]
I’m specifically
committed to getting rid of some of the BIS quangos. We had 74 last year. 13
are now being got rid of, merged or having their funding cut. I aim to merge or
abolish another 20 or so within a year – that’s a third of the rest. And
we will keep scrutinising the others – if they fail to perform or the world has
moved on, I will take action.
Second, I will take
a tougher line on regulation, because I believe that often the most useful
thing governments can do is simply to get out of the way. Every small business
can tell a story of how they could do more and hire more people if they spent
less time on form filling. Regulation is too often the creature of big businesses
with the resources to handle it forcing out the small. The cost to
business of regulation currently in the pipeline is around £20bn: far in excess
of any direct help the Government does or can give.
Of course
regulation can be necessary to protect consumers, the environment and the
labour force. But it must be proportionate. I used a statement to
Parliament yesterday explaining how this Government will embark on radical
steps to remove and stop unnecessary and costly regulation.
Third, I want
BIS to play a central role in putting Higher and Further Education on a sound
footing for the future and linking both better into the economy.
OK, so we
know Willetts doesn’t like Labour’s “clunky” plans for impact in the RAE, but
now it seems Cable is thinking of developing his own plans for linking
universities with business. Should academics be afraid? He could do worse than
copy the new ultra-light American approach - see http://bit.ly/aOWacL. [11]
Bringing HE, skills
and enterprise together under the one departmental roof is central to the ‘BIS
dividend’. My priorities are an increased emphasis on lifelong learning,
stripping out some of the bureaucracy around FE and making sure that the
outdated value distinction between blue collar apprenticeships, and further
education on one hand and university on the other is disposed of for good.
In the last few
weeks I found scope within my department to refocus £200 million in capital
spending in FE colleges and 50,000 extra apprenticeships. Indeed, it is
shocking that we only have 250,000 apprenticeships to start with.
Education and
learning are of course desirable in their own right. Education for
education’s sake – learning how to learn - benefits the economy in the long
term. Philistinism is bad economics. It is also fundamentally unacceptable.
A story from own
life makes the point. My mother and father left school at fifteen to work in
factories. My father eventually taught building trades in the local technical
college: we need more people like him. My mother was a housewife and when I was
ten she had a major nervous breakdown and spent time in a mental
hospital. When she recovered she saved her mind through adult education –
learning for the first time about history, literature, philosophy and art. We
need more people like her too.
Fourth, I want to
make sure that we are maximising the economic benefits of our science and
research sector in the same way. BIS is the Ministry for science, and
science is a vital public good - one that the market unprompted will not
provide at the level needed in a modern knowledge economy.
He
reiterates the point I highlighted above - for academics, the pressure for
economic benefits is not going away even now Labour has gone. This seems to
imply that the cuts won’t be designed simply to leave the responsive mode alone
- which is the impression Willetts has managed to give. [12]
My younger son, who
works in a particularly recondite area of quantum physics, is a one man
lobbying industry for scientific research. I also have the National Physics
Laboratory in my constituency and the Laboratory of the Government Chemist. So
I don’t have any doubt about the importance of support for science.
Making sure,
however, that groundbreaking science makes the long step to commercialisation
is one of the things Britain is relatively bad at, and the mechanism of
innovation is still poorly understood. I know from first hand experience of
constituents like Trevor Baylis, the inventor of the wind-up radio, how
difficult it currently is to translate invention in to commercial application.
Finally, I also
plan to crack some of the intractable problems which defeated previous
governments. I want to resolve the nagging problem of the Royal Mail. I want to
see private capital and worker share ownership in the Royal Mail – commercial
discipline alongside employee involvement.
Takeovers
There are a few
other areas where I want to see action and change in the same spirit. One
is reform of the UK’s takeover rules. The Takeover Panel’s current review
should play an important part in this agenda.
Too many
takeovers in the UK fail even by the limited criterion of shareholder value –
and often with serious implications for the people who work for the firms on
both sides.
The
Takeover Panel is not reviewing the rules in order to help the economy grow
faster. Its central objective is to simply to ensure fair treatment for all
shareholders in takeover bids - a much narrower objective. In my book, Cable’s
purpose here is more radical than anything Labour did in its 13 years of post-neoclassical endogenous growth theory. And I will be stunned if he makes the
slightest bit of progress against the City establishment. [13]
For me this is not
about foreign or domestic ownership – it draws no distinction between the two.
One of the most important – and positive – decisions made by the DTI when I was
there was to welcome inward investment by Japanese companies in the car
industry.
So it is not about
protectionism or strategic industries. It is certainly not about protecting bad
management by blocking takeovers. It is about changing the way in which
unfettered short term speculation can have damaging long term consequences.
It is also about
responsibility. It is renewing a sense that a company is an enterprise, not
just a set of paper assets. It is about insisting that running a company and
owning shares in a company should be an important responsibility, and never
more so than when a company changes hands. This is an important issue for me
because I think in many ways it captures something simple and important about
the economy we want to build.
Conclusion: The
future
Britain has to ask
and answer some pretty fundamental questions about how it is going to pay its
way in the world. We’ve had a decade of consumer-led, debt-fuelled growth based
on inflated property markets that was not sustainable. We have an economy that
is still too dependent on hydrocarbons, too wasteful of energy, too vulnerable
to the excesses of some of its banks. Too dependent on public services for job
creation in some of its regions.
Getting from where
we are to a highly-skilled, enterprise-based entrepreneurial economy is a
lot more difficult than making speeches about it. I recognise that we can’t
make this leap from one day to the next. Regions with long histories of mass
industrial employment, or large scale public employment can’t be turned into
entrepreneurial silicon valleys of private enterprise overnight.
To achieve that
shift requires looking at enterprise in the widest sense. I have always
believed that the value of mutualism, cooperatives and social enterprise lies
precisely in the way they help people be self-motivated entrepreneurs with a
clear stake in what they do for a living, while still remaining part of a
supportive community of fellow workers. We will be encouraging more of
them.
I started by saying
that this coalition has defined its ambitions for a full Parliamentary term.
But in one sense we have to set our sights much further ahead than that. Our
task is to build the foundations of a future economy that must look very
different from the old one.
That can’t be done
just by waving a chequebook let alone by Ministerial decree. It will
happen only when there is confidence to invest, long term, in training,
technology or to develop markets. There are no quick fixes. But that’s the task
we have to set ourselves.
A recession is in
part a failure of confidence, just as the banking crisis was a failure of
trust. We have to repair both those deficits, as well as the pressing one in
the Government budget.
That means being more than just
‘pro-business’. It means finding the right blend of responsible capitalism, and
leaner but more effective government.