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October 10, 2011

How to read Chuka Umanna's call for "A Better Capitalism"

Chuka_umunna-581On Friday, Chuka Umanna became Labour's new Shadow Business Secretary, up against not one but two from the Cabinet table - Vince Cable and David Willetts. On Sunday he published an interesting think piece on his new brief. This gives added depth to some of the big themes outlined in Ed Miliband's speech to the Labour Party Conference last month, and starts to root those themes in academic work. In fact, if like me you've been wondering what Miliband was really trying to say in his speech, then this article has a surprising amount to reveal. Let's see if the arguments stack up.

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Britain needs a better capitalism

by Chuka Umanna

9 October 2011


Britain needs a better capitalism.

This echoes the line taken by Miliband in his conference speech. It is simpler and more concrete than anything Miliband came up with. And since the phrase uses the C word (which Ed didn't) slightly more reassuring to business and frightening to party members. But it is double edged in just the way Miliband's speech was - does he mean "better" as in more efficient capitalism or as in one with greater moral force? In itself it doesn't say much about the ideology being laid out. It's a phrase that could have been crafted by social democrats in West Germany in the 1970s (absurdly left wing by UK standards today), or by John Major, or by David Cameron during his rebranding phase. But that is one of its strengths - it is hard to argue against and helpful in quilting together an alliance of support. It's also simple and memorable. It could run and run. I don't know where he's going. But as a starting point, I call it deft.

Not just for its people, but for its businesses too. Just as the 1980s brought a welcome end to the excessive regulation and bossy governmental control of post-war social democracy, so the next decade needs to witness the end of the do-what-you-can and take-what-you-want capitalism that led us to the financial crash. Helping to bring a better capitalism into being to provide an answer to the problems of stagnant growth and falling living standards is the overwhelming political and economic imperative of our time.

So straight away we get the answer to whether he means more efficient capitalism or one with greater moral force. And the answer is: both. Nonetheless, this passage will be reassuring to business. Endorsing the 1980s reforms suggests acceptance, like Blair and Browne, of the Thatcher settlement. This will erode the Red Ed jibe a bit.

This was the crucial message at the heart of Ed Miliband’s address to the Labour Party conference last week. But the idea of a “better capitalism” did not originate in the Leader of the Opposition’s office. Indeed, it did not come from politics of any sort. Instead, it came from business itself.

Really? In which case it was quite an achievement for Ed to get so much hostile coverage of his speech.

It evolved from the efforts of Britain’s best companies, very large and small, to grapple with increasing public expectations and challenging economic conditions. The result is clear – a model of better capitalist practice, which is now frequently taught in our leading business schools, even if it has only recently reached our political consciousness now. It does not require that we label each business as “good” or “bad” as critics have crudely demanded; it is more a question of asking what characteristics add value to a company and to our economy at the same time, and what can be done to nurture them.

OK. I'm listening.

The model has three essential features:

First it recognises what is emblazoned across Google’s web pages in every country: “people are our most important asset.” Successful firms now recognise that effective worker engagement at all levels is a means of releasing innovation and creativity. When our people are our economy’s greatest asset, we must support the businesses that invest in that asset.

Phrases like "worker engagement" are elastic enough to allow the ambiguity to continue. But if your objective is efficient capitalism, then this seems unnecessarily constraining. Even if he's right that many leading firms would repeat these words, do they really mean it or do they just say it to keep their workers happy? Google is a one-off (which Umanna seems not to know has already married into Team Cameron) and I bet you can find this sort of language at Nike or Amazon, successful US firms famed for not exactly "engaging" with their workers.

Second, it acknowledges that transformative product innovation is vital for the success of the British economy. It is not enough to rely just on the response to immediate demand. We must learn from the approach in countries like Germany that have seen businesses thrive whilst their counterparts in Britain have lost out.

I agree.

Third, as GSK’s Andrew Witty has said, Britain’s big companies have allowed themselves to be seen as “being detached from society”. Successful firms increasingly recognise that traditional ways of doing business can place substantial strains on the places in which they are located and the people with whom they come into contact. The new business model acknowledges these tensions and responds to them positively, even drawing local communities into key decision-making processes.

I dunno. This is reminding me of this tweet of Umanna's over the weekend: "Looking fwd to my first visit this noon as Shadow BIS Sec to,where else.. the Make It Grow It event at Brixton Market!". Both feel naively community-oriented. If GSK is detached from society, I can't see how the solution is to draw "local" people into the decisionmaking. For a start, who is "local" to GSK?

Rather than the sweep suggested by "A Better Capitalism", this article is beginning to sound like puffery for the kind of staff and community engagement stuff big firms have been doing for years and years.

None of these ideas has been driven by government. They have come from companies themselves. To ignore them would be truly anti-business.

He's labouring the poiint, but he has to. Mili's speech triggered an effective "anti-business" attack by his oppopnents.

Only companies themselves can fully appreciate the challenges they face and only they possess the flexibility necessary to respond. Nonetheless, if they are to succeed they will need proper public understanding, stable partners from the state and voluntary sectors, and a supportive regulatory regime. And that is where politics comes in.

Interesting. Sometimes Conservatives say this. Sometimes they say the state should just get out of the way.

Ed Miliband shocked many in Britain’s chattering classes when he presented this vision in Liverpool. Listening to his detractors, it would be easy to imagine that everything was well with the developed world’s businesses. As if there had been no financial crash, no currency crises. As if Britain’s greatest businesses were finding life easy, when in fact the question is more what we can do to help them thrive. Britain needs a better form of capitalism precisely because our best businesses need an economy which works for them if Britain is to grow sustainably in the long run.

Back to the big stuff again, which is more plausible than the detail.

“The moment for a new conception of capitalism is now,” Harvard Business School Professors Michael Porter and Mark Kramer argued recently. And they are right. It is time for Westminster to understand that demand and to help to make it happen.

Here is the Porter & Kramer article on "Creating Shared Value". It summarises itself like this:

The concept of shared value—which focuses on the connections between societal and economic progress—has the power to unleash the next wave of global growth.

An increasing number of companies known for their hard-nosed approach to business—such as Google, IBM, Intel, Johnson & Johnson, Nestlé, Unilever, and Wal-Mart—have begun to embark on important shared value initiatives. But our understanding of the potential of shared value is just beginning.

There are three key ways that companies can create shared value opportunities:

• By reconceiving products and markets

• By redefining productivity in the value chain

• By enabling local cluster development

Every firm should look at decisions and opportunities through the lens of shared value. This will lead to new approaches that generate greater innovation and growth for companies—and also greater benefits for society.

"Shared value" is clearly very much in Labour's space. And these three points are similar in some respects to points made by Umanna here and by Miliband in his conference speech. And I suspect both that this article was written in large part by the people that fed into Miliband's speech (because otherwise it's actually way too deep for Day 3) and that you could find some support for Umanna's arguments in the Porter & Kramer article. But - and it's a big one - the key points in Umanna are absolutely not the same as the key points in Porter & Kramer.

If there is a new kind of capitalism emerging from business schools, then it seems it remains one that the Labour Party has yet to sign up to.

Conclusion

It's early days. The Better Capitalism theme is big enough and resonant enough to run all the way to the next election. There is a sense that something big might change now. Even the FT and New York Times are sympathetic to the vague but determined Occupy Wall Street people. But while it's different and fresh enough to be interesting, what might Better Capitalism mean in practice? Umanna hasn't convinced me he knows. Labour seems unsure. Meanwhile, I sense the Coalition is moving towards its second growth plan at BIS with more purpose than last time. If he doesn't move fast, Umanna could be left behind...

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