As an industrial policy specialist, I’ve been spoiled this week. On Tuesday, at the TUC’s After Austerity conference, Ha-Joon Chang and Mariana Mazzucato, from Cambridge and Sussex Universities respectively, were every bit as creative and provocative as we’ve come to expect them to be. And this morning, I’ve had time to read a new Fabian essay by Labour’s Shadow Business Secretary, Chuka Umunna, on the role of government in industry, ‘Stepping Up, Not Stepping Back’.
Chuka’s key concern is how to recast the relationship between governments and markets. He moves beyond the orthodox thinking that the role of government is simply to correct market failure, speaking of “steering markets towards additional goals that we value as a society”. He is right, of course. I would expect a progressive government to have a number of objectives for its economy, including ensuring that new (and existing) industries are increasingly sustainable, that they create good jobs that pay decent wages and, in particular, that they provide jobs for those young people who do not go to university. Expecting markets to deliver these objectives without government direction or intervention would be so much pie in the sky.
Chuka tries to steer a course between recognising the achievements of the last Labour Government and identifying where it could have gone further or done better. He acknowledges that by the time of the global financial crisis, ten years into Labour’s term of office, growth had become concentrated in too few sectors and too few regions. He also admits that not enough of the rewards of rising productivity was reflected in wages. Chuka says we must “set aside the dogma that markets are the domain of efficiency”, but lots of public sector reform under Labour seemed to be based firmly on that idea. Of course, the Labour Government delivered real benefits too. The National Minimum Wage was a massive achievement and users of schools and hospitals didn’t need to look far to see the improvements Labour brought.
In his article, Chuka describes how welfare policy must link with business policy, as must the environmental agenda. This idea of a coherent social, economic and environmental vision is crucial. Some of us who work with government know from bitter experience how hard it can be to achieve joined-up government, but that doesn’t make it any more unnecessary.
There are lots of details in Chuka’s article that I like. He is correct to point out that, within the next two decades, the global middle class will almost triple in size to five million people, providing a huge growth of demand for many goods and services. Lessons from Germany, the US and Singapore are important, as is challenging the American preaching of the gospel of free markets, when in reality, the US government has invested massively through institutions like DARPA, the Small Business Innovation Research programme and the National Institute of Health.
We are three years from a General Election, assuming that the Coalition doesn’t fall apart (which is, of course, quite possible), so I assume that Chuka’s thinking is a work in progress, rather than a definitive view of the role of the state, markets and industry. If that is the case, I urge him to think some more about the role that modern trade unions can play in a 21st century industrial policy. In his article, Chuka writes of the need to “build on our existing institutional strengths – like our universities, our business organisations and our trade unions”. It’s good to be seen as an institutional strength – rather than the enemy within – but some more flesh on this would be helpful.
In particular, if Chuka is right to say that too few of the rewards from rising productivity found their way into workers wages, what is the role of trade unions in addressing that? I’ve already said that the minimum wage was important, as are tax credits, but to what extent do tax credits require taxpayers – that’s you and me – to subsidise the inadequate wages paid by corporate Britain? In November 2012, the next edition of the ILO’s Global Wage Report will be published. The last edition showed clearly how those countries with high collective bargaining coverage were better able to protect wage levels than those where collective bargaining was low. Of course, it isn’t Chuka’s job, or that of the next Labour Government, to act as a recruiting sergeant for trade unions: industrial organising is our job. But government attitudes make a difference and if Ed Miliband is serious about a beter model of capitalism – and I believe he is – trade unions must form part of the story.
Finally, I like Chuka’s description of the concept of “shared value” in hard-nosed companies like GE, Google, IBM, Intel, Johnson and Johnson, etc. Creating shared value is described as “creating economic value in a way that also creates value for society by addressing its needs and challenges”. I don’t know much about this idea, but if it is true, what’s not to like? The only question I ask is: is this simply a management initiative or does it come from the workforce too? Even the most progressive of hard nosed businesses benefit from checks and balances and, as German experience teaches us, that can be another important role for trade unions.