Specifically, three hours ago, Faisal tweeted:

“lessons from Germany” debate is hilarious. TUC came out with report on Deutsche social dem heaven. The IEA portrayed it as Beecroftland

— Faisal Islam (@faisalislam) May 24, 2012

I’m not sure we quite described the German model as heaven but, to be fair to Faisal, it’s hard to be nuanced in 140 characters. Our report was a snapshot based on visits to some major companies, in Germany and the UK. Those companies were Volkswagen, Siemens, ThyssenKrupp, BASF, Airbus, Bentley (which is owned by VW),  BMW and Roballo Engineering (which is owned by ThyssenKrupp). All but one were large companies, they all took on apprentices and they were all in those particular industries that Germany does well. So it was no surprise that Germany came out of the report very well. However, after our recommendations, we endorsed the German union IG Metall’s call for a minimum wage in Germany, because whilst 20% of German workers are union members and 60% are covered by collective agreements, that means that 40 per cent have no union defending their pay and, surprise, surprise, some of the most vulnerable in German society are among that 40%.

But what really impressed us about Germany was the Social Market economic model. Employers and unions that we spoke to in Germany defended it and it did seem to be a model that bound the company together. Where it operates (and it doesn’t operate everywhere) it creates a climate of fairness and trust. Workers voices are deemed welcome and necessary and, whilst unions and management still know how to have a fight when they feel the need, they have a joint commitment to the success of the company. As Martin Rosik from Volkswagen told us: “Here you don’t have the classic understanding of what is whose role in the game”.

Compare that with the UK. Earlier this week, both Ed Miliband and Nick Clegg addressed the Sutton Trust. At the forefront of both their minds was the issue of social mobility. The difference between the two, according to Andrew Grice in the Independent, was that whilst Nick Clegg rejected the idea that the solution was to redistribute income, Ed Milband said government could not improve social mobility without tackling inequality. There was no denying the inequality, simply a difference of opinion about how important it is to social mobility. I think inequality is very important, both to social mobility and because I think inequality is bad in and of itself. I’m not sure this would even be a debating point in Germany.

I haven’t read the IEA report that Faisal mentions, but if works council members on supervisory boards, influencing company strategy, is Beecroftland, I’d happily sign up for some of that.

Pat neatly sums up the state of British manufacturing. He says: “If we want a basic scorecard on manufacturing it would be that we make less than we once did, but more than we think we do.” Why do we make less? Pat correctly highlights the biggest wave of globalisation in human history and is right to point out that, with the exception of Germany, almost all other developed countries have lost some manufacturing capacity to Asian tigers to the East and to China in particular. What he doesn’t say is that during this time (and, sadly, on his government’s watch) the rate of job losses in manufacturing was much sharper in the UK than in comparative European countries. France, Spain and Italy all lost fewer manufacturing jobs than we did. I recognise that Italy and Spain have problems at the moment, so I understand that my last sentence may be interpreted as saying that the UK should have taken decisions which could have caused us similar difficulties. But the problems of Italy and Spain are complex and I don’t think it could be argued  that if the UK had pursued a more balanced economic policy, with less emphasis on the City and more on industry, we’d have a weaker economy than we have now.

Pat correctly points out that as productivity grows, employment per product will fall. This explains the continuing success of the UK automotive industry, even though it employs far fewer people than it did in the 1960s and 1970s. But whilst that provides an explanation, it leaves us with a problem, which Pat doesn’t tackle. How do we create jobs for the group of people that sociologists used to call the “skilled working class”? I think a modern manufacturing policy must focus on specific industrial sectors and there are ways that we could identify those sectors. I’ll say more about that below but, in the meantime, I think we should specifically focus on those technologies and industries that could provide decent, well-paid jobs to those youngsters who leave school but do not, for whatever reason, go to university. Economic and industrial policy must be for a purpose, or a number of purposes: this is surely one of them.

Pat talks about the specific issues affecting energy intensive industries, which the TUC has also done a lot of work on. He discusses the role of SMEs and mid-caps. The TUC talked about small and medium sized companies in our recent report, ‘German Lessons’. We made the case for a British version of the German mittelstand, acting as suppliers to large, world-class, exporters. That’s an ambitious target, but we are struck that UK policy debate focuses on either small, often micro-companies, or on large companies such as Rolls Royce. Medium sized firms barely get a mention and the need to grow small firms into medium sized companies even less so. Some firms are naturally small, but where a company could grow into a medium sized player, it should be encouraged to do so. I think Britain has indulged a “small is beautiful” mentality in this debate, seeing small firms as a good in themselves, as if they are a testament to a healthy capitalism. We need to be more ambitious here.

Pat discusses Sheffield Forgemasters and (quite rightly) resists the temptation to take a cheap shot at the Lib Dems, instead making, for me, one of the most important points of his report: the relationship between government and risk. On the issue of specific financial support for certain companies, in this case in the form of a loan, Pat says: “the least risky response would be to say no every time”. He points out the inevitable, that not every decision taken to support a company will work out, before adding: “But it is better to be trying to do so, succeeding sometimes and perhaps not at other times, than not be trying at all and letting key opportunities pass Britain by.” A few years ago, I wrote a report for the TUC about industrial policy in France. I was told that the French expect their government to support industry and recognise that, whilst this will fail sometimes, leading to a waste of taxpayers money, it is better to try overall. This is surely correct. Of course, government should not be frittering taxpayers’ money around, but there is role for reasonable risk in the industrial policy debate.

 Pat makes common sense points about skills and the image of manufacturing. He goes on to say – and is absolutely right to do so – that government needs to be an active player. Taking on the tired argument about picking winners, he says: “Picking winners isn’t the problem. It’s backing lots of losers which is the potential problem.” As he says, there must be conditions which determine how and when government intervenes. The TUC has long argued that the UK needs to focus on those strategic sectors which are or could become world leaders, capable of competiting in the age of globalisation, for years to come. That begs the question: how do we identify such sectors? ‘German Lessons’ suggested that we look at the work of the engineering giant Siemens and its focus on global mega-trends. We can try to match the way the world is going with the UK’s capacity to build the products that will be needed in the process, whilst always recognising that there are wider issues affecting industrial policy, including the need for job creation. However, whilst we must be as scientific as possible about identifying our strategic sectors, this will be, in part, a political decision. Germany is successful in the automotive sector because its government has focused on that as a key sector. I know the free-marketeers don’t like this, but there is a role for politics in industrial policy too.

Pat is correct to defend the need for a Department of Business (although I would still prefer a Department of Industry: sometimes, the name matters!). I also agree with his call for a British Investment Bank; expect to see more from the TUC on this issue later in the year.

I have saved the bit I didn’t like until the end. Discussing Jaguar Land Rover, Pat mentions the “appalling industrial relations” of the motor industry in the 1970s, before adding: “If there was an image that defined the industry then it would probably be a factory car park with thousands of workers putting their hands in the air to vote to go on strike”. That’s certainly one image, although there are others. But if 1970s industrial relations were the finest hour of none of us, then perhaps Pat could have balanced this with a mention of the very constructive work unions have been doing to underpin and strengthen so many manufacturing sectors since then, especially during the economic downturn. Pay freezes and shift closures caused real hardship to many of our members, yet they endured that hardship to protect their jobs and the jobs of their colleagues. Just last week, when Vauxhall committed to the future of car production at Ellesmere Port, the Business Secretary, Vince Cable, had the grace to say: “The unions and the Government … played a significant role in demonstrating to GM’s board that Vauxhall has a very flexible workforce…”

In ‘German Lessons’, the TUC makes the case for a Social Market Economy in the UK. We highlight the positive role that German unions play on works councils and supervisory boards, protecting their independence and defending their members, but working for the good of the company. We believe the UK could learn from this model, which is part of a more balanced, more equal, fairer and more prosperous economy. Sometimes in the UK, we talk as if the only stakeholders in industry are the management and the shareholders. The TUC rejects this approach. In our view, just as important are the workforce and the wider community, in areas such as Pat’s constituency of Wolverhampton. Unions have a positive role to play in the future of manufacturing. It would have been good if Pat’s report had said as much.

Then, in the ‘Comment and Debate’ section of the Guardian, the always-impressive Mariana Mazzucato debunks the argument that growth can be brought about by “structural reforms”, such as cutting red tape or making it easer to hire and fire workers. Mariana points out that those companies which invest in new technology, human capital and R&D, and are located in countries where public spending in these areas is high, are able to produce more competitive and better value products. She also highlights that Scandinavia, with its large welfare state and stringent labour laws, has been crisis-resilient because it invests in innovation. Mariana laments the irony that German pressure for austerity, which prevents weaker eurozone nations from investing, stops those nations from doing the very things, like supporting R&D, vocational training and “greening” the economy, that have made Germany so successful.

A head of steam is developing, against austerity and in favour of growth, and it couldn’t have come too soon. The TUC will be debating this issue at our conference, ‘After Austerity, on 26th June and we are delighted that Mariana Mazzucato, along with such speakers as Dean Baker, Ha-Joon Chang, Robert Skidelsky and our own Brendan Barber, will be contributing. Register here and join the debate 

“In time, my Rt Hon Friend the Education Secretary’s school reforms will do more to improve the long-term economic performance of our country than any Budget measure every will. But we’ve got to help the young adults who’ve already been let down by the school system. We’re offering a record number of apprenticeships and our Youth Contract comes into force next month.”

As regular Touchstone readers will know, the TUC recently published a report called ‘German Lessons’. This sought to learn from Europe’s most successful economy, Germany. One thing that has struck us about Germany is the fact that vocational skills enjoy real parity of esteem with academic skills. Furthermore, a vocational career – taking up an apprenticeship with a world class company, such as Volkswagen or Siemens – is a highly prestigious achievement. Engineers in Germany are respected and valued.

In the UK, by contrast, a place in university is highly prized, while a vocational career is too often seen as “second best”. We need to move away from such snobbery and the TUC supports all genuine efforts to improve both the quality and the quantity of apprenticeships.

In the light of this, I hope George Osborne will choose his words more carefully in future. His comments about Michael Gove’s education reforms are obviously political and I won’t dwell on them here, but whilst no child should be let down by the school system, apprenticeships are not there for anyone that is. They are there for those young people whose talents are more practical than academic. Not for the failures, the failed or the “second best”.

As the Chancellor began his Budget speech today, I wondered if Vince’s message had got through. Early in his speech, George Osborne told the House of Commons:

“We earn our way in the world if we stop being afraid to identify Britain’s strengths and reinforce them, backing industries, like aerospace, energy and pharmaceuticals, creative media and science. A deliberate strategy to create a more balanced national economy, where financial services are strong, but they are not the only string to our bow.”

Obviously excited by this, I waited to hear the details of how this new, rebalanced economy would come about. An hour later, when the Chancellor sat down, I was still waiting. Undaunted, I went to the ‘Red Book’, the 114 page document that sets out every Budget measure introduced, whether included in the Chancellor’s speech or not.  

What did I find? An 11-page section entitled, ‘Reforms to support growth’. This is broken down into four sub-sections: encouraging investment and exports; making the UK the best place in Europe to start, finance and grow a business; creating a more educated workforce; and creating the most competitive tax system in the world.

This 11-page section includes a lot of things that aren’t bad in themselves, but they simply don’t add up to much. We learn, for example, that as part of its export drive, the Government “will help secure temporary private sector office space overseas for new UK exporters in high growth countries where such services are difficult to obtain”. There’s nothing wrong with that, its surely helpful. But I don’t imagine the world’s powerhouse economies, like China, India, Brazil, the US and Germany are quaking in their boots at this new initiative from the competition in the UK.

From a first impression (although I’d like to see more detail before I draw a final conclusion on these), the best bits of the Budget for growth are those highlighted on the BIS website. These are: the £100m University co-investment fund to encourage universities to leverage in private sector, or charity, co-investment in long-term research partnerships; a £60m investment to establish a UK centre for aerodynamics; and £100m to increase the supply of capital for SMEs through non-bank channels. In addition, we have an Independent Review of Competitiveness to be carried out by Michael Heseltine and an announcement that the final two Catapult Centres (that’s Technology and Innovation Centres to you and me) will cover transport systems and future cities. Again, it sounds good, although £260m is not a lot of cash and it’s hard to see it stretching very far.

But it doesn’t end there. Alongside those bits on growth that aren’t bad,  just uninspiring, there are other bits that certainly are bad. Government plans to “scrap or improve” 84 per cent of health and safety regulation are hardly something to crow about. In what way will some of it be improved? I hardly expect it to be strengthened. Worst of all, the Government trumpets a below inflation increase in the National Minimum Wage on page 46 of the ‘Red Book’, then on the very next page, hails the cut in top rate tax to 45%, claiming them both as pro-growth measures.

In February, Vince Cable called on the Prime Minister for a growth policy that was both more strategic and more ambitious. After this Budget, Vince – like the rest of us – is still waiting.

“The chancellor is lucky, too, in that the industrial policy ideas emerging from the camp of Vince Cable, the Lib Dem Business Secretary, have so little substance. The leaked letter in which he complained of the lack of a growth strategy did not propose one, or present any substantial policy challenge to the Treasury. Previous business secretaries have been far more ingenious and troublesome. So the backdrop against which Mr Osborne will open his red box could be a lot worse.”

If I were surveying the UK political scene having just landed from Mars, I’d be puzzled as to how the lack of industrial policy ideas could be described as ”lucky” for the man in charge of the nation’s coffers, or a Minister seeking to boost industry (which is sometimes described as the ‘real economy’) is somehow “troublesome”. But those of us well versed in the silo culture of government are past any such surprises. However, I’m not quite sure this comment is fair. Sometimes the direction of travel is just as important as the destination and even six months ago, industrial policy was the idea that dare not speak its name. So at least the concept is on the table, which I think amounts to progress. Howard Davies would have been on safer ground to have argued that whilst we have seen some movement on the principle, in the next year we need to see some policy ideas to bring it to life.

The TUC has put foward its own thoughts on industrial policy in recent weeks. Our Budget Submission, which we launched last week, called for a strategic investment bank for the UK, for the Green Investment Bank to be given immediate borrowing powers, for action to enable procurement policy to support British industry, as happens in France and Germany, and for fiscal action to boost corporate investment. In the longer term, our policy paper, ‘German Lessons’, has sought inspiration from Rhineland Capitalism where, among other things, the Social Market Economy brings together government, industry and unions in common support for German industry – with impressive results.

We debated ‘German Lessons’ at a meeting in the House of Commons last week. Paul Everitt, Chief Executive of the Society of Motor Manufacturers and Traders, made the point I’m trying to emphasise here, that industrial policy can only really work if the Treasury, as well as the Department for Business, is behind it. This is surely correct. Is it beyond us that the department responsible for economic growth and the one in charge of the wider economy could sing from the same hymnsheet? I can’t believe that’s true. 23 years after the late Industry Secretary, Nicholas Ridley, famously said, “What is the DTI for? I’ve got bugger all to do and thousands of staff to help me do it”, there is emerging agreement that the (sadly renamed) Department for Business has plenty to do, even if civil service cuts mean its staffing levels are dangerously low. But it cannot seriously move if the Treasury doesn’t move with it.

Chuka Umunna, the Shadow Business Secretary, also spoke at our Parliamentary event last week. He is thinking increasingly interesting thoughts about industrial policy, as can be evidenced from his recent speeches, but he too will need to get Ed Balls on side if a future Labour Government is to make progress. A Budget – and a Chancellor – for industry. That really would be music to my ears!

The TUC’s submission describes the current state of the economy in some detail.  Domestic demand (consumer, business and government spending) fell in 2011, contrary to government expectations. Inflation was higher than expected, while wage growth was lower, squeezing household incomes. The consequent fall in economic activity explains flat-lining economic growth. Add to this the fact that over one million more people are now unemployed compared to at the start of the recession and the challenge is there for all to see.

So what should the Chancellor do? 

Firstly, and most obviously, he should scrap the austerity programme. The Government has already admitted that it will have to borrow £158bn more than originally forecast, to meet the costs of low growth, so the spending cuts are failing on their own terms. The public sector pay freeze, which is leading to serious falls in income among public servants, should be scrapped. And action should be taken to kick start job creation, especially for young people.

The TUC calls for a job guarantee for every young person who has been unemployed for six months or longer. We also call for a new Youth Credit, for all 16-24 year olds to boost access to training, work placements or progression into better jobs.

There are bold choices that can be made on tax. VAT clearly needs to be cut, as it is the unfairest tax of all, hitting pensioners and the low paid as hard as it does millionaires. A VAT cut would help to boost consumer demand at a stroke. There is an obvious need to try to encourage business investment, so rather than cutting corporation tax, which benefits already highly-profitable sectors, we seek  the reversal of cuts in capital allowances and cuts to taxes on wider investment and infrastructure development. We support the credit easing programme, although the amount of money dedicated to this should be doubled to £40 billion and its implementation speeded up.

Recent action from the Department of Business to encourage a modern industrial strategy is very welcome, but any such strategy must have Treasury support. Procurement policy needs to support British industry and a state investment bank must be created, so those strategic technologies that are not in tried-and-tested sectors and are therefore are unattractive to risk-averse high street banks, can get funding. Germany’s KfW, which was able to double access to finance immediately when the economy crashed in 2008, is a powerful example of such a bank. It is nonsensical, given the UK’s potential to become a global leader in green technology, that the Green Investment Bank cannot borrow until 2015, and only then if debt is falling as a proportion of GDP. There must also be a focus on growing those small firms in strategic sectors that can contribute most to jobs and growth.

Finally, a modern industrial strategy must be underpinned by action on skills. In particular, the apprenticeship programme must be strengthened. Apprenticeships must have a minimum three year duration and trainees should have a right to graduate to a level three apprenticeship.

The austerity programme is not working. Action on jobs and growth must be put in its place. There is no better time to start than next Wednesday.

Frederic Speidel, IG Metall’s full-time officer from Volkswagen in Wolfsburg, flew to London for the event. Frederic gave a strong defence of Germany’s Social Market Economy, but he emphasised that supporting this model is a political decision. It is opposed by some German conservatives and there has been a de-legitimisation of the model in recent years. However, the Social Market Economy, and the co-determination system, had paid dividends. Some of the main features of Germany’s response to the economic downturn – short-time working, the car scrappage scheme – had come from trade unions. There’s a lesson for us here: if we want a new economic model in the UK, we will need to fight for it and then fight to defend it.

Paul Everitt of the Society of Motor Manufacturers and Traders, giving an employers perspective, argued for a robust, internationally recognised industrial policy that delivers long-term certainty for UK businesses and international investors. Paul said that growing manufacturing and rebalancing the economy must be national priorities for all parts of government and all political parties. A long-term approach is required to provide the certainty and security that international investors need to commit funding to the UK.

Chuka Umunna, the Shadow Business Secretary, reflected on his own recent study visit to Germany. He spoke of the famous ‘mittelstand’, which is often described as family-run, but with a wide definition of what constitutes the family – in this case, it includes employees of the company as well. Chuka spoke of the parity of esteem between academic and vocational skills in Germany, where working in industry is respected and encouraged. Chuka also described the Sparkassen, who see it as their job to provide access to finance for local businesses. Furthermore, Germany’s KfW was able to double access to finance immediately when the economic downturn hit in 2008.

During the discussion, hard questions were asked: Is the UK’s financial sector just too big, crowding out manufacturing? Was the last Labour Government simply too timid on industrial policy, until the final years of its life? Had trade unions done enough to encourage works councils? What does a positive definition of workplace flexibility look like? What more can trade unions do to become seen as an essential balance to the power of capital, as they are elsewhere, by trade unionists and non-trade unionists alike?  

Needless to say, we agreed on a lot, disagreed on a fair bit and ended up with many questions unanswered. But these are the debates that the policy community must have and if the meeting was feisty at times, it was comradely throughout. We need more discussions like this. Thanks to everyone that joined in.

Understanding the horror – that’s probably not too strong a word – that is generally felt at the idea of UK politicians making such choices, my typewritten remarks contained a fair degree of crossings out and scribbles in the margin, as I wrestled with how to say this delicately. In fact, Vince Cable, the Business Secretary and the keynote opening speaker, helped me out. Vince has been grappling with the issue of industrial strategy in recent months (and as Unite’s Tony Burke and I blogged last week, I think progress is being made). In his remarks, Vince said:

“Government’s have been scared off by fear of being accused of ‘picking winners’. That is a legitimate concern. But the Government also makes choices every single day that affect individual sectors. And there is a case for being more explicit about the choices we are making and linking them to a clearly articulated economic strategy.”

Emboldened by Vince’s candour, I said what I really felt: that arguments about “picking winners” are actually a fig leaf for the desire, in our neo-liberal culture, to dismiss any possibility of a realistic industrial policy. Politicians do, indeed, make decisions every day, economic, social and industrial decisions, and one of the reasons that we elect them is for them to make such decisions.

But with no disrespect to Vince, or to Labour’s industry spokesman Iain Wright, who also made an excellent speech today, the best contributor of the conference, for my money, was Ha-Joon Chang, from Cambridge University. Ha-Joon debunked the arguments against industrial strategy wonderfully. Speaking of his home country, Ha-Joon said that in the 1960s, the annual per-capita income of South Korea was less than half that of Ghana at the time. South Korea took political decisions about the direction of its industrial development and had it simply followed the argument of focusing on its areas of comparative advantage, it would still be selling fish and seaweed.

Ha-Joon reminded us that Nokia of Finland made a loss for 17 years before it became a successful brand, that’s the time needed to develop a company so successful in its area of technology, yet UK banks would never support a company to do that for so long. Finally, Ha-Joon said we shouldn’t be put off by the fear of failure. Everything we do fails sometimes, but if we simply let that fear stop us, then we would never take a risk and nothing would ever change.

As Vince Cable ponders the shape of a future industrial policy, and as he wrestles with the Treasury for the funds that he will inevitably need, I hope he deploys some of these arguments. I’m beginning to think that whatever the costs of an industrial strategy, the costs of not having one will be much, much higher. In the short term, at least let’s bin this silly argument about “picking winners”. We’ve got so many better things to talk about.

I visited Germany three times to research the TUC’s own paper, ‘German Lessons’, which we published last month. There is much about Rhineland Capitalism to be admired. Germany’s training system is, indeed, of a very high quality. I was very impressed with the fact that some major German companies take on more apprentices than they need and some of those apprentices then go to work in the company’s supply chain. I thought the whole dialogue about medium sized companies was worthwhile: in the UK we laud the role of small firms but, over many years, we haven’t been ambitious enough in helping or encouraging them to grow. The UK also sorely lacks any kind of strategic investment bank: I’m pleased that Chuka writes of Labour exploring plans to establish a British investment bank; the TUC is looking at this as well.

The one thing Chuka didn’t mention was the role of Germany’s Social Market Economy and, with it, the valued contribution that trade unions make to German economic success. In our report, we described the Social Market Economy as “culturally cherished”, in the way that perhaps the NHS is culturally cherished in the UK. It may not be perfect, but we value it beyond words and, as Andrew Lansley has recently discovered, woe betide any politician that is even suspected of threatening it. The Social Market Economy is underpinned by the co-determination system, which allows works council members (who are usually trade unionists) seats on supervisory boards, exercising real influence on company decisions. Is that a threat to company success? Martin Rosik, Volkswagen’s Human Resources Manager at the company’s plant in Wolfsburg, told me: “Labour representatives expect the company to be competitive, they force the company to be competitive, and take care of the interests of their members. Here you don’t have the classic understanding of what is whose role in this game.”

I’m not sure it’s quite fair of Chuka to say the Coalition Government has no interest in industrial strategy. I was at the Government’s Manufacturing Summit in Bristol yesterday and I think both Nick Clegg and Vince Cable are starting to get the message (I will blog some more on that shortly). But it would be really heartening to see the Coalition and Labour set out competing visions of the kind of industrial policy the UK needs. We will have come a long way from the ridiculous “market always knows best” philosophy that characterised the Conservative Governments of the 1980s and 1990s and, frankly, too much of the New Labour era as well. Industry would be well served by such a debate. For my part, the best industrial strategy will be the one which recognises the positive trade union contribution. I hope we get there before too long.

For this reason, the OECD Economic Survey of Germany is an important document. The OECD is correct point out that Germany faces a cyclical return to slower growth. Moreover, Germany’s export-led model faces obvious problems if many of the countries to whom it exports face deficit reduction programmes and consequently falling demand. But I think there are serious flaws among the OECD’s prescriptions for Germany. The wrong policy mix won’t help Germany meet its challenges: it will only make matters worse.

The OECD is right to say that Germany must transform its growth model to thrive as a knowledge-based economy. Increasing the labour participation of women and older workers is also a point well made (as is improving the supply of childcare), although this is not the main issue affecting domestic demand. To boost demand at home, Germany must stop suppressing its wages. A minimum wage for those at the bottom end is necessary. Regarding those earning above the minimum wage, the jury is out on whether German unions deliberately moderate wage demands in return for job security or whether wage suppression is a demonstration that unions are not as strong as many think.

In tandem with boosting wages at home is a more general acceptance that, as  a player in the global economy, Germany must import as well as export. That requires an acceptance in Berlin that world economic imbalances between surplus countries – including China and Germany – and deficit countries – including the US and much of Europe - are not sustainable in the longer term.

But my main concern with the OECD report comes in the quote from its Secretary General, Angel Gurria. Mr Gurria says: “Many other countries are looking at the German mix of labour market reforms, social partners’ constructive flexiblity and sound fiscal policy”. It is not labour market reforms, that old chestnut, that has made Germany Europe’s strongest economy in the last sixty years. The main reasons for that strength are Germany’s record of skills investment, its powerful mittelstand of medium sized companies, and its Social Market Model, that does involve constructive flexibility, but that also gives works council representatives, usually trade unionists, a powerful place in determining company decisions, supporting corporate growth while also defending their members. Germany has also had successive governments, Social Democrat and Christian Democrat, who have been prepared to make strategic interventions in support of key industrial sectors, rather than adopting an attitude that says the market rules and the devil take the hindmost.

These issues are explored in the TUC policy paper, ‘German Lessons’. I hope Vince Cable has read his copy. I don’t agree with some of what he says, but I was very impressed with his call for a long-term plan for industry, as reported in the FT earlier this week. Winning this argument with the Treasury is another matter, of course, but Vince hit many of the right notes in  his letter to the Prime Minister and the DPM. As in Germany, we need to get the policy mix right, but Vince seems to acknowledge the scale of the problem and that’s a good place to start.

This study looked at the link between the financial sector and the real economy. It considered the extent to which financial activities either promote or impede industrial growth and innovation. The project was co-ordinated by Professor Mariana Mazzucato of the University of Sussex, who some readers might know from her DEMOS pamphlet, ‘The Entrepreneurial State’, which considers how, contrary to popular belief, the public sector drives and bankrolls much innovation activity.

I have always found innovation to be the trickiest part of the growth policy jigsaw. Putting together an active skills policy isn’t theoretically difficult (witness Germany’s success in this area) although politicians, of every stripe, have lacked the will to really make this happen in the UK. We could have a major push on procurement policy if we really wanted to (there’s that problem of political will again). But innovation is hard enough to define, let alone to develop policy in support of. For this reason, FINNOV’s conclusion are vital.

I won’t list them all here, but take a look at the FINNOV website: Key among the study’s findings, however, are that tax rules that currently penalise innovative companies should be changed. Key financial instruments are needed to allow funding to reach innovative firms – the Green Investment Bank is a start, but it is not enough. Blanket support for small businesses is misguided – government support for SMEs should be sector specific and targeted at the small percentage of high growth firms, in all sectors, which have an impact in terms of jobs and/or new products. And the green economy is the next ‘big thing’ after the internet and is likely to produce high returns for those companies that get in there first.

I think these are excellent conclusions. In the TUC’s recent report, ‘German Lessons’, we talk about the need to grow more small firms into medium sized enterprises, capable of forming part of the supply chain for larger, world class exporters. In the UK, small firms are seen as a good in themselves, a sign of vibrant capitalism, even though most fail in the first five years. I’ve nothing against small firms as such, but I question their automatically important role in a modern economic model. Instead, there are some companies that are naturally small and will remain that way, but others that have the potential to grow and that the rest of us need to grow. That should be the area of government focus.

‘German Lessons’ also talks about support for key industries in the context of climate change. The TUC has long talked about building the strategic industrial sectors where the UK can become and remain competitive in the decades to come. Green technology is self evidently one such sector and it is right for FINNOV to call for focus on this part of industry. It’s great for the TUC and FINNOV to be on the same page on most of these areas. I hope they get many of these policies taken up in the corridors of power.

Particularly interesting (and relevant for me) was the launch of the IPPR’s publication, ‘The Third Wave of Globalisation’.

I don’t pretend to have read all 96 pages, but I’ve seen enough to see there’s some interesting stuff here. The report argues that the first wave of globalisation was led by the UK and took place about 140 years ago. The second wave followed the Second World War and was US led. We are now at the third wave, which will require advanced economies, like those in Europe, to focus on their strengths in high-end technology and component goods across international chains of production. The report describes how people in the developed world fear that “as the east emerges, the west will become ‘submerged’”. In his Foreword, Lord Mandelson takes up this theme, spending some time thinking about why globalisation has brought incredible benefits, yet many have what he calls “nagging doubts” about it. In fact, Mandelson goes further, pointing out that globalisation brings “a mix of new economic opportunities and disruption, volatility and insecurity for individuals and families”.

I think people have feared globalisation for a number of reasons. One is that they have simply felt incredibly powerless in its wake. This is especially true in that the disruption of globalisation hasn’t been spread equally. It may be true that, for some, globalisation has led to new opportunities to travel and work abroad, but a manufacturing worker losing his or her job in the West Midlands and being told that that job going to China is somehow a sign of world economic progress could hardly be expected to feel positive about it. The growing divide among rich and poor in recent years has made matters worse. So globalisation has often seemed like something happening to people, rather than being shaped by them. We try to shape world events through our elected politicians, but right now, the bond markets and international speculators seem more powerful than the ballot box, especially in some European countries.

The IPPR cannot solve all these problems, of course, but its call for action on current account imbalances between surplus and deficit countries is welcome, as is Lord Mandelson’s call for a more robust industrial strategy for the UK.

A couple of weeks ago, the TUC launched its own report, ‘German Lessons’. Whereas the IPPR went to Brazil, China, India, Germany and the US, we focused on one country, Europe’s strongest, Germany. Like the IPPR, we don’t have all the answers, but policymakers should think afresh about the role of trade unions in creating a fair globalisation. German companies are used to being winners. Volkswagen aims to be the biggest motor manufacturer in the world. Siemens and ThyssenKrupp are two other world leaders that we visited. What is interesting is that all three recognised the imperative of investing in China. It is the biggest growth market in the world and to sell there in any meaningful way means getting a base there. And when I say “all three” recognised the importance, I don’t just mean managers, I also mean trade unions in those companies. Because in the German Social Market Model, works council representatives, who are usually trade union members, also take responsibility for major investment decisions. What is crucial, however, is that those works council reps can also keep one eye on their own constituencies. So what they do is they support company investment in China (or India, or Brazil), so long as there is also an agreed investment in the home plants, protecting jobs and skills in Germany. In short, they negotiate, like good, old-fashioned trade unionists always have.

Trade unions can’t make the powerless powerful, but they can help to cushion the inevitable blows of globalisation. If we want a globalisation that takes workers with us, trade unions are undoubtedly part of the solution.

These companies are world-leaders. Germany is the strongest economy in Europe, one of the biggest in the world and is best-known for its leadership in engineering and wider manufacturing. There has been much talk about rebalancing the British economy. How much of this is just talk remains to be seen, but if our politicians are serious about a renaissance for manufacturing, there are obvious lessons to learn from German companies.

‘German Lessons’ contains too many recommendations for me to attempt to summarise them here. I urge you to download the report and read them for yourself. But our major call is for a new manufacturing eco-system for the UK. Tinkering at the edges will not work. Individual initiatives, however worthy and even if partially successful, cannot deliver the change that we need, unless they work alongside other policies to support manufacturing. In Germany, the overall industrial policy is greater than the sum of the parts.

‘German Lessons’ contains specific recommendations for policy around issues like skills, procurement and growing small firms into medium sized enterprises, issues that the TUC has long sought to influence, and rightly so. But if we really want to learn the lessons from Germany, we need to take a hard look at their economic model, their industrial philosophy and their political approach. Some of what we found has long been politically unfashionable in the UK, but if we are serious about a rebalanced economy, we may need to move out of our comfort zone.

Britain is an unequal society that is becoming more unequal. As if that isn’t bad enough, some believe that that is the inevitable consequence of a vibrant capitalism. Yet Germany’s social market model is deliberately calibrated to ensure that entrepreneurs, managers, employers, trade unions and ordinary workers have a stake in its success. Managers and trade unions negotiate vigorously – some things are the same the world over! – but they fundamentally believe that, at base level, they are operating in an economic model that is broadly fair.

Germany welcomes trade unions as social partners. Trade unions can influence company policy and are sometimes strong enough to completely block change, but with that power comes responsibility. Unions know that standing in the way of change simply leads to slow decline. So they support change, while influencing it to ensure that their members are protected in the process.

Germany understands that industrial policy is, to a point, political. That’s the message I know our politicians will find most difficult, but leading industrial nations are strong in certain sectors because their governments have targeted those sectors. In the UK, we have tried to ensure that the economic foundations are in place, only to “let the market decide”, as if concepts like ‘perfect competition’ and ‘enlightened self interest’ on the part of companies and shareholders were real and always present, rather than theories in an economic textbook. Countries target the motor industry, or aerospace, or environmental technology, partly because they know they are good at those sectors and partly because, looking to the future, they can see which way the wind is blowing. Either way, politicians make decisions. Other policies, around skills, or investment, or grants for research and development, follow targeted industries. There is enough flexibility for new industries to grow, but free market fundamentalism was never embraced in Germany and it’s hard, looking at where Germany and the UK are now, to argue with that approach

I hope Ministers take a hard look at ‘German Lessons’, with a view to a rebalanced economy. I hope the Labour Party takes an interest too. But I also want to start a debate. Our report challenges government, employers … and trade unions. Over the coming months, the TUC will be fleshing out some of its ideas in discussions, policy seminars and on Touchstone, as part of our wider search for an alternative economic narrative. I hope you come with us.

Box 12 of this grid, under ‘regulation’ reminds readers that the Government announced in April 2011 that it will not extend the right to request time to train to businesses with fewer than 250 employees, “saving businesses an estimated £350 million a year”. I don’t cover either skills or regulation for the TUC, so whilst this is clearly old news to many, it was new to me. I was, of course, appalled (but not surprised) that even requesting training in SMEs is considered unacceptable.

Reading on, I reached box 24, under ‘trade and investment’, which trumpets the fact that UKTI will deliver a new package of support to help SMEs with an ambition to break into overseas markets. This initiative is called ’The National Export Challenge – Exporting for Growth’ and it includes web resources to enable firms to swap experiences, a UKTI prize for the best export idea, and a ‘how to’ guide aimed at professional service companies.

I have an interest in this subject, as I’ve just written a report for the TUC looking at industrial policy in Germany, which will be published shortly. Among many other things, my report talks about Germany’s ‘mittelstand’, its network of small and, more often, medium sized companies that is sometimes described as the backbone of the German economy. We don’t have anything similar and the CBI, among others, has spoken recently of the need to grow more small companies into medium sized firms.

So I welcome ‘The National Export Challenge’ and I hope it works. The trouble is, more important than a prize, a website and a ‘how to’ guide, is a company – small, medium or large – made up of talented, ambitious employees, keen to learn, which can make that company more productive, improve the quality of its product and thereby increase its export potential. But employees keen to learn can’t ask for training in a British SME, because we call that a burden.

And we want to compete with Germany? You have to laugh. Otherwise, you’d cry!

First of all, those growth forecasts. The Office for Budget Responsibility (OBR) has downgraded its forecast to a growth projection of just 0.9% in 2011 and even less, a paltry 0.7%, next year. Trade unions have been calling for a serious growth strategy since this government was elected. How right we were to do so.

Looking down the list, the two biggest announcements on growth seem to be the £20bn National Loan Guarantee Scheme, to lower the cost of loans to small businesses, and a further £20bn to finance infrastructure. Those are large figures, so we can be sure this money is not coming from government coffers. The National Loan Guarantee Scheme, the so-called ‘Credit Easing’ announced in Osborne’s speech to the Conservative Party Conference in October, is taking its £20bn from the Bank of England, according to the Guardian. The money for infrastructure is due to come from pension funds.

Some observers, notably Alistair Osborne in the Telegraph, scoff at the idea that this will work. The Government says it has signed a Memorandum of Understanding with two groups of pension funds to deliver this cash, although the small print of the Autumn Statement hedges its bets, saying the Government ”will target up to £20bn of investment from these initiatives”. So what is the likelihood of achieving this target? It’s an important question. After all, the Government ‘targeted’ the paying off of the deficit over five years, but only the hardiest of souls now expect that to happen.

The TUC can half welcome the announcement on energy-intensive manufacturing. About £250m will be used over the spending review period to reduce the impact of policy on the costs of electricity for the most energy-intensive industries. The TUC has lobbied hard on this and we welcome the package as a first step in the right direction. But the Government needs to develop a full strategy for the energy intensive manufacturing sector, widening its sectoral scope and providing energy cost relief and an ambitious technology investment strategy. It may seem counter-intuitive to call this a victory for green campaigning, but if we lose those industries, the likelihood is that they would go to countries with much less emphasis on reducing carbon emissions than the UK.

The Government speaks of a package of measures to deliver better value for the UK from public procurement. I guess that all depends how you define better value. The small print commits to negotiate a radical simplification of EU Public Procurement Directives, to ease burdens on business. Those are the same directives that enable contractors to specify that apprenticeships or sustainability is written into contracts. The TUC will fight hard to protect those measures. Of course, apprenticeships are a short term cost, but as we know through experience, a lack of quality apprentices is a long term disadvantage.

Finally, I welcome the additional £200m on science, including an £80m investment in the Institute for Animal Health and £25m for large scale technology demonstrators. Whilst I have a very different view of the growth agenda needed for the UK to that of the Coalition Government, I believe David Willetts, the Science Minister, is battling hard for science and he has the TUC’s support.

All in all, if I were a BIS Minister (The Department for Business is responsible for the Government’s growth strategy) I’d be amazed that I was able to say anything about growth, given the paucity of funds available. But the problem is not today’s announcement. The problem is that the Government strategy is simply wrong. Austerity is prolonging the economic pain. It’s time to change course.

His “warm up act” was a panel discussion made up of Vicky Pryce of FDI Consulting, Lord (David) Owen and Daniel Franklin of ‘The Economist’. That discussion considered how much capitalism needs to be reformed. David Owen said the idea of the Social Market appealed to left and right, the left focusing on ‘social’ and the right on ‘market’. I pitched in by saying that if you added the word ‘economy’, you had ‘Social Market Economy’, the German model. I’ve spent a lot of time in Germany recently, meeting managers and trade unionists from major companies, trying to learn some lessons. I’m struck that the Social Market Economy is a model that managers and workers, companies and unions, can unite around. It gives them a huge advantage. David Owen agreed that we could learn much from Rhineland Capitalism. He also had some critical things to say about the Coalition Government, arguing that it would be unacceptable if youth unemployment, which topped one million yesterday, was left to grow.

Ed was on very good form. After his speech, he spent 40 minutes answering questions. He was intelligent, confident and witty. I’m very pleased he is continuing to push the idea of good companies and a better capitalism. I managed to ask a question about employee voice, again in the light of what I’ve learned in Germany. I’m struck that major companies I’ve spoken to in Germany are so positive about the rise of China being an opportunity (Ed mentioned in his speech that Germany exports more to China than any other EU nation), but I’ve also noticed real value in the role of the Works Council, which must balance the need for their company to expand in emerging markets with protecting the jobs and the life chances of employees back in their home countries. German trade unions juggle those difficult priorities well and I think there are some lessons for us in the UK.  Ed agreed that good companies see their workforce as their greatest asset and said that most of the time, unions and management were on the same side, fighting for the success of the company, a fact that is often not acknowledged. He’s right about that.

I think today’s speech reflects ongoing thinking by the Labour leader, rather than being the last word on the subject of a new economy, and I hope he reflects more on employee voice. Without it, workers end up doing what they do because their boss tells them to. If their boss is a good boss, that model works, but employees can bring a lot to the success of the company, while defending their own interests, if mechanisms exist for their voices to be heard. We’ll be releasing the results of our German study soon, so I’ll say more about this in the coming weeks, and whilst blindly transporting another country’s model wouldn’t work, there are certainly some important lessons to be learned.

Without naming names, Barack Obama does much the same thing in today’s FT. Obama writes:

“When we met in London two years ago … we forged a response that pulled the global economy back from the bring of catastrophe. That’s the leadership we’ve demonstrated before. That’s the leadership we need now…”

Remind me who was in the Chair at the London G20 summit?

Given the abuse that’s been hurled at him in recent years, I’d imagine that Gordon is past caring one way or the other, but Coalition arguments that Labour created this mighty mess, a mess which they must now clear up, must continue to be challenged. Memories are short and its easy to forget how close we came to a world economic collapse during the downturn.

Neither do I mention this simply for posterity. Barack Obama is right to say in the FT that when the G20 meets in Cannes next week, we need “the same sense of common purpose that allowed us to rescue the global economy two years ago”. In other words, the situation remains critical.

With the eurozone in crisis, and a Coalition Government still refusing to acknowledge the damage of its spending cuts, in spite or rising unemployment and non-existent economic growth, we need political leadership as badly as ever. Let’s hope we get some.