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.

Martin Kettle puts the case for “well argued and flexible new models of workplace co-determination of the kind that have done so much for German companies”, rather than “an expanded role for unions”. Germany, of course, has both. Its workplace co-determination model has been hugely successful (more about this in the TUC’s forthcoming report on industrial policy in Germany and the UK, which will be published towards the end of this year) but, whilst officially German employee representatives could be anybody, in practice they tend to be union members.

I share Martin Kettle’s enthusiasm for a focus on new thinking about industrial policy from Andrew Adonis, and Kettle is right to describe this as “crucial to any long-term reimagining of the UK economy”, but he is a little ungenerous in describing industrial policy as “a subject riddled with old ideas, especially in the unions”. The TUC published its paper, ’An Industrial Strategy for the United Kingdom’ back in 2005, but nobody, including Ministers and employers, would support us. If I had a pound for every time I heard the phrases “Tony Benn” and “British Leyland” in response, I could have afforded to retire. Since then, Peter Mandelson has given us ‘New Industry, New Jobs’ and many of the same people who used to howl in objection now think industrial policy is a thoroughly sensible idea. But Martin Kettle is right to suggest that we need to know what a modern industrial strategy might look like.

So here’s my starting point. The Government, the State, the Country, call it what you like, has an interest in steady growth, good jobs and high skills. It follows that it has an interest in the growth of those industries that can deliver that growth, those jobs and those skills. The Thatcherite consensus, which Ed Miliband has started to distance himself from this week, believed that the market would magically deliver exactly the kind of growth, jobs and skills that we need. Our competitors, in France, Germany, the Scandinavian countries and, yes, the United States as well, did not share this view. The UK’s approach, along with its excessive enthusiasm for financial markets, has left us with a deindustrialised economy that doesn’t know how it will pay its way in the coming years.

So the UK needs to build those industries of the future and government has a role in helping to make that happen. Government procurement can help to build the skills and the capacity that we need. Long term investment funding, via an investment bank akin to Germany’s KfW or France’s Fonds Strategique D’Investissiment, to support those industries that are not all safe bets but will often be world leaders, is essential. Developing apprenticeships that have genuine parity of esteem with academic qualifications is necessary. And on those rare occasions where the state has to step in, to protect jobs and skills, it must do so, as the KfW is likely to do to protect Germany’s investment in EADS. As well as supporting the jobs in question, such action sends a message that, when push comes to shove, Government’s will not stand idly by and watch important industrial projects die. That sends a powerful message to today’s and tomorrow’s investors.

I won’t pretend unions get it all right, and we certainly need to be challenged. But more than any other stakeholders, we have put industrial policy on the agenda. And we have kept it there.

Much has happened, even since I got back. President Obama has addressed both Houses of Congress, announcing proposals for an American Jobs Act. For Obama personally, the stakes couldn’t be much higher. US unemployment stands at 9% and no US President has ever been re-elected with such a high proportion of Americans out of work. Obama won’t expect any personal favours from Republicans, but this is about more than one man or one person’s job. What is more, Republicans should be careful. Americans facing unemployment and poverty won’t take kindly to political games that could prolong their agony and, indeed, Republican poll ratings have fallen alongside those of the President since the debt fiasco. The US recovery has stalled and action is needed to get it moving. Republicans and Democrats both have  a responsibility to make that work.

Meanwhile, the OECD has published its latest forecast, arguing that the UK will have the lowest growth in the second half of the year of any major G7 economy apart from Italy. Bizarrely, the OECD Chief Economist, Pier Carlo Padoan, has urged the UK to stick to its rapid pace of fiscal consolidation. I prefer the assessment of Christine Lagarde, the IMF’s new Managing Director who, in a triumph of diplomatic language, continued to support the Government’s deficit reduction, but warned that the deteriorating global economy means the Chancellor must remain “nimble”.

What does “nimble” mean? I suspect it means flexible, adjusting to changing circumstances as necessary. Common sense, some might call it. But nimble isn’t the first word that springs to mind about UK economic policy, as growth becomes more and more unlikely, unemployment is about to hit 2.5m, youth unemployment is reaching record levels, millions struggle to pay their bills - but the Government refuses to countenance any kind of Plan B. George Osborne, the Chancellor, was at it again this morning, calling his deficit reduction plan - spending cuts to you and me - a “rock of stability”. He even argued that this plan had delivered record low interest rates. Er, no. We have record low interest rates, in spite of inflation at twice the Government’s target, because with stagnant growth, a rise in base rates now would be the last nail in the coffin of the British economy.

Yet in spite of this gloomy prognosis, there is space for some compromise. What the UK needs – as does much of the rest of the world – is a way of boosting jobs and growth in the short to medium term, while reassuring the markets that the deficit will be tackled in time. The TUC are not deficit deniers and we agree that action to reduce the deficit must be implemented, just not so quickly that we squeeze the life out of the economy in the short term. A longer term deficit plan, but a plan nonetheless, is where policy makers should try to meet each other.

So I think we can deal with the “what”, but we are a long way from the “how”. Trying to boost growth by cutting Corporation Tax, scrapping red tape and, eventually, ending the 50p top rate of tax will never work. We need a meaningful growth strategy, based on investment, skills, the intelligent use of procurement policy and fair taxation. On that one, the TUC is as far from the Government as ever.

Reading the press release of this meeting on the BIS website, which I confess I stumbled across while looking for something else, it’s hard to be clear exactly what the meeting was for. BIS says its aim was “to build on recent European Council agreements regarding the creation of a fully-functioning digital single market, reducing the regulatory burden and maximising the potential of EU services.” So it was a digital summit? Does that mean that the countries listed above have no interest in a digital single market?

Or was there another agenda at work?

The headline of the BIS press release was “Likeminded European Ministers meet to talk about growth”. Likeminded. That sounds like a clue. The press release stated:

“The group consisted of Ministers from Member States that have expressed support for the EU growth agenda and its focus on the single market, trade, innovation and reducing regulatory burdens.”

A quote from the Business Minister, Ed Davey, said:

“Today’s meeting confirms how an increasing number of Member States share Britain’s view on the need for an ambitious Europe wide growth agenda, and how we are co-operating more closely than ever.”

Now I’m all in favour of an ambitious Europe wide growth agenda. That’s why I’d have preferred Germany (growth of 3.6% in 2010), as well as Europe’s major economies, to have been there. Germany is powering forward and I, for one, would like the UK to emulate its success. The trouble is, Germany hasn’t deregulated its way to growth.  It has achieved this growth through its long-term investment in skills, innovation and world beating industries. It is supported by its Social Market Economy, underpinning fairness for working people, rather than stripping away rights for those at work.

No wonder Germany wasn’t here. Most Germans I know speak impeccable English. But they don’t speak the language of our Government.

I could write more about the companies involved, but I would prefer to concentrate on the failures of policy that led to today’s decision, in the hope that next time we will be better prepared. But for the record, Siemens employs about 16,000 people in the UK, many of them trade unionists, and makes an major contribution to the economy. What is written below is in no way a criticism of Siemens or its workers, in the UK, in Germany or anywhere else. This is a systemic failure that neither Labour nor Conservative Governments have tackled, namely a failure to institute policies that allow UK procurement policy to support British industry.

Philip Hammond, the Transport Secretary, had a point this morning, when he highlighted the fact that the specification for this contract was drawn up by the last Labour Government. But he should be careful: his Government introduced a Plan for Growth last October, which failed to address the wider issue. The TUC’s Budget Submission in April 2011, for the umpteenth time, called for action on procurement. For the umpteenth time, we were ignored. So let me repeat our words exactly:

“The TUC’s ideal solution would be for the Department of Transport to buy British trains, not because they were British, but because they were the best. But to ensure that British is best, we need to strengthen our key industries and procurement policy has a role to play in helping us to do that.”

Companies are driven by markets. If the market requires skills, companies will develop skills. If the market wants sustainable solutions, companies will deliver sustainable solutions. But UK procurement policy is too often driven by low cost. Armed with its reckless deficit reduction plan, the Coalition Government’s major focus has been on driving down the costs of procurement.

Trade unions try to raise the role of skills, of sustainability, of employability in procurement contracts, but to no avail. Trade unions make the case for joined up government, so that government departments are not just interested in buying cheaper, but recognise that they can also boost British industry in their purchasing decisions, but we have got nowhere. Perhaps we will now. And just to be clear, this is not only about trains. There is also a case for an NHS procurement policy that supports the UK pharmaceutical and medical equipment sectors, to give just one example.

I have heard a lot of talk today about how “Germany buys German and France buys French”. Is that true? There is certainly a perception that it is. Could the UK Government ask the European Commission to take a closer look at whether open competition in Europe really is open? We need a level playing field. A situation where Germany buys German, France buys French, but the UK buys from anywhere, is clearly not acceptable. But if Germany buys German because German is the best, then we can hardly blame them and the UK Government must redouble its efforts to ensure the UK is competitive. As I’ve blogged before, cutting corporation tax and getting tough on regulation isn’t a serious growth strategy.

What should happen next? I repeat what the TUC called for it its Budget Submission in April. The TUC calls on the Chancellor to announce a task force, comprising of Ministers and officials from BIS, DWP, DECC, the Cabinet Office and the Treasury, to consider a procurement policy that increases the UK’s levels of skills, sustainability and employability, as well as value for money. Employers and trade unions should be asked to give evidence to this task force and it should report in eight months.

Those who refuse to learn from history are condemned to repeat it. Let’s not repeat this story.

Meanwhile, the TUC has been responding to the European Council’s recommendation on the National Reform Programme of the United Kingdom. After the March 2011 European Council, European Member States introduced national stability and national reform plans. On 7th June, the European Commission published country specific recommendations in reaction to these plans. Sadly, when it comes to their recommendations for the UK, the Commission falls into the same trap as the Coalition Government. While speaking the language of growth, it supports spending cuts that are sharp enough to undermine any real prospect of growth taking place.

The European Commission forecasts “moderate growth driven by corporate investment and an exchange rate driven rebound in net exports” in the UK. I guess it all depends how you define “moderate growth”. Over the last quarter of 2010 and the first quarter of 2011, UK growth was flat. Growth was -0.5 per cent in 2010Q4 and +0.5% in 2011Q1. As Tony Dolphin, Senior Economist at the IPPR think tank put it in April, “the UK has just come as close as it is possible to come to a recession without actually being in one”. What is more, forecasters continue to revise down growth estimates. The National Institute for Economic and Social Research (NIESR), for example, forecast in May that growth this year would be just 1.4 per cent, 2.0 per cent next year and below its trend rate of 2.1 per cent in 2012.

Still more damning is that NIESR predict the weak recovery will lead through to lower tax revenues, with higher public sector net borrowing and a higher budget deficit in 2015-16 than projected by the UK’s independent Office for Budget Responsibility. NIESR say: “We do not expect the government to meet its target to balance the cyclically adjusted current budget by 2015-16″. So for all its macho talk, the government’s economic policy is leaving the recovery so weak that its ultimate aim, to cut the deficit, is likely to be missed. The medicine is killing the patient.

When not talking about the deficit, the European Commission’s recommendations for the UK raise some important issues. They are right to highlight the UK’s historically low rates of public infrastructure investments, particularly regards transport, which impede growth. They are also right to raise UK weaknesses in intermediate skills, the number of British children living in jobless households (even though this number is less now than it was a decade ago), problems of credit availability, especially among SMEs, and the scourge of youth unemployment. One of their recommendations, for a comprehensive strategy to reduce early school leaving, is well argued, but will not be helped by the Coalition’s abolition of the Educational Maintenance Allowance.

But we simply cannot invest in growth in the way that we need when we are trying to cut the deficit so far and so fast. And for the UK, read the rest of Europe as well.

‘Growth without gain?’ points out that whilst less chronic than in the US, where median earnings have been stagnant for a generation, leading economies such as the UK, Germany and Canada have seen median wages either remain stagnant or falling during long periods of growth, prior to the 2008-09 global recession. However, other OECD countries, including Australia, France, Sweden and Norway have experienced better wage performance, suggesting there are lessons that countries like the UK can learn.

Wage stagnation has many consequences. Inflation hits people on low to middle incomes disproportionately, for example. And before the financial crisis, 30 per cent of people on low to middle incomes buying their first home relied on 100 per cent mortgages; despite falling interest rates, the burden of mortgage repayments on these people has been rising, not falling.

‘Growth without gain?’ describes the anaemic economic performance that often follows recessions characterised by credit crises. It says, “today’s defining political challenge is framed simply in terms of securing a steady recovery”. I agree, although I’m not sure the Coalition sees it that way. For them, cutting the deficit remains priority number one, in spite of evidence almost daily that this is sucking the lifeblood out of the economy.

After opening presentations at this morning’s launch, I had the opportunity to put in my two penn’orth, so I raised the decline of collective bargaining. I quoted the ILO’s Global Wage Report for 2010-11, which describes how a one per cent increase in the annual GDP per capita translates into average wage growth of 0.87 per cent in countries with superior collective bargaining systems, compared to wage growth of only 0.65 per cent in countries with weak coverage.

Steve Machin of the London School of Economics replied that about 15 to 20 per cent of wage stagnation was caused by the decline in collective bargaining. Whilst it wasn’t the most important factor, this was a high percentage for simply one factor. Diana Coyle agreed with the importance of unions, although she argued that we hadn’t bargained for women as well as we had bargained for men. I’m not about to argue that unions could never do better and if this is true, we must improve. Of course, we were one of the loudest – sometimes loneliest – voices in calling for a National Minimum Wage, which has disproportionately benefited women, so there’s much for us to be proud of.

What is becoming more and more clear to me is the need, in the post-crash economy, for a better balance of influence among civil society institutions, including unions. There was much talk this morning of a more responsible, better capitalism and we can all sign up to this. But bringing that better capitalism about will require an understanding that many stakeholders must have influence over the future development of the economy. Relying on altruism among business won’t work. Will Hutton argued for a proud, feisty trade union movement, bargaining on behalf of its members, even describing this as a “noble” pursuit.  The days of blindly assuming that the voice of business is the only one necessary must surely be put behind us.

I would expect the CBI to want lower business taxes. The trouble is, George Osborne dressed up these tax cuts and lower regulation and called them a growth strategy. And deliver growth they won’t. Today, the IMechE highlights why.

According to the IMechE’s survey of 1,000 manufacturers, 31% agree that the Government is adopting the right strategy to rebalance the economy, compared to 54% who disagree. Their biggest concern, as if you couldn’t guess, is skills. 43% of manufacturers think the Government is performing fairly or very badly on education and skills policy, compared to 14% who think it is performing fairly or very well. 35% think cuts to corporation tax, the centrepiece of the Government’s growth strategy, will be neither effective or ineffective.

More manufacturers (64%) think increasing R&D Tax Credits would be very or quite effective and 79% say the same about funding for more apprenticeships.  82% say that, in light of the planned rise in tuition fees, courses which cost more, such as engineering, should continue to be subsidised by the Government.

Of course, the Government cannot take serious steps to introduce a proper growth strategy because it is cutting spending left, right and centre. Deficit reduction at breakneck speed, not rebalancing the economy for the future, is the priority. That isn’t a necessity, it is a political choice, and employers should be careful not to put themselves in the firing line.

By making it sound as if tax and regulation hold the keys to growth, employers will hardly be able to complain if, in the light of tax cuts and lower regulation, they are expected to deliver. They should keep speaking up for industry. And no amount of sweeteners from the Treasury should be allowed to drag them off message.

This will surprise no-one. Embark on a massive package of spending cuts, put hundreds of thousands of public sector workers out of a job, increase VAT and fail to develop a meaningful growth strategy and its hard to expect anything else. Only George Osborne and Nick Clegg don’t seem to get it. It’s worth noting, however, that the Bank’s forecasts, on growth and inflation, factor in an interest rate rise in the third quarter of this year. If growth really is sluggish, it might need to think again about that. The Bank Governor, Mervyn King, warns that CPI inflation may go as high as 5% during this year, but he has been clear that high inflation is due to imported commodity prices and increased VAT. A rise in base rates would make no difference to those factors, whilst undermining growth still further.

I’m a little concerned that in his opening remarks to the press conference introducing the Inflation Report, Mervyn King said:

“An important question for the MPC is whether the current high rate of inflation will affect its medium-term level. There is a risk that continuing high rates of inflation will push up on inflation expectations, or lead to some resistance to the erosion of real take-home pay. Either of these mechanisms could put upward pressure on wages and prices looking ahead, and imply that inflation will not fall back as sharply when the temporary effects of higher VAT, energy and import prices come to an end.”

To be fair to Mr King, he went on to say that there are other influences on wages and prices that are pushing in the opposite direction. But it’s hard to see what the point of this comment was. It’s as if the Bank can’t talk about inflation without issuing a pay-related health warning. Yet as Mervyn King himself has recognised, rising wages are the last of our fears. In his well-reported Newcastle speech in January, the Bank Governor pointed out that in 2011 real wages are likely to be no higher than they were in 2005. He added that one has to go back to the 1920s to find a time when real wages fell over a period of six years.

Nobody wants a wage-price spiral, but the real issue is that stagnating wages have contributed to the economic crisis and increasing wage levels have a role to play in getting us out of it. The Global Wage Report 2010-11, published by the International Labour Organisation, has this to say:

“… declining wages in periods of crisis may actually lead to a spiral of falling aggregate demand and price deflation, rather than to a quicker economic recovery. In fact, a number of observers have established links between the long-term decline in the wage share, the increase in wage inequality and the global economic crisis… A group of distinguished experts led by Jean-Paul Fitoussi and Joseph Stiglitz considered that the crisis had its structural roots in the decline in aggregate demand that preceded the crisis and which was due to changes in income distribution… Looking forward, the macroeconomic link between wages and aggregate demand also indicates that the pace of the recovery will depend, at leas partly, on the extent to which households are able to use their wages to consume whatever the global economy produces.”

We all know that, if a phrase gets repeated often enough, it is likely to stick in the public consciousness. So no more talk of the threat of wages please, Mr King. Real, but not excessive, wage increases are part of the solution, not part of the problem.

The article neatly describes two things, one explicitly and one implicitly. It highlights, as if we didn’t already know, how interconnected the  global economy is today. Higher eurozone interest rates would drive down the dollar, hitting continental Europe’s attempt at an export-led recovery (an attempt at which some are succeeding more than others). US inflation might accelerate as import prices rise. What Washington and Frankfurt do are of interest to economies thousands of miles away from Washington and Frankfurt.

More implicitly, it describes the contradictory challenges presented by the single currency. Support for higher interest rates in the eurozone is at its most pronounced in Germany, where the bailout of European economies seen as profligate is already unpopular. The ECB’s expected small rise in base rates would be designed to send a signal that it is serious about tackling inflation. But Greece, Ireland and now Portugal have more pressing problems, which will not be helped by a rise in the cost of borrowing. This is not an argument against the single currency, which brings valuable economic and political benefits to much of Europe, but it is a warning against an over-reliance on interest rates to tackle economic difficulties, very important though they are.

Political history casts a long shadow over the different policy priorities in Washington and Berlin. The US’s biggest economic shock of the 20th century was the Great Depression, making fears around economic growth the predominant concern, even 80 years after the event. Germany, meanwhile, remains scarred by the hyper inflation of the inter-war years and we all know the result of the political instability that followed. Policymakers in the US and Germany will say they want steady growth and low inflation, but in an economic period where they may feel they have to prioritise one over the other, it is easy to understand the divergence.

As for the UK, one of the reasons why Coalition Government arguments that we must tackle the deficit in the lifetime of a Parliament were always nonsense is precisely because we are not tied into a single interest rate. Our monetary policy can be led by the needs of the UK, not Germany, Greece or anywhere else. Right now, the UK needs to entrench growth. Elsewhere in the FT, it is reported that the National Institute for Economic Research (NIESR) forecasts that, over the final quarter of 2010 and the first quarter of 2011, the UK economy grew by just 0.1 per cent, “practically stagnant” in the FT’s words. This growth rate is much weaker than the Bank of England and the Office for Budget Responsibility had expected.  

With the Coalition ripping demand out of the economy at a breathless pace, through its ill-judged spending cuts and VAT rise, the last thing we need is a monetary policy regime that will make matters worse. The UK’s 4.4 per cent CPI inflation (5.5 per cent on the RPI measure) is mainly due to food and commodity prices, which can’t be affected by higher base rates. This is why Mervyn King, the Governor of the Bank of England, is right to describe a potential UK rate rise as a “futile gesture” and why rates must be held at their present level until growth is sustained.

UK gross domestic product (GDP) will grow by an annualised rate of one per cent in the second quarter of 2011, according to Padoan, down from the 1.3 per cent forecast in November and compared to forecasts of 3.4 per cent in the US, 2.8 per cent in France and 2.3 per cent in Germany.

Last month, the OECD’s economic assessment cut the UK’s growth forecast for 2011 to 1.5 per cent, down from 1.7 per cent, as the economy faces “significant headwinds”, such as spending cuts and rising commodity costs.

Which spending cuts are these? Why, they are the very cuts supported by the OECD. In its economic assessment, the OECD backed the UK’s deficit reduction plan, describing it as an “ambitious and necessary fiscal adjustment”, while not having too much to say about the social damage it would cause.

The OECD also believes the UK experienced faster than expected growth in the first quarter of 2011, bouncing back from the negative growth at the end of last year. We’ll see. It its economic assessment last month, the OECD didn’t even acknowledge that growth had gone negative, simply saying that the UK’s broad based recovery “slowed” in the second half of last year.

I would expect growth to be positive in the first quarter of 2011. The Institute for Fiscal Studies’ Green Budget put the risk of a double-dip at about one in five and I’ve no reason to doubt that. What’s probably more important, if less headline-grabbing, is that the UK recovery will be needlessly sluggish, because the spending cuts will take demand out of the economy. Growth will be slower, unemployment will be higher and, paradoxically, this will make it harder for the Government to achieve its cherished aim of paying off the deficit over the lifetime of this Parliament. Bad economics from the OECD. Bad economics from the Coalition Government.

Today’s Financial Times carries a report headlined ‘Osborne defends Budget as MPs hear of oil risks’. This report describes evidence given to the House of Commons Treasury Select Committee on the effects of Budget 2011 and includes the following passage: “Mr [Steve] Nickell, of the independent Office for Budget Responsibility, said that if wages failed to keep pace with inflation, real wages would fall, consumption would decline and growth would be weak. ‘That, in some senses, is the worst of all possible worlds,’ he told the Commons Treasury committee. ‘You have higher inflation and lower growth as a consequence, which means the difficulties facing the [Monetary Policy Committee of the Bank of England] are of a very high order.’”

Given that the OBR was established to give credibility to the direction of economic policy, we can now expect George Osborne to take steps to boost real wages. Or perhaps not. I suspect arguing the case for wages will continue to fall to the trade union movement. So expect more blogs from me on this subject in the months to come.

Meanwhile, the same FT story reports: “The OBR also saw insufficient evidence that the government’s ‘Plan for Growth’ would do anything to boost the economy’s long-term expansion rate.” You knew that too.  The TUC worked with BIS in the run-up to the Budget, sitting alongside the CBI and EEF to try to develop meaningful growth proposals. This was, inevitably, a short-term project and the TUC argued that, after the Budget, BIS would need to keep this workstream going, to look at the real long-term drivers of growth, rather than the quick rabbits-out-of-a-hat that politicians of all parties look for in the run-up to a Budget. A long term growth strategy, developed with both sides of industry, is vital if the fears of the OBR, and the rest of us, are to be allayed.

Finally, the FT describes George Osborne’s tone at the Select Committee as “bullish” and reports that he brandished “an economic billet-doux from Angel Gurria, head of the Paris-based Organisation for Economic Co-operation and Development, who has become an admirer of his fiscal discipline”. I was at the OECD last week and, along with trade union economists from across the world, met with Pier-Carlo Padoan, the OECD’s Chief Economist. I warned him that the UK’s most political of Chancellors will do this kind of thing and, to be fair to George Osborne, if I’d been in his position I’d have done it too. But as the TUC said when the OECD published its UK Economic Survey, that organisation has massively understated the risk of a double dip recession or a prolonged downturn as a result of the spending cuts. The OECD had said that economic growth slowed in the second half of 2010, which is a huge understatement: we had growth of -0.5 per cent in the final quarter of last year. With declining real wages and a growth plan that doesn’t even impress the government’s own forecaster, we are in dangerous waters. The OECD needs to recognise that.

In the foreword to the Plan for Growth, the Government sets out some of the challenges. In education, we have fallen back in excellence in maths. 50 per cent of all manufacturing jobs have been lost in the last 10 years. Our share of world exports have fallen from 4.4 per cent in 2000 to 2.8 per cent in 2009, whereas Germany’s share has increased from 8.5 per cent in 2000 to 9.0 per cent in 2009. These are important developments and we needed a Budget to confront them.

The biggest rabbit that the Chancellor pulled out of the hat in terms of growth was that corporation tax rates in the UK will be cut by two per cent, not one per cent, this year and will be down to 23 per cent by 2014. Now none of us like paying taxes, but if corporation taxes are cut, either another tax has to go up or even more spending cuts are required. What’s more, George Osborne quotes Germany’s success, without introducing policies to achieve something similar here. German companies pay an effective corporation tax of about 30 per cent. The reason is simple: Germany doesn’t try to compete through tax competition, it competes instead by being the best at what it does. To be fair to the Coalition, it is trying to learn from some of Germany’s innovations. Today’s announcement (actually, it was a re-announcement) of the first Technology and Innovation Centre in advanced manufacturing borrows from the German Fraunhofer model. But if we enter into tax competition, we simply enter a downward spiral. Every country in Europe will try to introduce lower and lower corporation taxes and others will need to pick up the tab.

The Government is right to worry about a fall in excellence in maths. The TUC worries about this too. This is why our Budget Submission highlighted an analysis of the Comprehensive Spending Review by the Institute for Fiscal Studies, which showed that there would be real terms cuts in overall funding for schools in England, even taking account of the pupil premium. The Chancellor didn’t take the TUC’s advice and scrap the spending cuts, introducing a plan B instead, so we can only assume those funding cuts will continue. Which isn’t good news for promoting excellence in maths. 

Of course, there were aspects to today’s Plan for Growth that the TUC can and should welcome. The new Technology and Innovation Centre for high value manufacturing, mentioned above, is important. An additional £100m in 2011-12 for science capital development to provide facilities for the commercialisation of research, accommodation for SMEs. and new research capabilities is good news. It is not quite true to say, as George did, that the science budget was protected last year; it was protected in cash terms, which amounts to about a nine per cent cut in real terms over the course of the Parliament. It also comes in the wake of a £1.4bn cut in capital spending on science by the Department of Business, confirmed at the end of last year. But £100m is £100m, whichever way you look at it, and scientists will be glad this new money is there. The nine new university-based Centres for Innovative Manufacturing by 2012, whilst already announced, are also supported by the TUC.

But the biggest myth of all, one that is extremely dangerous, is that exempting small firms from sensible regulations has anything to do with growth. Last Friday, Scarlet comprehensively set out the dangers, to flexibility and to women’s employment overall, of proposals to scrap the planned extension  of the right to request flexible working to parents of 17-year olds,  and to give small firms a three year exemption from the new additional paternity leave scheme. Of course, nobody wants needless red tape, but surely in 2011, an advanced economy like the UK doesn’t have to choose between going for growth and supporting Mums and Dads at work. 

The TUC wanted a Budget for Growth today. What we got was a growth strategy largely based on tax competition and undermining rights at work. An opportunity missed by George Osborne.