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An outstanding conference speech by Ed Balls which is textbook Keynesianism to promote growth



This is a brilliant plan for recovery by Ed Balls MP. Whilst drawing on aspects of management which were probably not familiar to John Maynard Keynes, the emphasis is most definitely on infrastructure investment to promote growth. A Keynesian argument might be that you do not need much money to identify a small disruptive change, but you might invest in implementing a minor change which dislodges incumbents in an international competitive market. Also, it is very clever that Ed Balls has combined this with a focus on the green economy, in accordance with the workload of Luciana Berger MP who works closely with Rachel Reeves MP in ensuring that the business case for a ‘green economy’ is made. Luciana has been arguing at fringe events why green ideas should not be a casualty in a drive towards austerity. This plan is indeed visionary, and would be exactly the sort of plan which would work for a flatlining economy. The only problem is that Ed Balls MP would not be able to implement such a plan until early May 2015 at the very earliest.

I am enclosing the full text of Balls’ speech as follows.

Full text of Ed Balls speech this morning to the #Lab12 conference

Conference, we meet here in Manchester, two years on from our leadership election, a contest held in the shadow of a General Election defeat.

And we all know what’s supposed to happen when political parties lose elections: acrimony and division, the party turning in on itself, out of touch with the views of the country.

Well Conference, two years on, in this generation, we have bucked that trend. I can’t remember our party ever being so united, so determined to win back the trust of the people.

And with our economy in recession, and the unfairness and incompetence of this Tory-led coalition now laid bare, let us show we are the people to rebuild Britain, strong and fair for the future.

And Conference, making the case for change, setting the agenda – on reform of our media, and banks, responsibility in our economy from top to bottom; showing the strength of purpose and moral conviction which won him the job and which will get him to Downing Street; Conference, let us pay tribute to my friend, our leader, Britain’s next Prime Minister, Ed Miliband.

Conference, I am proud to serve in Ed’s Shadow Cabinet – now with more than 40 per cent women, the first time that has ever happened in British politics.

And what a contrast to David Cameron’s Cabinet: where the men get the jobs, the women get the sack and only the chaps get the knighthoods.

Let me ask you this: what does it take to get sacked from David Cameron’s Cabinet?

Swear at a police officer and call him a ‘pleb’? And you’re defended to the hilt.

Get caught red-handed texting market sensitive information to News International? You get promoted.

Flat-line the economy and deliver the most unfair and shambolic Budget in living memory? And you stay in post – more than that, you’re allowed to do it part-time.

Do all those things and David Cameron will let you keep your job. But not if you’re a woman.

Conference, what kind of Prime Minister thinks it’s fair to sack a 54 year old woman from his Cabinet because she’s ‘too old’ – and then give the job to a 56 year old man instead?

Let me tell you: a Prime Minister who only appoints five women in the first place, sacks three of them, demotes the other two – and then attacks the Labour leadership for not being ‘butch’ enough.

Butch? Butch? Whatever did he mean? And if David Cameron is butch, where does that leave George Osborne?

Perhaps this is why George Osborne will never be sacked. A Prime Minister and a Chancellor destined to go down fighting together. And this time, let’s see them riding off into the sun-set. Butch Cameron and the flat-line kid.

And Conference, doesn’t it feel good to be back here in Manchester?

Or, should I say, to be back here in Labour Manchester: four Labour MPs, three world class universities, two world-beating football teams, one Labour Council. And not a single Tory Councillor in this whole city – not a single one.

Let us pledge today to keep it that way, and elect the brilliant Lucy Powell as Manchester’s first ever Labour woman MP.

And let me say too, I can think of no-one better to be Manchester’s first ever Police and Crime Commissioner than the wise and highly respected Tony Lloyd.

And Conference, at a time of such tragedy for policing in this city, our whole country remembers two brave officers who lost their lives doing their duty, and we pay tribute to all those public servants up and down the country – police officers, fire-fighters, our armed forces – who every day put their lives on the line to keep us safe.

And Conference, as we rightly praise the success of London 2012, let’s not forget it was Manchester’s hosting of the 2002 Commonwealth Games which showed the way, proving that Britain was ready to stage the biggest international sporting events.

So Conference, we salute Graham Stringer and Sir Richard Leese as we salute all those people who brought the Olympics to London, and made them such a success – Tony Blair and Prince William, Ken Livingstone and Gordon Brown, Lord Coe and Boris Johnson, too many others to mention.

But let us remember that none of them would have been able to play their part if not for the one person who made it all possible. Conference, please join me in thanking Dame Tessa Jowell.

Conference, it was Tessa’s officials who told her it would be a disaster to bid for the 2012 Games. It would cost too much, the stadiums would never be ready, London’s transport wouldn’t cope, the security would be a nightmare.

Tessa could have listened to all those concerns, but she didn’t. She persevered. We won the bid. And the rest is now part of our national history.

And Conference, this is the lesson we all should learn. With wise leadership and long-term vision and a strong partnership between government and citizens, business, trade unions and the voluntary sector, we can do great things, we can lead the rest of the world and we can rebuild Britain for the future.

But if you listen to the doubters, if you never take a risk, if you flinch when obstacles are in the way, you will never get anything done.

And if you spend your whole time fighting short-term political battles – Dave versus Boris, Boris versus George, George versus Vince – you will never rise to the long-term needs of the country. And in the end, you let people down and lose their trust.

And nowhere is that more obvious than in our economy today.

Thank goodness the Olympics has given us a short-term shot in the arm, that might just be enough to take us out of recession this quarter.

But that is no substitute for a long-term strategy. Not when families are struggling to make ends meet. Not when food and fuel prices are going up, but wages are frozen and tax credits cut.

Not when so many young people have been unable to find work or stay-on in education. Not when so many small businesses are struggling to raise finance so they can survive until the year-end.

Not when so many working people in the private sector and public sectors are worried about their jobs and their pensions – the human cost of this economic failure.

Remember what David Cameron, and George Osborne and Nick Clegg promised: that faster tax rises and deeper spending cuts would secure the recovery and make Britain a safe haven; that theirs was the only credible plan to deal with the national debt; and that we were all in this together.

Conference, the recovery secured? We’re just one of only two G20 countries in recession – the longest double-dip recession since the Second World War.

A credible plan to deal with our debts? Because we are in recession, the deficit is now not going down, it’s going up – up by 22 per cent so far this year. Rising borrowing not to invest in the jobs of the future but to pay for the mounting costs of this government’s economic failure.

Conference, there is nothing credible about a plan that leads to: a double-dip recession, thousands of businesses bust, a million young people out of work, billions wasted on a soaring benefits bill, and borrowing going up not down. That’s not credible, that is just plain wrong.

And as for ‘we’re all in this together’, we don’t hear that line anymore.

Not from a Chancellor who presented the most unfair and unpopular Budget in a generation. A Chancellor who tried to raise taxes on pasties, caravans, churches and charities, but who refuses to look seriously at proposals for a mansion tax.

A Chancellor who in six months’ time will raise taxes for pensioners on the very same day he cuts the top rate of tax for the very richest – a £3 billion tax cut, giving £40,000 a year to a millionaire.

Conference, what kind of government asks millions of pensioners to pay for a tax cut for millionaires?

What kind of government believes low-paid women will only work harder if you take away their tax credits and make them worse off, but millionaires will only work harder if you give them a tax cut to make them better off?

Conference, isn’t this the truth, we know what kind of government this is: failing on the economy, failing on the deficit, hitting the many to help a privileged few. Arrogant, complacent, out of touch.

Conference, it’s the same old Tory government. David Cameron, George Osborne, Nick Clegg. The same old Tories, every one of them.
But you know what the worst thing is? For two years they’ve told us all this pain will be worth it in the end, that it’ll be short-term pain for long-term gain.

But what we are now seeing is short-term pain already doing long-term damage.

Look at the facts: over 33,000 companies already gone bust since the General Election; investment plans cancelled – or diverted overseas; our economy weaker, capacity lost, more prone to inflationary pressures when the recovery finally comes; child poverty rising, and long-term youth unemployment becoming entrenched, damaging them for the rest of their lives.

And Conference, if we carry on like this – a divided coalition, muddling through, no vision, waiting for something to turn up – the danger is that two lost years becomes three and four and that we slip into a lost decade of slow growth, high unemployment and stagnation.

Lost investment, lost output, lost jobs, lost exports, lost tax revenues – a decade when we fail to make the investments and the reforms we need to make our economy stronger and fairer for the future.

And Conference, it doesn’t have to be this way.

While Britain has been stalled over the past two years, other countries have been forging ahead. Last year private investment in Germany rose by over seven per cent. One million extra students enrolled in university in America. China is building 80,000 miles of roads a year and is now planning 70 new airports.

And here in Britain? Private investment? Down over 2 per cent last year.

More students? No, over 50,000 fewer.

And not one of the road projects David Cameron announced last year even started in construction.

And when you look at this picture of stagnation and inaction in our economy, it’s no wonder the deficit is now rising.

We warned two years ago that drastic spending cuts and early tax rises – too far, too fast – risked choking off the recovery and making a difficult situation worse. We warned that you either learn the lessons of history or you repeat the mistakes of history.

Because this is the fundamental truth: if more people are on the dole, not paying taxes, you can’t get the deficit down. If businesses are going bust, not hiring new workers, you can’t get the deficit down. If the economy’s not growing, you can’t get the deficit down.

And that is why we must act now to kick-start the recovery, tackle the causes of rising borrowing and start to make our economy stronger for the future.

A year ago, we set out five actions the government should take – then and now – to boost growth:

Tax bankers’ bonuses and build 25,000 social homes for rent and guarantee a job for 100,000 young people.

    Genuinely bring forward long-term investment in infrastructure.

Temporarily reverse the damaging VAT rise.

Give every small firm taking on extra workers a one year national insurance tax break.

And cut VAT to 5 per cent for a year on home improvements and repairs.

But Conference, since last year David Cameron’s government has done next to nothing.

Their economic plan is failing – and they don’t know what to do. Plan A, Plan B, Plan A plus – with this government, I just don’t see any plan at all.

Conference, one year on, the need to kick-start the economy is even more urgent.

So we must go further. With 119,000 construction jobs lost in two years and a 68 per cent fall in the number of affordable homes being built, we need bold and urgent action now.

So with Hilary Benn and Jack Dromey, this is what I propose. The Government is anticipating a windfall of up to £4bn from the sale of the 4G mobile phone spectrum.

In the good times, Labour used every penny of the £22bn from the sale of the 3G licenses to pay off national debt. But in difficult times, we urgently need to put something back into the economy.

So with this one-off windfall from the sale of the 4G spectrum, let’s cut through this Government’s dither and rhetoric and actually do something. Not more talk, but action right now.

Let’s use that money from the 4G sale and build over the next two years: 100,000 new homes – affordable homes to rent and to buy – creating hundreds of thousands of jobs and getting our construction industry moving again. Add to that a stamp duty holiday for first time buyers buying homes up to £250,000 and we can deliver real help for people aspiring to get on the property ladder.

Conference, a clear and costed plan to kick-start the economy and get people back to work. Building the homes that we need now and for the long-term. Building our way out of recession and re-building Britain for the future.

And we also need reform to boost long-term investment and skills – the only routes to rising living standards for working families.

Chuka is right to say we need a modern industrial policy to support long-term wealth creation, with strategic support for our advanced manufacturing and service industries.

And we need to work and campaign together to tackle tax avoidance, end bogus self-employment, prevent a race to the bottom through regional pay; and enforce the minimum wage, help parents balance work and family life and make sure our labour market is genuinely flexible and fair to working people, and let’s go further and promote the living wage.

And we know too our banking system needs cultural change and radical reform – reform which this Government is only interested in watering down.

That is why Ed Miliband and I are clear, we do need:

A full, open and independent public inquiry into the culture and practices of our banking system.

Radical reform to separate retail and investment banking.

Active support for mutuals and co-operatives.

A continued campaign for an international financial transactions tax.

And a proper British Investment Bank – fully backed by the Treasury.

And Conference, let me say this about the hundreds of thousands of working people, earning ordinary salaries, who work hard every day behind the counters of our high street banks.

They were as shocked and dismayed as everyone else at the gross irresponsibility and greed of a few millionaire bankers at the top who caused such damage and gave their industry a bad name. Working people who want tougher regulation, who want banks to work for the long-term interests of our economy, and who do not deserve to be pilloried for their hard work and service.

Conference, the financial crisis did expose deep-rooted problems in our economy.

After the global financial crash, it was always going to be difficult to get the deficit down. And even if we do get the economy growing again, even if we do reform our banking system for the future, we’re still going to face tough choices in the years ahead.

But the longer this Government staggers on with a failing economic plan, the worse it will get and the harder the job will be. Hard times will last longer than all of us hoped. And we cannot promise to put everything right straight away.

That is why, however difficult this may be, when we don’t know what we will inherit, we cannot make any commitments now that the next Labour government will be able to reverse particular tax rises or spending cuts. Because, unlike Nick Clegg, we will not make promises we cannot keep.

Of course we’ll make different choices – we’ll do things in a fairer and more balanced way and put jobs and growth first.

But Conference, as I said to the TUC, we must be upfront with the British people that under Labour there would have been cuts and that – on spending, pay and pensions – there will be difficult decisions in the future from which we will not flinch.

Before the next election – when we know the circumstances we will face – we will set out for our manifesto tough new fiscal rules to get our country’s current budget back to balance and national debt on a downward path.

Not a meaningless fiscal rule like George Osborne’s – a promise to balance the books in five years time, with that five year period moving forward every single year.

Conference, our fiscal rules will be monitored, independently, by the Office for Budget Responsibility, and we will take the action required to meet them. And when we sell off the Government’s shares in the banks every penny will go to repay the national debt. Conference, fiscal responsibility in the national interest.

And because we all know there can be no post-election spending spree, in our first year in government we will hold a zero-based spending review that will look at every pound spent by government: carefully looking at what the Government can and cannot afford, rooting out waste and boosting productivity, building on the work that Rachel Reeves and Jon Trickett are leading.

But we will do things differently to this Government. Not slashing budgets without a care in the world – damaging the economy, hitting women harder than men – but assessing every pound of taxpayer’s money including for its impact on growth and fairness.

Not opting for short-term cuts that look ‘easy’ but which end up costing more in the long-term – like deep cuts to youth services, to adult mental health services and to public health.

And not ducking the hard long-term issues we know we haven’t properly faced up to and which transcend parties and parliaments and where we badly need a cross-party consensus. So let us get a long-term plan to support the most vulnerable in our society – looked-after children and adults needing social care.

Because this is not just about policy, but about the kind of country we want to be and the way we do our politics.

Where we face important long-term challenges, we must seek a consensus that puts short-term politics aside and puts the national interest first, just as we did over a decade ago when we made the Bank of England independent.

And nowhere is such a consensus more essential than on our national infrastructure.

The lesson of the Olympics is that if we approach major long-term infrastructure projects by building a cross-party sense of national purpose then we can deliver.

And yet, it took 13 years from the opening of the Channel Tunnel to complete the High Speed Rail link to London. Crossrail was delayed for decades.

And why is this so often the case? Yes, our cumbersome planning system. Yes, legitimate concerns for the environment. Too often in the past, governments have assumed that vital public infrastructure can only be funded by public investment – and then baulked at the bill.

But, above all, successive governments – including our own – have ducked or delayed vital decisions on our national infrastructure, allowing short-term politics to come first.

And just look at this government: will Boris or Dave win on Heathrow? Will Conservative MPs block High Speed rail? Will George see off Zac on renewable energy?

What a ridiculous way to run the country. No wonder business is fast losing confidence in this government’s ability to make long-term decisions.

But Conference, it is not just a problem of this government or this parliament – and we have to be the party to break this cycle.

Because if we don’t, if we put off major decisions for another generation, it will be our children and grand-children who will face the consequences.

Let me give you some examples. We must decide how and when we are going to deliver super-fast broadband across the whole of the UK and avoid a two-tier Britain.

We must decide whether we need to replace our antiquated National Grid, or risk more power cuts in the future. We must decide as a country on a clear plan to invest in nuclear power, wind and tidal power and other renewables so we can lead the world in delivering clean, de-carbonised energy and green jobs.

We must decide how we are going to protect our country from rising sea levels and exceptional rainfall, including whether we need to replace or reinforce the Thames Barrier to prevent London from flooding.

And we must decide, alongside vital decisions on rail and airport capacity, how we are going to get more freight off the roads and onto the railways – it won’t help that our grand-children are all driving electric cars if they are still sat in gridlock on the M6 or the M25.

On all these issues, if we don’t start to plan now, what will we say in 30 years’ time when our children ask: ‘why didn’t you act when there was still time?’

That is why we need a comprehensive long-term plan to rebuild Britain’s infrastructure for the 21st century, and a cross-party consensus to deliver it.

And it is why, too, at a time when Government budgets are tight, we must think innovatively about how we can finance these vital projects over the coming decades, drawing on the private sector and long-term pension savings.

So Ed Miliband and I have asked Sir John Armitt, the chair of the Olympic Delivery Authority, to consider how long-term infrastructure decision-making, planning, delivery and finance can be radically improved.

And I can announce today that Sir John has agreed to lead this work and to draw up plans for a commission or process, independent of government, that can assess and make proposals on the long term infrastructure needs of our country over the coming decades and help build that consensus.

Not repeating the mistakes of the past, but learning from them. Building a consensus which crosses party lines, without chopping and changing one parliament to the next. A consensus to re-build Britain for the future.

And Conference, there is another lesson we must learn from our history.

Many people have said over recent weeks: ‘this has been Britain’s greatest ever summer’.

But let me remind you of an even greater summer still: the summer of 1945 – the end of six hard years of war – when our nation welcomed its heroes home from the battlefields of Europe, Asia and the Atlantic, and celebrated together the defeat of fascism.

Conference, our predecessors were elected that year to rebuild a country ravaged by conflict.

They faced even greater challenges than we face today: an economy enfeebled by war; a national debt double the size of ours today. And they made tough and unpopular decisions: to continue with rationing; to cut defence spending; and to introduce prescription charges.

But that Labour Cabinet also remained focussed on the long-term task ahead. And they learned from history and rejected the failed austerity of the 1930s.

And that meant they could put in place long-term reforms, enduring achievements, vital to our country’s future: the Beveridge report; new homes for heroes; the school leaving age raised; and, for the first time ever, a National Health Service free to all, based on need not ability to pay – over 60 years later, celebrated in our Olympics opening ceremony for all the world to see, still today the greatest health service in the world.

Conference, they were very different times. But it is our task to recapture the spirit and values and national purpose of that time.

Just think of the people in whose footsteps we now follow. Working men and women who, in the years before, had see a hardship many of us will never experience.

But their suffering did not teach them selfishness, it taught them solidarity. And they never settled for second best in the struggle for education for all, free health care and proper rights at work.

Conference, we owe it to them – but more than that, we owe it to our children and their children to come – to learn from that example, to make the tough decisions but not to sacrifice their futures.

Because when our grandchildren look back at us, what will they say? Will they say we cast a generation of young people on the scrapheap of unemployment?

Will they say we dismantled the NHS and made it harder to go to university?

Will they say we plunged Britain into a decade of economic stagnation while other countries raced ahead? Will they say we left Britain less prosperous, more unequal, more unfair?

Or will they say – even as we made tough and painful decisions – that ours was the generation that got a record number of young people into apprenticeships as well as university.

Ours was the generation that safeguarded the NHS, and started the rebuilding of our national infrastructure.

Ours was the generation that tackled our debts by growing and reforming our economy – and making sure the banking crisis that caused those debts could never happen again.

Ours was the generation that broke from the cycle of political short-termism and started to rebuild Britain anew in the long term national interest.

So let us go forward. Not flinching from tough decisions. Giving our young people hope. Rebuilding Britain for the future.

That is our challenge. That is our mission. Let us rise to it together.

Ed Miliband's #Lab12 conference speech: a need to define the markets and community



 

I am looking forward to Conference, this time in Manchester (like it was in 2010). I know Manchester Central Hall very well from previous meetings there of the Fabian Society, and again I am hoping to go to all of LabourLeft’s events and some of the events of the Fabian Society predominantly.

I am not sure what to expect of the ‘Fringe’ this time – no doubt it will feature some regular talking-points such as whether we should renationalise the railways or the NHS, whether the left-or-right debate still serves any function in modern politics, and what Ed Miliband really meant in his conference speech. I feel it would be less helpful for Ed Miliband to set out details of policy, which can wait for the outcome of our policy review, but it would be very helpful for him to establish what sort of society he is striving for and why.

I think ‘top of the list’ must be a need to define the relative importance of the markets. Coincidentally in timing, Stephanie Flanders is mid-way through a series on the BBC called ‘Masters of Money’, and so far the analysis has centred around a comparison of those titans John Maynard Keynes and Frederick Hayek. Unfortunately, our view of the markets is as relevant now as it was in the run-up of the Great Depression in the autumn of 1929, and Ed Balls is or was aware of that. There has always been a notion of the ‘free market’ as liberalising people, ‘unchaining workers’, and this idea had been bastardised by Margaret Thatcher. The language of liberalisation is still seen in the supporting documents for Monitor, the new sector-specific regulatory body of the NHS. However, there are inherent problems with this approach, taken by Dr David Bennett from Monitor, from the Tony Blair ‘stable’ from the perspective of an advocate of a free market. A true market advocate would simply let private entities fail (this in fact has been the criticism of the global response to the financial crisis, describing the Keynesian stimulus of adding more credit to credit as being akin to pouring petrol on the fire); however, part of Monitor’s functions is to bail out failing trusts, in as much European law allows it (it is unlawful for the State to provide state-subsidies in such a way that competition in a private market is distorted.) The other problem of this approach is that  it is an approach which most favours accounting technocrats; rather than looking at value in pricing in a sophisticated behavioural economics fashion, the discussion is heavily based in number-crunching and methods such as activity-based costing.

Prof. Michael Sandel is a political philosopher who has been lecturing on the seminal ‘Justice’ course at Harvard. In the Reith Lectures 2009, Sandel gave his final lecture on “A new politics of the common good”. The governing philosophy for the last three decades both here and the US has been an era of ‘market triumphalism’, but both the UK and US have had difficult in reaching at a new consensus of what government should do. Sandel proposes ‘market mitigating governance’ at the first port of call where governments correct market failures through policy. You can easily apply this, for example, in measures to ‘correct’ excessive profits but poor value for shareholders and directors of privatised utilities companies. In fact, Miliband has latterly proposed a mechanism which could possibly do this, called “predistribution”.

Sandel, however, admits that these rather technocratic approaches fail to ‘capture value’ of what is really going on. For example, the Philip Morris study in the former Czech republic shows that smokers die early, pay lots of taxes, and do not need a pension, and therefore are of great benefit in a purely cost-benefit analysis. This caution could easily be applied to the newly privatised framework of the Health and Social Care Act, where public services have become commodified and monetised, in maximising consumer welfare. Sandel’s main objection is that such approaches do not lead to democratisation of services for the “public good”, and more ambitious goal of civil virtue through redistributive justice may be more welcome. The public appetite for this might be greater than we first suspect, in that the famous UK MP expenses scandal has led to a growing bitterness and resentment of voters towards their ‘political class’, and indeed the public are generally sick of examples of alleged corporate misfeasance in journalism through exposure in the Leveson Inquiry.

A better approach would therefore for people in society to be included and engaged in decisions about their society, with a general belief of solidarity and citizenship. Of course, a dichotomy between markets and society would be a false dichotomy, and this is appreciated by Prof. Michael Porter in his seminal article called ‘Strategy and Society‘ for the Harvard Business Review.  This thesis is more than familiar to Ed Miliband, who first described his thesis of ‘responsible capitalism’, a political version of corporate social responsibility, where all businesses contribute value to the rest of society. And yet this is entirely consistent with Ed Miliband’s concept of the UK economy as not being factional but being unitary. In such a framework, everyone contributes to the economy, not just the ‘wealth creators’ as bankers, but also less well paid people in the public sector doing extremely valuable jobs, such as nursing or teaching, who do need employment rights protection of the Unions.

In Sandel’s framework, we are less ‘consumers’ and more ‘citizens’. And this is a very practical problem. Consider for example excessive pay of some CEOs. It can be easy to criticise whether such salaries are justified, in other words the extent to which they are representative of a contribution to society, whether we should just allow the market to find an equilibrium for what people are willing to pay for, or the extent to which these people have ‘worked to get where they are’.  Politicians find it difficult to talk about inequality or redistribution, but you will never find that people with very incomes bringing up of their own accord topics of the ‘politics of envy’. Redistribution or social justice has become a taboo subject, but it may be necessary to revisit this if excessive pay can be tackled in the tax system. Whilst ‘punishment’ engenders a notion of a personal hate campaign, which is clearly undesirable, it may be ‘good policy’ that intervention against truly excessive salaries not only deters a trend of unreasonable undeserving salaries, but also encourages a marketplace where an appropriate salary can (for want of a better word) “incentivise” employees and workers appropriately.

As for the idea that people with excessive salaries will leave the country, it is worth noting that these people are often employed by multinational companies who can easily find replacements; therefore there will always be a corpus of such people contributing such taxes, even if a proportion of them emigrate (the point is that people who emigrate will be replaced.) Whilst aspiration has traditionally been a New Labour or Thatcherite policy plank, Ed Miliband latterly has cited aspiration as a reasonable goal of policy. I think that this is entirely consistent with aspiration that acknowledges an ‘equality of opportunity’.  Dr Tim Soutphommasane, a lecturer at Monash University, is also a political philosopher whose writings are clearly relevant here. Soutphommasane’s warning is probably more poignant here in the UK with a cabinet stuffed full of millionaires than it is in his home country, but he recently writes, “It is the mark of a good society that careers be open to all talents. Individuals should be able to transcend the position of their birth or upbringing through ability and effort. By the same token, the state shouldn’t reward those who have the fortune of being born into good circumstance.”

By that virtue, the political philosophies of Sandel and Soutphommasane present Miliband with a serious problem. How can Ed Miliband realistically frame a policy for government which consolidates the relative positioning of the markets and the community? I think Ed Miliband’s best bet is to frame the question is to think what sort of society do we want to live in which brings greatest civic virtue and citizenship of all members? As it happens, the consumer clearly has not benefits as recipients of the privatised utility industries, but Ed Miliband has indeed challenging decisions to take about the future; for example one mechanism might be to bring some services under state control. There is much political appetite for repealing the Health and Social Care Act, which indeed nobody voted for as such. The last year or so has seen Conservative polticians and their management consultant friends engaged in a retrospective ‘policy-based evidence’ to justify their marketisation of the NHS, but the NHS could be just the trojan horse that Ed Miliband needs to bring the political pendulum back away from the totally unfettered market. It’s a tough balancing act, as he will be keen not to present the State as too bulky or interventionist, but likewise, if he can pull off a discourse about why ‘looking after each other’, i.e. solidarity, say for example in protecting the health and welfare of disabled citizens in society as well as further ‘individual choices’, Ed Miliband will have pulled off a remarkable political contribution.

 

Ed Miliband's #Lab12 conference speech: a need to define the markets and community



 

I am looking forward to Conference, this time in Manchester (like it was in 2010). I know Manchester Central Hall very well from previous meetings there of the Fabian Society, and again I am hoping to go to all of LabourLeft’s events and some of the events of the Fabian Society predominantly.

I am not sure what to expect of the ‘Fringe’ this time – no doubt it will feature some regular talking-points such as whether we should renationalise the railways or the NHS, whether the left-or-right debate still serves any function in modern politics, and what Ed Miliband really meant in his conference speech. I feel it would be less helpful for Ed Miliband to set out details of policy, which can wait for the outcome of our policy review, but it would be very helpful for him to establish what sort of society he is striving for and why.

I think ‘top of the list’ must be a need to define the relative importance of the markets. Coincidentally in timing, Stephanie Flanders is mid-way through a series on the BBC called ‘Masters of Money’, and so far the analysis has centred around a comparison of those titans John Maynard Keynes and Frederick Hayek. Unfortunately, our view of the markets is as relevant now as it was in the run-up of the Great Depression in the autumn of 1929, and Ed Balls is or was aware of that. There has always been a notion of the ‘free market’ as liberalising people, ‘unchaining workers’, and this idea had been bastardised by Margaret Thatcher. The language of liberalisation is still seen in the supporting documents for Monitor, the new sector-specific regulatory body of the NHS. However, there are inherent problems with this approach, taken by Dr David Bennett from Monitor, from the Tony Blair ‘stable’ from the perspective of an advocate of a free market. A true true market advocate would simply let private entities fail (this in fact has been the criticism of the global response to the financial crisis, describing the Keynesian stimulus of adding more credit to credit as being akin to pouring petrol on the fire); however, part of Monitor’s functions is to bail out failing trusts, in as much European law allows it (it is unlawful for the State to provide state-subsidies in such a way that competition in a private market is distorted.) The other problem of this approach is that  it is an approach which most favours accounting technocrats; rather than looking at value in pricing in a sophisticated behavioural economics fashion, the discussion is heavily based in number-crunching and methods such as activity-based costing.

Prof. Michael Sandel is a political philosopher who has been lecturing on the seminal ‘Justice’ course at Harvard. In the Reith Lectures 2009, Sandel gave his final lecture on “A new politics of the common good”. The governing philosophy for the last three decades both here and the US has been an era of ‘market triumphalism’, but both the UK and US have had difficult in reaching at a new consensus of what government should do. Sandel proposes ‘market mitigating governance’ at the first port of call where governments correct market failures through policy. You can easily apply this, for example, in measures to ‘correct’ excessive profits but poor value for shareholders and directors of privatised utilities companies. In fact, Miliband has latterly proposed a mechanism which could possibly do this, called “predistribution”. Predistribution, if called by any other name, is quite a nice but radical idea. It offers a practical solution for tackling poverty – for example a policy which restricts the amount of profits which a shareholder of a utilities (sic) company is allowed to make (some of this revenue could be ploughed back into returner better value for the customer), or effecting the national minimum living wage (the idea being that people who are being paid a decent living wage are in a position to invest for their futures more easily, and be giving an ability to further their own career.) This is potentially a policy which could be attractive to Unions, as indeed Prof. Jacob Hacker from Yale himself envisaged.

Sandel, however, admits that these rather technocratic approaches fail to ‘capture value’ of what is really going on. For example, the Philip Morris study in the former Czech republic shows that smokers die early, pay lots of taxes, and do not need a pension, and therefore are of great benefit in a purely cost-benefit analysis. This caution could easily be applied to the newly privatised framework of the Health and Social Care Act, where public services have become commodified and monetised, in maximising consumer welfare. Sandel’s main objection is that such approaches do not lead to democratisation of services for the “public good”, and more ambitious goal of civil virtue through redistributive justice may be more welcome. The public appetite for this might be greater than we first suspect, in that the famous UK MP expenses scandal has led to a growing bitterness and resentment of voters towards their ‘political class’, and indeed the public are generally sick of examples of alleged corporate misfeasance in journalism through exposure in the Leveson Inquiry.

A better approach would therefore for people in society to be included and engaged in decisions about their society, with a general belief of solidarity and citizenship. Of course, a dichotomy between markets and society would be a false dichotomy, and this is appreciated by Prof. Michael Porter in his seminal article called ‘Strategy and Society‘ for the Harvard Business Review.  This thesis is more than familiar to Ed Miliband, who first described his thesis of ‘responsible capitalism’, a political version of corporate social responsibility, where all businesses contribute value to the rest of society. And yet this is entirely consistent with Ed Miliband’s concept of the UK economy as not being factional but being unitary. In such a framework, everyone contributes to the economy, not just the ‘wealth creators’ as bankers, but also less well paid people in the public sector doing extremely valuable jobs, such as nursing or teaching, who do need employment rights protection of the Unions.

In Sandel’s framework, we are less ‘consumers’ and more ‘citizens’. And this is a very practical problem. Consider for example excessive pay of some CEOs. It can be easy to criticise whether such salaries are justified, in other words the extent to which they are representative of a contribution to society, whether we should just allow the market to find an equilibrium for what people are willing to pay for, or the extent to which these people have ‘worked to get where they are’.  Politicians find it difficult to talk about inequality or redistribution, but you will never find that people with very incomes bringing up of their own accord topics of the ‘politics of envy’. Redistribution or social justice has become a taboo subject, but it may be necessary to revisit this if excessive pay can be tackled in the tax system. Whilst ‘punishment’ engenders a notion of a personal hate campaign, which is clearly undesirable, it may be ‘good policy’ that intervention against truly excessive salaries not only deters a trend of unreasonable undeserving salaries, but also encourages a marketplace where an appropriate salary can (for want of a better word) “incentivise” employees and workers appropriately.

As for the idea that people with excessive salaries will leave the country, it is worth noting that these people are often employed by multinational companies who can easily find replacements; therefore there will always be a corpus of such people contributing such taxes, even if a proportion of them emigrate (the point is that people who emigrate will be replaced.) Whilst aspiration has traditionally been a New Labour or Thatcherite policy plank, Ed Miliband latterly has cited aspiration as a reasonable goal of policy. I think that this is entirely consistent with aspiration that acknowledges an ‘equality of opportunity’.  Dr Tim Soutphommasane, a lecturer at Monash University, is also a political philosopher whose writings are clearly relevant here. Soutphommasane’s warning is probably more poignant here in the UK with a cabinet stuffed full of millionaires than it is in his home country, but he recently writes, “It is the mark of a good society that careers be open to all talents. Individuals should be able to transcend the position of their birth or upbringing through ability and effort. By the same token, the state shouldn’t reward those who have the fortune of being born into good circumstance.”

By that virtue, the political philosophies of Sandel and Soutphommasane present Miliband with a serious problem. How can Ed Miliband realistically frame a policy for government which consolidates the relative positioning of the markets and the community? I think Ed Miliband’s best bet is to frame the question is to think what sort of society do we want to live in which brings greatest civic virtue and citizenship of all members? As it happens, the consumer clearly has not benefits as recipients of the privatised utility industries, but Ed Miliband has indeed challenging decisions to take about the future; for example one mechanism might be to bring some services under state control. There is much political appetite for repealing the Health and Social Care Act, which indeed nobody voted for as such. The last year or so has seen Conservative polticians and their management consultant friends engaged in a retrospective ‘policy-based evidence’ to justify their marketisation of the NHS, but the NHS could be just the trojan horse that Ed Miliband needs to bring the political pendulum back away from the totally unfettered market. It’s a tough balancing act, as he will be keen not to present the State as too bulky or interventionist, but likewise, if he can pull off a discourse about why ‘looking after each other’, i.e. solidarity, say for example in protecting the health and welfare of disabled citizens in society as well as further ‘individual choices’, Ed Miliband will have pulled off a remarkable political contribution.

 

Heir to Keynes: Prof Paul Krugman explains why the UK economy is not like a large credit card



 

From the Huffington Post,

“For most Americans, a trip to London means drinking a few pints and maybe taking a picture of one of those guards with the hats. For Paul Krugman, it means critiquing the entire direction of Britain’s economic policy.

Krugman, the Nobel Prize-winning economist and left-leaning New York Times columnist, appeared on the BBC program “Newsnight” this Wednesday, jousting with two British deficit hawks over the U.K.’s austerity agenda.

The Brits — venture capitalist Jon Moulton and Conservative Member of Parliament Andrea Leadsom — argued that the British government has to reduce spending if the country is to dig itself out of the economic slump it’s been in. Krugman countered that such a strategy could cause Britain’s economy to implode — since, he said, the public and private sectors need to circulate money to each other in order for anyone to prosper.”

Prof. Krugman explains clearly here why the UK economy is not like a large credit card in a recent article entitled, “The Austerity Agenda”:

“The bad metaphor — which you’ve surely heard many times — equates the debt problems of a national economy with the debt problems of an individual family. A family that has run up too much debt, the story goes, must tighten its belt. So if Britain, as a whole, has run up too much debt — which it has, although it’s mostly private rather than public debt — shouldn’t it do the same? What’s wrong with this comparison?

The answer is that an economy is not like an indebted family. Our debt is mostly money we owe to each other; even more important, our income mostly comes from selling things to each other. Your spending is my income, and my spending is your income.

So what happens if everyone simultaneously slashes spending in an attempt to pay down debt? The answer is that everyone’s income falls — my income falls because you’re spending less, and your income falls because I’m spending less. And, as our incomes plunge, our debt problem gets worse, not better.

This isn’t a new insight. The great American economist Irving Fisher explained it all the way back in 1933, summarizing what he called “debt deflation” with the pithy slogan “the more the debtors pay, the more they owe.” Recent events, above all the austerity death spiral in Europe, have dramatically illustrated the truth of Fisher’s insight.

And there’s a clear moral to this story: When the private sector is frantically trying to pay down debt, the public sector should do the opposite, spending when the private sector can’t or won’t. By all means, let’s balance our budget once the economy has recovered — but not now. The boom, not the slump, is the right time for austerity.”

My predictions in @LabourList in January 2011 bore fruit today



I think it’s good to have a  ‘cards on the table’ approach. On January 2nd, 2011, I wrote the following in LabourList:

Is government debt like a credit card debt?

David Cameron and Nick Clegg have consistently likened government debt to credit card debt (like paying for your weekly groceries). This is a plausible common-sense approach based on the electorate’s instinct for belt-tightening, and the hardships they will be experiencing in difficult times. The analogy is clearly weak, but analysis of that is way beyond the scope of this article. Given that the public appear to like this comparison, it might be useful to explain also what might go wrong in such terms. The biggest threat for the UK in 2011 is that unemployment goes up and therefore benefit payments go up, while tax receipts go down. This would be like credit card bills beginning to “flood in”, while you are unable to deposit any money into your bank account.

Interestingly, this is what was written about midday today in an article entitled “UK’s budget deficit doubled in February”:

The UK’s budget deficit almost doubled in February due to a drop in tax receipts and increased spending. According to the Office for National Statistics (ONS), public sector net borrowing, excluding public sector interventions, hit a record for the month of February. It jumped to 15.183 billion pounds last month from 8.875 billion pounds in February 2011. The pound fell immediately after this announcement early in the morning. The ONS said that the increased borrowing was driven by a 2.7 percent drop in tax receipts on the year, while government spending climbed 8 percent. Income tax alone dropped 12.4 percent on the year in February, while benefit payments rose by 11.2 percent. This announcement leaves Chancellor of the Exchequer George Osborne little room to meet his full-year goal as he prepares to announce the UK’s annual budget later today.

Indeed, what I even alluded to at the beginning of January 2011 emerged as a theme in an influential blog today in the Telegraph:

Then there was the vague promise to find another £10bn annually in welfare cuts by the end of the parliament. I couldn’t get my head around that one. Is this in the deficit reduction programme or not? The Chancellor will probably get away with it as far as the markets and the credit rating agencies are concerned, but the big picture is that Plan A no longer really exists. Much lower growth than expected and the political compromises of Coalition have blown it off course.

Well, I hate to tell you, as a Keynesian, but … I told you so! My other prediction is in the absence of a full Eurozone crisis I don’t expect this budget deficit to be paid off by 2015, and Labour is going to have ‘put its cards on the table’ as to whether it will maintain the cuts agenda, and how.

The paradox of thrift and bankers' bonuses



Over the last decade, pay at the top of the UK’s largest listed companies ballooned up to £4.2 on average on average for FTSE 100 chief executives from £1 m between 1998 and 2010, while salaries for workers barely kept place with inflation. Jeremy Bentham (1748-1832) had a huge impact on the world of philosophy, proposing utilitarian value as, ‘the greatest happiness for the greatest number of people works well as a way of doing justice’. This encapsulates why so many members of the general public appear to have a fundamental problem with excessive bonuses for bankers. Whilst people on the left politics-wise do not necessary deny the contribution of bankers to ‘wealth creation’ of the UK economy, many such citizens resent that they appear, along with Premier League footballers, to have levels of pay which represent an excessive contribution to the social value of society. The utilitarian could in fact stress that growth, wealth and GDP contribute much to the happiness of all. These depend upon a functioning banking system. Likewise, banks, in turn, need investment bankers to turn a profit. If those bankers are best incentivised by the promise of large bonuses, then so be it. Indirectly, that makes everyone happier.

Earlier this year, Downing Street appeared to concede defeat in its battle to stop banks paying huge bonuses to their staff; dictating the size of individual bankers’ payments or overall bonus pools was not possible. Instead bank bosses and ministers tried to thrash out a deal that would publicise details of payouts that could reach £7billion this year. The climbdown on bonuses has been a huge embarrassment for Government ministers who had threatened much tougher measures.  The impression conveyed in the UK media that bankers have not been adversely affected by #gfc, and indeed some feel that the bankers have profited. This has been against a whirlpool of accusations and counter-accusations that the taxation policy has been indeed been ‘regressive’. Whilst politicians and economists have latterly been at each other’s necks, both are aware that there is enormous voting capital in ‘getting this right’. Equally in the USA the Obama administration have immersed themselves in a populist attack on wealthy US citizens including corporations.

Rumbling along in the background is a subplot ignited by John Maynard Keynes, an outstanding Cambridge academic, and a Liberal. There has been much discussion about whether Vince Cable, a Cambridge graduate, and a Liberal Democrat, follows in the tradition of Keynes, to some extent fuelled by Cable himelf. Robert Skidelsky, Keynes’ official biographer, has made his concerns patently clear. Cable has extensively studied Keynes for his Doctoral studies. Perhaps playing to the Keynesians last week at the Liberal Democrats’ 2011 Summer Conference, Cable opined that, “Keynes talked about a ‘paradox of thrift’; everyone and every country being individually wise but collectively foolish – leading to a downward spiral”.

 

 

 

 

 

 

 

 

 

 

 

 

The paradox of thrift is a very famous paradox of economics, popularized by John Maynard Keynes, though it had been stated as early as 1714 in The Fable of the Bees, and similar sentiments date to antiquity. The paradox states that if everyone tries to save more money during times of recession, then aggregate demand will fall and will in turn lower total “savings” in the population because of the decrease in consumption and economic growth. However, there have many inward attacks of Keynes’ well-known paradox, not least because of the unwitting conflation of the terms “capital” and “savings”. It is mooted that the classical theory of growth in macroeconomic did not presume that every saver was the ultimate investor of goods, especially in relation to the earlier work of another great economist, Ricardo. Economists have recently been quick to point out that Keynes uses the term “savings” to embrace a ‘hoarding behaviour’, which leads Keynes to his direct proposition of a ‘paradox of poverty in the midst of plenty’. Again, there is a problem with definition, as bankers bonuses might constitute ‘plenty’, but not the growth in the UK economy called ‘pitiful’ by Prof. David Blanchflower, himself a pupil of Keynes.

Should the alleged ‘excessive profits of bankers’ be clawed back by the State for its benefit? David Ricardo is credited with the first clear and comprehensive analysis of differential land rent and the associated economic relationships (Law of Rent). In schools of economic thought including neoclassical economics, land is recognized as an inelastic factor of production. Rent is the distribution paid to freeholders for “allowing” production on the land they control. Of course, corn and money, and farmers and bankers, are not necessarily synonymous.

“As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce. The wood of the forest, the grass of the field, and all the natural fruits of the earth, which, when land was in common, cost the labourer only the trouble of gathering them, come, even to him, to have an additional price fixed upon them. He must then pay for the licence to gather them; and must give up to the landlord a portion of what his labour either collects or produces. This portion, or, what comes to the same thing, the price of this portion, constitutes the rent of land ..”

 

 

 

 

 

 

 

 

There has been a wider issue about whether the ‘differential theory of rent’ is due to strong emotions concerning ‘private property’, but prominent liberals such as JS Mill have proven words and deeds on the issue, through for example  the Land Tenure Act. Adopting a populist stance has always been easy for Vince Cable, and most Liberal Democrats heavily tout that St Vince The Cable was apparently one of the first to predict the banking crisis (as indeed objectively evidenced in Hansard). Whilst a synthesis of the economics is undoubtedly interesting to economist, both new and old, people will want to know what Cable can do about it. The answer is ‘not much’, as the FSA’s code on renumeration is considered ‘good practice’ (but relatively ‘toothless’). Cable wishes also to address the ‘disconnect’ between the excessive pay of top Directors and the performance of these companies, where Cable feels that a schism has developed. Many believe that many senior bankers seem virtually unsackable, which makes an analysis of what level of pay is appropriate for bankers from the “wage curve”. Blanchflower and Oswald (1994) how the existence of a wage curve for a dozen countries, defining the wage curve thus: “A worker who is employed In an area of high unemployment earns le than an identical individual who works in a region of low joblessness”. It would be interesting to know what the views of 31-year old trader, Kweku Adoboli, are towards that. Or indeed, what Oswald Grübel thinks: according to the Wall Street Journal this morning, “Oswald Grübel resigned as chief executive of embattled Swiss bank UBS AG in the wake of a trading loss that cost the bank more than $2 billion and now has cut short the career of a giant of Switzerland’s business community.

 

 

 

 

 

Vince Cable's speech to the Liberal Democrats conference 2011 : the paradox of thrift



 

 

 

 

 

 

 

 

By Dr Vince Cable, 19th September 2011

 

These are dangerous times for our economy.

There is much uncertainty.

But I am absolutely certain that, at such a moment, the country is stronger for having two parties in coalition working in the national interest.

When I joined up I had very mixed feelings about this coalition, like many of you.

I looked for good precedents.

I thought of Attlee and Bevin working with their Tory opponents – Churchill and Beaverbrook – setting aside their political differences in a common cause.

That coalition unleashed the great Liberal reformers; Beveridge and Keynes.

Now, you could say: that was war; that’s different.

Yes, it is different.

But we now face a crisis that is the economic equivalent of war.

This is not a time for business as usual; or politics as usual.

The financial crisis is still with us.

It never went away.

And we can see that recovery has stalled in the US and the position in the Eurozone is dire.

But it is wishful thinking to imagine that we have a healthy economy being infected by a dangerous foreign virus.

Many of our problems are home-grown.

Gordon Brown regularly advised the rest of the world to follow his British model of growth.

But the model was flawed.

It led to the highest level of household debt in relation to income in the world.

It produced a dangerously inflated property bubble.

It encouraged a bloated, banking sector while manufacturing declined at an unprecedented rate.

Then, they socialised the costs of the crash though a massive budget deficit, the biggest of any major economy.

His disciple, Ed Balls, has – sort of – apologised but advocates policies that would repeat the disaster.

What this period of crisis should have taught us, above all, is humility.

And humility in politics means accepting that one party doesn’t have all the answers; recognising that working in partnership is progress not treachery.

It has been hard.

It has required courage from our Party to withstand the tribalism which is British politics at its worst.

And it has not been possible for the Party to get its own way on everything.

I regret this year is that we did not secure tighter control on bank pay and bonuses.

A bad message was sent: that unrestrained greed is acceptable.

We now know where that leads.

But we have real achievements.

My team in the Business Department (and I want to acknowledge David Willetts and Ed Davey’s role in particular) has not only made a major contribution to deficit reduction but is now helping recovery.

We have greatly expanded apprenticeships.

Giving respect and recognition to the 60% of young people who do not pursue academic study in universities.

We protected our science budget and we have launched a chain of Technology Innovation Centres promoting the technologies of the future.

We have established a Green Investment Bank to benefit major green projects.

Nick Clegg has driven our Regional Growth Fund, investing in businesses and jobs up and down the country not just the South East

We, and Ed in particular, have done what Conservative and Labour governments failed to do: legislate for a necessary reform of the Royal Mail with worker shares and provide a stable future for the Post Office Network.

And then – after a generation of manufacturing decline we have brought jobs back to Britain in steel at Redcar; in motor vehicle supply chains and electric vehicles; and in aerospace through Rolls Royce Airbus and Augusta Westland.

This morning Jaguar Land Rover has announced that they are to build a new engine plant in the West Midlands – that is a massive boost for British manufacturing, and the region.

That’s what I mean by a business recovery, cars not casinos.

The work is just beginning.

To turn Britain round we need much more.

Three priorities: Stability, stimulus, solidarity.

Stability in the government’s finances – the deficit problem – and in our banks.

Stimulus to support growth; sustainable growth based on business investment, exports, green technology and manufacturing.

Solidarity to give people a sense of a shared society, reducing our appalling inequalities of income and wealth, and creating a responsible capitalism.

STABILITY

As for stability, the last government promised an end to boom and bust but gave us both – and left us a dangerous, unsustainable budget deficit.

Cutting it is a thankless and unpopular task, but unavoidable if our country and party are to be taken seriously.

The Government’s tough approach to deficit reduction is often attacked as ideological, as right wing.

Financial discipline is not ideological; it is a necessary precondition for effective government.

I see us following in the footsteps of Stafford Cripps and Roy Jenkins in Britain and, abroad, the Canadian Liberals, Scandinavian Social Democrats and Clinton Democrats in the USA.

They understood, unlike today’s Labour Party – that the progressive agenda of centre left parties cannot be delivered by bankrupt Governments.

I think most of the British public do get it.

But there are politicians on both left and right who don’t.

Some of them believe government is Father Christmas.

They draw up lists of tax cuts and giveaways and assume that Santa will pop down the chimney and leave presents under the tree.

This is childish fantasy.

Some believe that if taxes on the wealthy are cut, new revenue will miraculously appear.

I think their reasoning is this: all those British billionaires who demonstrate their patriotism by hiding from the taxman in Monaco or some Caribbean bolt hole will rush back to pay more tax but at a lower rate.

Pull the other one!

Financial stability doesn’t just involve the Government budget.

Massive potential instability is caused by UK-based global banks whose combined assets are over 400% of GDP, by far the largest of any major country.

At present, banks are offered a one way bet.

If they gamble and win; they fill up the bonus pool.

But when they lose, the taxpayer pays.

The Independent Banking Commission provides a means to stop this dangerous nonsense.

The Commission’s key findings – to separate retail and casino banking – must be put in place.

Legislation will start soon and be completed in this parliament.

If there were any doubts about the need for radical reform the UBS rogue trader has dispelled them.

We simply cannot have rogue institutions exposing taxpayers to the risk of exploding financial weapons of mass destruction.

The banks must also perform their basic economic function of channeling our savings into productive investment.

They are not doing so.

Productive British business and banking are currently at odds.

Banks operate like a man who either wears his trousers round his chest, stifling breathing, as now, or round his ankles, exposing his assets.

We want their trousers tied round their middle: steady lending growth; particularly to productive British business, especially small scale enterprise.

No more feast and famine in bank lending.

STIMULUS

The big economic policy question now is how to progress from financial stability to growth.

With business and consumer confidence so low, there is a special responsibility on government.

We are not bystanders.

My job is to support businesses, that means promoting British commerce in the big emerging markets that have been neglected in the past.

It means keeping Britain open to inward investors, trade and skilled workers.

It means cutting red tape which is suffocating growing companies which create jobs.

What I will not do though is provide cover for ideological descendents of those who sent children up chimneys.

Panic in financial markets won’t be stopped by scrapping maternity rights.

But the immediate threat is lack of demand – with consumers, companies and governments cutting spending.

Keynes talked about a ‘paradox of thrift’; everyone and every country being individually wise but collectively foolish – leading to a downward spiral.

A lot of responsibility rests on the Bank of England to relax monetary policy further linked to small business lending.

But Government can act:

•  Use Chris Huhne’s Green Deal to generate an estimated 100,000 jobs in energy conservation;

•  Leverage in private investment through the Regional Growth Fund and the Green Investment Bank

•  Adopt the Liberal Democrat policy to allow councils to auction land with planning permission using the proceeds for social housing;

•  Step up investment in our clapped out infrastructure.

There are tens of billions of pounds of British savings in pension funds and insurance companies ready to invest in transport, energy.

Broadband and housing if regulators can ensure a reasonable, moderate return.

And as Danny announced yesterday the government is putting serious money behind local projects.

SOLIDARITY

Even with a stimulus to support recovery the next few years will be difficult.

Living standards are being squeezed by continued high imported inflation.

And the painful truth is that Britain is a poorer country as a result of the financial crash.

The public will only accept continuing austerity if it is seen to be fair.

Yet there is currently a great sense of grievance that workers and pensioners are paying the penalty for a crisis they did not create.

I want a real sense of solidarity.

That does not mean that we go round in blue boiler suits carrying little red books, though I suspect that some on the right believe that is my agenda.

It does mean a narrowing of inequalities.

We have, as a Party, made clear our priorities for continuing to lift low and average earners out of tax.

And the wealthy must pay their share.

What Liberal Democrats should focus on are the vast disparities in wealth – much of it in inflated property and land prices artificially generated by the boom of the last decade.

A few weeks ago a house changed hands for £140 million.

And one newspaper headline said, without irony, “Oligarchs priced out of central London.

Yet the owners of these mansions pay no more tax than many occupants of a family semi.

When some critics attack our Party policy of a tax on properties over

£2 million by saying it is an attack on ordinary middle class owners, you wonder what part of the solar system they live in.

Let me be clear, there is absolutely nothing wrong with generous rewards for those who build up successful businesses and create wealth and jobs.

People accept capitalism, but they want responsible capitalism.

As for irresponsible capitalism, some of you may have noticed that one of the big media companies has recently had a spot of bother.

(I think you know who I mean)

The Labour Party, the Conservatives and even the Scottish Nationalists spent years queuing up to pay them homage to them.

What makes me proud of our Party is that we never compromised ourselves in that company.

What I want to do is to strengthen the best of British business.

I have taken two initiatives in particular:

•  I have asked Professor John Kay, together with Sir John Rose, formerly CEO of Rolls Royce – whose company embodies responsible capitalism in its commitment to long term investment in training and R&D – to look at how we get stock markets and institutional investors out of their short term, speculative mindset.

•  I am separately consulting on how best to tackle the escalation of executive pay which, in many cases, has lost any connection with the value of shares, let alone average employee pay.

It is hard to explain why shareholders can vote to cut top pay but the managers can ignore the vote.

And surely pay should be transparent; not hidden from shareholders, and the public.

I want to call time on pay outs for failure.

CONCLUSION

Let me say in conclusion that when my staff saw my draft of this speech they said; we can see the grey skies where are the sunny uplands?  I am sorry, I can only tell it as I see it.

People aren’t thinking about 10 years ahead when they are worrying about how to survive the next 10 days to payday.

But I do sense a deeper truth: that the public is tired of being lied to by politicians; promised what cannot be delivered.

The truth is that there are difficult times ahead, that Britain’s post war pattern of ever rising living standards has been broken by the financial collapse.

But we can turn the economy around.

In the Coalition Agreement we promised to put fairness at the heart of all we do as we rebuild our broken economy from the rubble.

Liberal Democrats know that you can’t do one without the other.

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