27 May 2010
David Miliband’s speech to the Open Left project at Demos
27th May 2010
“Labour succeeds when it is the radical reformer of the excesses of both the market and the state. At our best, we use both to empower people and constrain each where they overpower. That is the basis for a social market economy.
“Labour was right to focus on public sector reform. It helped save the NHS and transform our schools. However we didn’t always have the same energy and focus in reforming the private sector.
“In the aftermath of the financial crisis we need to ask fundamental questions about the type of capitalism we want.
“I am a great believer in public sector reform, but also private sector reform. Left unchecked, markets tend towards instability, insecurity, inequality and unsustainability – which is why they need to be effectively regulated.
“The role of government is to harness the potential of the private sector to drive a new era of wealth creation and shared prosperity. That requires private sector reform to addresses unaccountable market power and unacceptable market morals.
“The historic task of the social democratic tradition is not to abolish markets, but to reform them in the public interest. I think that means we need to focus reform in four core areas.
“First, we need to rebalance our economy. Britain remains a major manufacturing nation, but over the last two decades the rates of return offered by financial services sucked in capital, diverting investment from other sectors of our economy of the investment they needed. As we discovered when the credit crunch hit, those returns came to little.
“Rebalancing our economy won’t be achieved by rolling back state support for modern manufacturing. The flourishing of Nissan in the North East has happened to a large extent because of strategic support from the government.
“We need a stronger market economy in towns and cities across the country – which will require capital to flow to other sectors of the economy beyond finance and parts of the country beyond London and the South East.
“Second, there are big issues about responsibility at the top of our society – as well as at the bottom. Labour was right to reform welfare, and expect responsibilities in return for rights, but we should also be tough on the recklesnesss which contributed to the financial crisis – the price for which we are all now paying.
“The explosion of pay inequality over the last three decades – and the continuing scandal of the gender pay gap – is an ethical as well as an economic issue. Mega pay awards and bonuses, linked to activity rather than success, violate basic principles of merit and justice.
“We need to find ways to re-establish moral norms. Unacceptable concentrations of market power, as with unaccountable state power, are not just economically dangerous – as we saw in the credit crunch – to many in this country, they are also immoral.
“We shouldn’t be afraid to say this for fear of appearing anti-business. The truth is it’s in everyone interests – including the market – that we tackle the excesses.
“The dominance of the financial sector in our economy, and the bonus culture associated with it, must change. Amidst the pain of the global financial crisis, we must build a more balanced British economy. In the next decade we need radical private sector reform to check market excesses – just as Labour was right to reform the public sector to tackle the weaknesses of the state.
“Third, like governments, markets have not yet properly factored in environmental costs into their activity. The Climate Change Act requires the country to address this. But the private sector won’t achieve it without strong regulation and clear price signals. Reform of the private sector means factoring environmental costs into all decisions.
“Fourth, spreading access to credit is central to driving the growth of new businesses and using the private sector to empower people. But, paradoxically, this requires an empowering government not less government.
“For example, I want a stronger market economy in South Shields – but slashing the public sector and emoting about the Big Society won’t do it.
“It will require people with a new idea, and the enterprise to make it fly, to be able to access the capital they need. Government needs to explain how cuts in RDA budgets won’t lead to lower economic growth in future”.
“We should also cap the cost of credit – to prevent people being subject to usurious lending practices. And then we should ensure there are new sources of affordable credit to stop people falling into the hands of loan sharks.
“Credit Unions are an important part of the story – and I am a proud member of the South Shields credit union. We should also look at how we can use the Post Office or one of the nationalized banks to extend credit to the towns, cities and regions of the country.
“Reforms during our time in office have left a different sort of market economy than the one we inherited. The labour market, for example, tilts more strongly against exploitation – and rightly so.
“But the challenge now is to learn the lessons from the credit crunch and to be clear about the type of market economy we want. This raises fundamental questions about our political economy, which we must not duck.
“The credit crunch was the consequence of market power becoming too concentrated and too unaccountable. We need to redistribute economic power to rebuild economic security – and sustainability.
“Our future prosperity won’t come from government, but from the hard work and enterprise of our people – setting up new business, taking risks and meeting the needs of the new decade. But government does have a crucial role in creating the conditions for this to happen, not least in ensuring markets are properly regulated.
“This requires Labour to regain the mantle of the radical reformers of markets and the state”.