PETER MANDELSON’S SPEECH TO NORTH EAST ENGLAND CHAMBER OF COMMERCE
“Britain is facing an immediate cost of living crisis but the major longer term challenge is one of fundamental economic growth.
We cannot sustain the everyday economy we need – of retail, hospitality and caring which is the source of so many local jobs people depend on – or contain the explosion in taxes or rebuild our public services unless we raise the country’s overall, long-term growth rate. This has to be the central aim of government, whichever party leads it.
This is a pivotal moment. If we are not careful we will start drifting back to the sclerosis we experienced in the 1970s. The evidence of stagflation is already ominous.
We do not have to resign ourselves to inertia and decline. We can opt for revival by investing heavily in the digital, AI and carbon transitions underway from which a new 21st century economy is emerging. We can do so by utilising our innate strengths and the tools of a modern industrial strategy to catalyse the tremendous innovative and productive power of our nation. This is where I want my own party’s focus to be as it prepares for the next election.
We are hardly building on strong foundations from the past decade. The only thing we have achieved of any lasting significance is to leave the European Union.
Coming on top of the global financial crisis and the years of austerity, followed by the pandemic and now the energy price shock sparked by war in Ukraine, Brexit was always going to hit trade and investment in our biggest export market.
But the ideological manner in which Brexit is being done is causing unnecessary rupture and avoidable economic damage as well as endangering our defence and security co-operation in Europe.
Now, the government is even threatening to upend our whole trade and co-operation deal with the EU which has been so recently agreed.
This is a long way from what was promised. At the last election, Boris Johnson said we were leaving the EU but not leaving Europe. That we would use our “Brexit freedom” to usher in a new economic paradigm with an independent Britain more nimble in spotting opportunities and fleet of foot in realising them. You would need a microscope to see this agility now.
Instead of Brexit acting as a catalyst to re-shape the economy it is becoming a drag anchor on our prosperity and living standards because of the additional costs, regulatory barriers and frictions being experienced by business, especially small and medium sized businesses whose links in Europe are tumbling fast as they try to navigate their way through the new red tape.
Even leading Brexiters like Daniel Hannam are now arguing that staying in the EU’s Single Market or large parts of it would have saved us a lot of trouble – the withdrawal issues including the Irish border would have been much more easily resolved.
We do not have to re-open the basic Brexit decision in order to improve the economic deal we struck with the EU, including a more flexible visa policy. The deal is a dynamic one, it can be stretched in different directions to facilitate greater UK-EU trade, as long as we are committed to building the relationship.
To negotiate such improvement requires two things in Britain: a practical, flexible mindset on what needs to be done to lower trade barriers rather than a tunnel-visioned obsession with national sovereignty; and a government – in particular a Prime Minister – determined to restore the trust between Britain and the EU which has been recklessly undermined since we left.
The breakdown over the Northern Ireland Protocol is typical of this. It is a wholly self-inflicted wound which has already led to Britain’s exclusion from the EU’s Horizon scientific research programme, a very serious setback both for us and for European researchers. If the breach over the Protocol is not repaired it could lead to a trade war with Europe.
So trust must be re-built and on this basis a solution to the Protocol can be found through less rigidity by the EU and with the British government telling the DUP in unambiguous terms that the Protocol cannot be scrapped, only its impact softened.
A phytosanitary agreement with the EU would also greatly reduce border checks and ease the problems with the Protocol. But to secure this, the government – again – has to put the public’s interest before its own ideological fixations.
The consequences of the last decade of lost growth and now of falling trade mean that we have got to run much faster as a nation in order to move forward, re-imagining how we make our living in the world and re-thinking how we leverage our world class science and technology base to create new industries and businesses for the future, whether in artificial intelligence, robotics, cloud technology and computing and their applications, for example, to mobility, healthcare and defence.
The present government’s lack of a plan or sense of driving, national mission is holding the country back. I regret this but it is a substantial opportunity for the Labour party. Labour has come a long way since the last election in 2019 when Jeremy Corbyn marooned us on fantasy island but given everything that’s happening now in the Conservative party, the time is right for Labour to raise its sights and accelerate its own policy thinking ahead of the next election. Labour’s ambition should be to turn the intellectual tide and shoot for a watershed win like Mrs Thatcher’s in 1979, not just sneaking over the finishing line as Labour had done five years before her in 1974.
The last time Labour showed this ambition and undertook the hard thinking to accompany it was over twenty five years ago before 1997. It led to lasting New Labour achievements including the expansion and widening access to higher education, the transformation of our northern cities and the dramatic reductions in child and pensioner poverty.
In the economy there were notable policy innovations: Bank of England independence, competition policy was recast to be more effective and the regional development agencies were established and more. And the economy’s productivity performance was improved, employment was high and the economy grew by 2-3% a year before the financial crisis compared to 1-2% during the last decade before the pandemic.
I am glad that Keir Starmer now wants to build on New Labour’s legacy but this requires thinking deeply about how the world has changed since then and the opportunities it offers as well as assessing realistically what we got right and where we could have done better.
In retrospect, the Labour government could have done more to lay the foundations of the kind of economy Britain needs in order to prosper in this century and, central to its programme, I believe the next Labour government must give laser like attention to the new industrial and technology-empowered policies needed to spur growth and mitigate the effects of Brexit.
Back in 1998 the White Paper I produced at what was then the DTI– Building a knowledge-driven economy – was timely but not adequately followed through and when I returned to government from Brussels following the banking crisis in 2008, the industrial activism I embarked on around the White Paper New industry, new jobs was worthy but too limited.
Since then Greg Clark has produced the only really forward looking strategy, reflecting Theresa May’s belief that the Brexit vote demanded a serious re-balancing for people and communities left behind in the rush towards globalisation and that an economic model which relies too heavily on insecurity for individuals to deliver profits is not one that is fit for the 21st century.
In this context I think of my own former constituency, Hartlepool, once a great centre of coal mining, industry and trade, where more than 65 per cent of people voted to leave the European Union, voters giving up on the promises of a bigger pie because they did not see – and still don’t – a proper slice of that pie reaching them or their families.
It is too easy to blame ‘globalisation’ – the growth of international trade and supply chains and the emergence of fast growing economies like China and others in Asia – for this disappointment. I firmly believe that globalisation is a net positive because it creates market opportunities for an advanced economy like Britain’s and the fact that globalisation is slowing and is now threatened further by geopolitical disruption will mean less global trade and prosperity for all.
The biggest risk in the current debate about globalisation is that we move from the undeniable truth that it could work better to the false conclusion that we are better off without it. We wouldn’t, we would be less well off.
But we are far from operating a perfect model, we need to build a more equitable globalisation and we must pay greater attention to issues connected with national resilience and security.
As an advanced economy, we can feel more confident about our basic strengths and our ability to sustain our place in the global economy.
Our future prosperity will be built on the shoulders of our great universities and our world class science and technology base. We are a global financial centre, we have the advantages of the English language and our geographical location. Our innovative power is immense, with national and international institutions that generate and transfer knowledge from universities and research laboratories to create new products and processes.
We don’t just need to predict the future we can design it for ourselves with amongst the best design skills and design sector of anywhere in the world.
It is these strengths that will enable us to re-shape the UK economy but we need a far better plan to bring this about, one that benefits the whole of the UK, its towns as well as its cities, its technicians as well as its university graduates.
The point is this: technological change, and its adoption and integration, is an important driver of productivity and economic growth and it needs to be supported and shaped through public and private funding, nimble government regulation that favours innovation and the fostering of new supply chains through entrepreneurship and business growth, supported by intelligent public procurement.
Governments do not create jobs across the vast swathe of the UK economy, businesses do but government sets the framework and that’s why a meaningful growth strategy needs a proper system of investment incentives and proportionate rewards for risk taking.
Take as an example Labour’s commitment to spend £28 bn a year for ten years on the energy and climate transition. This only translates into new jobs and prosperity in the UK if we are investing in UK businesses to supply the new markets and scaled industries being created by this transition. Otherwise, other countries will beat us to the starting block and the new jobs will not be created here but abroad.
I believe in hard headed globalism not global altruism.
This is where Labour has to do its hard thinking: what are the new institutional means and mechanisms required to convert government investment and action into British private sector business growth and jobs, not just in the golden triangle of London, Oxford and Cambridge but across the UK. Just announcing a massive spend and a big policy goal does not in itself deliver economic growth.
Government needs to settle on some clear, specific goals. The recent experience of the covid vaccine is salutary. Through a mixture of luck and judgement and borne out of necessity in a time of national crisis, we poured cash and agility into a clutch of high-risk technology ventures through a vaccine taskforce led by a venture capitalist – so we used decades of Labour and Conservative public funding in research, invention by Oxford University, accelerated regulation by the government, vaccine manufacture by the private sector and distribution by the NHS to get the result we wanted.
One thing this isn’t is a model of pure capitalism. It is adding heft and heavy lifting to the operation of markets by using the power of the government balance sheet and public procurement to make a vital difference. There are lessons here for Labour as it draws up a radical, transformative programme for government.
But we should not mistake the role of strategic procurement by government with a wider policy of protectionism. We cannot both be a great trading nation and try to exclude foreign competition.
Our policy should not be about propping up failing businesses or trying to re-create the industries of the past. It is about a relentless focus on the markets and jobs of the future – the new economy – using government where appropriate to mitigate risk in long-term bets on new industries and technologies and laying the fundations of potentially major new supply chains in other science-based sectors where the potential for growth is real whether in biotechnology and life sciences, low carbon power generation including hydrogen and nuclear, zero emissions transportation and the space and satellite sectors.
There is so much more government can do to support SMEs in participating in these supply chains. At the Business Department before 2010 I strongly promoted the Small Business Research Initiative which aims to give SMEs a heads up on government procurement so that they can prepare and compete more effectively. This could be hugely expanded now and made central to regional industrial policy as should the work of the British Business Bank which seeks to offset the poor distribution and availability of venture and growth capital across the UK.
And, alongside this investment, we need a clear focus on the geographical dimension and how a strategic approach is going to draw on local knowledge and skills. Not all jobs in new science based industries will go to PhDs. There is tremendous opportunity of good jobs for people who follow the apprenticeship route to qualification not just university.
Modern infrastructure as well as skills require substantial government investment and this, too, should be linked where possible to domestic manufacturing and public procurement.
There are also important links to the everyday economy. Repurposed High Streets will benefit from technological advance as will modernised public services through the application of AI and other science, for example identifying groups of people liable to preventable disease and managing care for the elderly with remote diagnostics and virtual group meetings for those with mobility problems.
In future, our research intensive universities will need a greater focus on generating societal and economic benefit from research and we will need more US-style investment management companies attached to our universities to commercialise research conducted on campus.
The overall aim is clear: to marry up our science and technology base and workforce skills to the markets being built out from the digital, AI and decarbonising transitions, identifying the business and commercial opportunities linked to them and focusing government support on the whole supply chain so that innovation and production coheres. And be willing to take some risks in doing this and to act at scale where necessary.
Let me close with one final observation.
All oppositions hate giving credit to what the government is doing and all new governments like to claim total originality in their policies.
In fact, there is a desperate need for continuity of policy where this is working and can be built on. An example is the current creation of ARIA – the Advanced Research and Invention Agency – which needs to operate and be sustained in the long-term. The present government has an innovation strategy which the opposition should study and aim to build on.
Getting its thinking and priorities in place is the right aim for oppositions and concentrating on detailed implementation is the essential goal of governments.
That’s what is going to make the difference between success and failure and therefore national decline or revival.
Re-shaping the UK economy means getting a great deal right. It will be built on detail. It requires continuity of policy. It has to draw on many talents.
On this our future depends.”