Good evening, thank you for coming to this Progress event and thank you to Richard and Robert for organising it. Progress has enormous potential to influence Labour’s debate in the coming months and years and I’m pleased that you are also fully engaged with the policy review being run by Liam Byrne.

Anxiety on the left

For the last year or so, across continental Europe, worries about the relevance of centre left politics have become a regular matter of debate. Knowing that Progress is on the pluralist wing of the Party, I hope you won’t mind me citing the Fabian Society’s recent “Europe’s Left in the Crisis” pamphlet, in which Roger has a typically erudite essay, and which is full of such worries.

I think the causes are twofold. Firstly, there is the stark electoral evidence: the French and Danish centre left haven’t won in a decade, while following the crash the Germans, the Swedes and the British Labour Party all polled their lowest ever votes for at least twenty years, in the case of the Swedish Social Democrats their lowest since 1923. In Spain, in Greece and in Portugal the left is holding on, but in Italy it has failed to succeed despite the political problems of Prime Minister Berlusconi.

Secondly, there is a slight air of indignance and hurt pride that after the greatest market failure in 80 years, the voters haven’t leapt into the arms of the centre-left.

What I want to argue today is that, while the return of the centre left to power is far from certain, the opportunity is there because the failure to provide rising living standards in recent years, even before the crisis, has made it more likely that incumbent governments will be severely punished at the ballot box.

My contention is that austerity economics begets electoral volatility. And while that creates opportunities for the centre left it frames the policy challenges for progressives across Europe as how to develop policies that credibly offer rising living standards and falling deficits.

Disenchanted democracy?

In the last year, the idea that, to misquote, “the market’s difficulty is the left’s opportunity” has been exposed as complacent both electorally and intellectually. While free market hubris has been punctured by events, it hasn’t in and of itself made the state either more efficient or effective.

In truth, voters are now sceptical about the market and the state. And if the Prime Minister continues to promise the Big Society as being able to solve all of the country’s problems, I suspect it will breed scepticism about the role of civil society too.

The public have a point. There are a lot of good reasons to feel that neither the market not the state is presently giving people an improving standard of living.

As Ed Miliband said yesterday “despite advances during the years of the Labour government, we have an economy which, for too many people, is not delivering”.

Inflation, increased VAT and spiralling energy costs are not always being matched with real wage increases and are instead being met with cuts to financial support like tax credits or child benefit.

Simon Rosenberg of the New Democratic Network in Washington has analysed how the economic fundamentals of the last few years have dramatically increased electoral volatility in the United States.

He argues that President Bush presided over a “lost decade” marked by stagnant wages, declining household income and rising living costs that left the typical American family making $2,000 dollars less when Bush left the White House than when he arrived.

This has resulted in a period of political see-saw. President Bush’s Republicans take a hit in the 2006 mid-terms, the outsider Barack Obama is elected in 2008 and then the rise of the Tea Party movement helps remove the Democrat’s majority in Congress late last year.

The Irish election results earlier this week could partly be seen in this context, as could the boost for the SPD in last week’s Hamburg state election and the substantial drop in the CDU vote.

When James Carville coined his famous “It’s the economy, stupid” dictum in 1992, contained within it was the assumption that increased growth would inevitably bring rising living standards. This can no longer be assumed.

Two decades later that can no longer be assumed. Yet, while living standards have consistently been the defining measure voters use to rate their governments – politicians of all parties have failed to grasp the changing nature of that challenge.

We could be witnessing a move to a more disenchanted democracy; where one set of politicians fail to deliver rising living standards against global pressures and are punished and replaced by different politicians who similarly fail to deliver rising living standards.

Those global pressures aren’t going away: today’s spike in oil is clearly being driven by events in the Middle East, but the rising consumption in Asia is clearly going to mean that food, fuel and other commodities are likely to see rising prices for the timebeing.

And the ability of fiscal policy to mitigate this squeeze, through measures like tax credits or the end of term tax cuts that George Osborne’s electoral strategy is so clearly predicated on, will be limited.

Many European countries will reach 2015 with substantial net debt and large debt interest bills following the economic crisis. The UK – even if Osborne’s plan goes ahead exactly as he expects – will have still have a net debt of around 70 per cent of GDP at the end of the Parliament.

The policy response

So how do we get to a point where we have an offer that punches through disenchantment and offers a credible route to rising living standards?

There is a long way to go to develop that policy agenda, but one thing I would highlight today would be that the politics of production is going to be as central to this debate as the politics of distribution.

Here in the UK, while the debate about the winners and losers from this Government’s fiscal policy will dominate the next five years, the question of how Britain earns its living and pays its way in the post global financial crisis world will help define our politics for years to come.

For the centre left across Europe, we need to know which sectors we’re trying to grow and what public policy levers we have available to us to support the private sector.

Of course, how our economy develops over the long term isn’t something can’t be decided by Whitehall fiat.

But if the crash didn’t prove that the state is always better, the policy response to the crash should actually give people cause to be optimistic about the potential of the state working with the markets. In some ways, it echoes the first insights of people who have variously described themselves as revisionists, or New Labour or those in pursuit of a Social Market.

Working with the grain of the market, public policy can achieve progressive goals.

For example, in my previous role as Shadow Work and Pensions Secretary, I made a speech to Demos citing the work of the economists Paul Gregg and Jonathan Wadsworth on what happened in international labour markets during the recession.

They found that in Britain it was the combined effects of the right action by the authorities – low interest rates, fiscal stimulus and support for business – with the right action by employers – keeping people on wherever they could – that meant that the last recession did not see unemployment soaring to the same degree as in its predecessors.

Measures like Time to Pay enabled employers to keep someone on, even if only on fewer hours, rather than making them redundant.

It was an example of how good policy can be complimentary to good business.

And in implementing that fiscal stimulus, Peter Mandelson encouraged Government to start to re-learn the idea of an active industrial policy. The only stainable route to higher living standards is to create more jobs on rising real wages – and advanced manufacturing will be an absolutely crucial part of that.

The current Government – exemplified in cancelling the Sheffield Forgemasters loan – don’t appear very interested.

But it was clear in President Obama’s State of the Union pledge to “out-innovate, out-educate, and out-build the rest of the world”.

As part of that rest of the world, we need to match that ambition. And in an era of disenchantment, we need to match that passion for growth.

Sharing policy innovation

One of the very few advantages of living in an era of fiscal austerity is that it actually makes it easier to transfer ideas between countries.

If I was to look at the policy innovations of the last Labour Government to suggest that other countries co-opt and improve, the first on my list would be Sure Start and the Future Jobs Fund. Both highly innovative programmes that have dramatically changed the prospects of a generation of, respectively, pre-school children and young unemployed adults.

Their combined budget of around £2bn a year represents less than a third of one per cent of UK public spending, making them something that other countries can, and should, seriously look at as examples of good practice.

Now in opposition, it is Labour that needs to be asking, what is the equivalent being done elsewhere: programmes whose modest pricetag belies enormous power for social change.
Particularly when it comes to industrial policy, we have a lot to learn.

But too often our formal party structures hold us back from just that kind of exchange.

For example, the fact that the Socialist International included, until last month, the party of President Mubarak, shows the need for it to reform its membership. The British Labour Party can’t decide unilaterally who is in or out of the Socialist International, but we can be clear that we are on the side of reform and don’t want parties involved in human rights abuses to be part of that international group.

The Party of European Socialists has an important role to play in supporting the exchange of ideas between progressive politicians.

But the PES needs to focus on that role, rather than on issuing broad policy statements, given the fact no responsible national party would implement a policy it disagreed with simply because it appeared in a PES statement.

Instead of focussing on common positions that lack substantive effect, PES should build on its excellent work bringing sister parties closer together and developing links between progressive politicians at the national and local level, so that smart centre-left ideas can spread more quickly across the continent.

This too is where Roger’s Policy Network is and should continue to play an absolutely vital role, both in regular publications and research, but also in the Progressive Governance conferences.

In particular, we must not miss out on the opportunity that there is a Democrat in the White House – whose policy successes, and failures, we will do well to learn as much from as possible. And with government in the US much more focussed on the state level, we also need to be ready to pick up lessons from progressive Governors too, rather than just looking at the federal level.

If we are to avoid the fate of our Swedish colleagues, who didn’t succeed in winning back power after losing office to a conservative party consciously aligned with David Cameron, we in the British Labour Party have to get our policy review right first time.

I’m confident that Liam and Ed are up for that challenge and I think, as a Party, we are up for doing as much as possible to learn the lessons from our friends across the EU.

The political response

Finally, let me come to how we respond politically to these developments. On the surface, the political response to a more disenchanted democracy seems easy.

There is a protest focussed model to winning from opposition – which we have seen something of in Ireland, in parts of continental Europe and in the Tea Party movement in America.

When the next election comes the Government will be under pressure on living standards and we will all still be living with the aftershock of the coming wave of cuts.

But remember that David Cameron seemed set for a thumping majority only a little more than a year ago, but a sceptical public refused to give him such an endorsement.

Many of these sceptical voters will be tired of a whole Parliament of austerity, high unemployment and low growth.

Ed’s speech this week, focussing on the real squeeze on living standards that people are seeing in their day to day lives, shows that he understands this.

These voters will need convincing that Labour will make things better not worse.

In some ways, it’s an even tougher audience than the one Tony Blair and Gordon Brown had in the 1990s when they were modernising the Labour Party.

As I’ve said before, the test for Labour is not whether we attend enough demonstrations – it’s whether we can start to demonstrate anew that we are a credible alternative.

Across Europe we face the same choices. If the twin policy challenges are growth and the deficit, then the twin political challenges are having a credible plan for a renewed and rebalanced economy and credible economics that wins back trust.

For every party, the challenge is both to inspire and to reassure.

To win majorities we have to do more than play our part in a political see-saw.

But we have to recognise that voters feel justified in their disenchantment.

Neither challenge can be met simply by attacking our opponents on the right. Robust opposition is necessary but insufficient.

Our task in this Parliament is to give voice to the real grievances people feel and through credible policies become again a vehicle for people’s hopes for themselves and their families.

But – as we saw in 1997 – it is possible to achieve both goals but our ambition is to do it over one Parliament and not over four.

It will be by learning from each other, hopefully we can all deliver another moment where another generation of progressive Prime Ministers, Presidents and Chancellors are working together to build a better Europe.

That is our opportunity, it is also our responsibility and working together I believe it can be our achievement.

 

 

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Photo: United Nations Development Programme