REMARKS BY LORD MANDELSON TO THE CBI DINNER
THURSDAY MARCH 21 2013 AT THE PARK LANE HOTEL, LONDON

I am very happy these days to be spending rather more time in business than in politics.

I cannot say that I enjoy every moment of being out of government. And I would like to help finish what I started when I took over the business department:

• Developing an industrial strategy that gets the government backing business in Britain more intelligently and effectively;
• And raising the sights of business and politics from the baleful obsession that is all to prevalent today in business and politics with the short-term at the expense of thinking and acting for the long-term best interests of the country.
• Without doubt, the short-termism we practise in Britain is the biggest bane of our economic life. Government does it. The financial markets do it. Shareholders do it. CEOs often cannot dodge it. But we have got to reverse it.

Being away from full-time politics as I am now, I can say this, as well as other things.

Let me do so tonight about the state of the European economy, about the British economy and about the link between the two.

The European economy

• Cyprus reminds us the eurozone crisis isn’t over, the embers are still hot and with a sharp, sudden unwelcome wind, the flames can flare up again.
• But we are seeing the relative competitiveness of the southern euro states – their unit labour costs – going in the right direction. It’s important that their fiscal consolidation and structural reforms continue because they have a long way to go.
• Of course, every facet of the eurozone’s problems would be eased by renewed growth – including sorting out banks that remain the eurozone’s achilles heel – and, in Europe as a whole, we do not currently have the right policy mix to support growth
• In those countries where there is policy space to do so, we need more energetic measures to stimulate demand and investment so as to lift growth.
• But this is not either/or. It would be a mistake to argue for growth at the expense of continuing structural reform and improving competitiveness and productivity in Europe.
• Rises in wages unlinked to increases in productivity in some countries have been a big part of eurozone’s problems, as are rigid product markets in many services.
• Further short-term stimulus, desirable as it may be, will not improve productivity, free up markets and boost competitiveness.
• That’s why reform is not the enemy of growth. We need both. It’s the only way of getting Europe’s strength back in the long-term and politicians must explain this and persist.

The UK economy

Similarly in Britain, there is a legitimate debate to be had about the speed and depth of deficit reduction when the country’s GDP has been flat for the last three years.

The banks will be rebuilding themselves for years to come. There remains uncertainty surrounding our main trading partner in Europe. Energy prices are not helping us. The way back is going to be long, costly and painful.

But, again, we should be careful about drawing the wrong conclusions.

• The truth is our economic problems need more than a bit of fiscal stimulus or greater monetary activism;
• They require more re-invention of our economy than redistribution of the pain;
• And they call for candour about this from both the government and the opposition;
• The government is wrong and frankly a bit ridiculous to claim that all our problems flow from too much spending and borrowing by the last government;
• And just as the present government is underplaying what it could and should do to lift growth now, the last government overplayed its claims to have transformed the economy and to have put growth on an enduring upward trend.
• Everyone was too relaxed about household credit growing too strongly, with the independent Bank of England too focused in their inflation targets on consumer prices – the shopping basket – rather than inflated house prices.
• Yes, during its time, the Labour government significantly raised much needed investment in public services, grew the economy and made Britain a more unified, socially progressive country.
• But we also tolerated an economy that became unbalanced, relying too much on financial services and seeing manufacturing fall back.
• Financial services are a vital part of a properly functioning economy, they are an industry where the UK has comparative advantage, but we equally have skills and capabilities across a range of industries that also need to be fostered and developed.
• And government – whoever is elected at the next election – faces some serious choices about the contribution it will make to this, where it will put its shoulder to the wheel. Resources are not infinite

I believe government has responsibilities to help create a one nation society. But as a country I believe we need to make bigger choices than the ones being offered today. The next election deserves to be won by the party that has done the hard thinking and policy development not just on maintaining public welfare and re-distributing the cake but on how we expand and re-invent the cake, by transforming what we produce and how. And also where we sell it.

Britain needs to be deeply committed to exploiting the opportunities in the fast growing markets of the world – where I placed my emphasis and priority as Europe’s trade commissioner – but – and this is a big but – without ignoring the huge market on our doorstep.

The European single market still offers British business and inward investors to the UK the largest, richest, most open and most integrated home market in the world. We jeopardise this at our peril.

Britain and Europe

And this brings me to the last point I want to make.

It seems insane to me, at a time when we have in our country so many other deep seated problems to grapple with, we should want to add to them by starting an entirely artificially generated argument amongst ourselves about whether or not we want to remain in the European Union.

There is much to be said about this, and no doubt will be. Let me just make these observations.

• Of course the fast growing BRIC economies force us to look beyond Europe. They are sucking in imports at rates between 10-15 per cent growth a year. But UK exports to the BRICS are only growing at around a third to a fifth of that. A devaluation of sterling over the last three years has not resulted in a surge of exports.
• Partly that will be the nature of our export mix – the Germans sell capital goods, the Italians sell fridges and luxury goods. We tend to sell insurance, banking and professional services. Consumer and business markets in these things evolve more slowly because they remain more protected for longer in the BRIC countries.
• So to see the BRICs as a trade alternative to our European hinterland is a dream world. I spent four years as trade commissioner in these markets. I fully support an aggressive access and export promotion strategy towards them. But not at the expense of deepening the European single market because the BRICs are no where near Europe’s development or openness and will not be for many years to come.
• We should be exerting ourselves in strengthening the single market not walking away from it. Not squandering the huge goodwill and credit Britain has in the EU on mounting a futile attempt to “re-negotiate” and cherry pick the terms of our EU membership. We will never win this fight. Nor should we.
• Reform the EU, yes, to make its institutions more efficient and accountable. Build an effective alliance to extend the single market, yes.
• A lot of people on the continent also agree with the UK view that there are areas of EU regulation that are disproportionate and outdated and that we need more subsidiarity.
• But let’s be clear what this means. It means winning battles rather than picking fights.
• To be successful, it requires more British influence in Europe not less. At the heart of Europe’s decision-making not on the margins. Building coalitions not isolating ourselves.

On these issues, crucial for Britain’s future, I remain passionate whether I am on the frontbench or in the boardroom.

It’s not a party or partisan voice I offer. It is, I hope, a patriotic voice and one I want the CBI and British business to join – so as to maintain Britain’s influence in Europe, increase our growth in European markets and, in doing so, strengthen our place, and our exports, in the rest of the world.

‘A global role for Britain in a new Europe’ – that’s what the CBI’s DG said, and I agree with every word.

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Peter Mandelson is a member of the House of Lords and the former UK first secretary of state, business secretary and EU trade commissioner