Economic Prosperity and Employment

Lord Haskel Excerpts

Thursday 18th July 2013 Lords Chamber

Moved by

[Lord Haskel]

That this House takes note of the role of government in generating economic prosperity and employment.

[Baroness Garden of Frognal]

My Lords, the timing for the next debate is very tight indeed. Could I encourage all noble Lords to keep within their time limit, in order to enable the noble Lord, Lord Haskel, to have a few minutes to respond at the end of the debate?

[Lord Haskel]

My Lords, we are all concerned about the future of our economy and we all have a different view as to where the answer lies. However, I think that we all agree on one thing: the relationship between government and business is central to whatever the future may hold. I thank all noble Lords who have come to debate this important issue.

I will start by speaking of my early experience of government and business. Many, many years ago, new, higher standards were introduced for fabric safety, particularly for the flammability of fabrics in aircraft. As a young textile engineer, I had to develop fabrics and processes to meet these standards. I did this with the help of Bolton Tech, now Bolton University. At that time, the big market was the US. I went over there to sell our product but was amazed to find that a similar product was already available. It had been developed by the US military and was offered for sale, not only by large companies, but by smaller ones by virtue of a government assistance scheme.

I am pleased to say that we did rather well because of superior design, which is another lesson. That is how I learnt that, at the same time as preaching tough capitalism, the US Government have been engaged in risky research, on a large scale, in radical new areas from which business has benefited with products like the touch screen, GPS, the internet and nanotechnology: I could go on.

True, there must have been failures that we do not know about. However, over the years, this has illustrated the advantages of business and government consistently working together, not only in research and development but in reducing risk by taking public funding much closer to the market—far closer than EU regulations allow here.

Here in Britain, we have veered between extremes. When I started in business in the 1960s, the state had a role through public ownership and the public interest. It was a sort of command and control. Then we moved into a phase in which markets ruled through liberal capitalism. Private initiative, private enterprise and risk were encouraged. Markets were left largely to self-correct and self-regulate. The year 2008 demonstrated that that system did not really work. Some still see the solution in lower taxes, less red tape and less regulation, but an increasing number of people are calling for an industrial strategy that defines the relationship between the state and business. The problem is that the Government, the CBI, academia, finance and manufacturing all have different ideas as to what that strategy should be, largely because of sectional interests.

I would like to find a way in which government and business can work together, while allowing market forces and private initiative to flourish. Business would be free to experiment with new ways of doing things, with government having an enabling role that supported the public interest, not the factional interest. My noble friend Lord Sainsbury put this together rather well in his recent book, Progressive Capitalism. Unfortunately, he is not able to speak today, but he argues that prosperity is fostered by market-supporting institutions of an enabling state. They should be enabling, not market-directed, and far stronger than the weak institutions of the minimal state. These he calls progressive capitalism. These institutions do not start up and evolve spontaneously but are designed to resolve conflicting interests, and involve a strong measure of social justice. They are institutions with a purpose, not set up as an apology for failure.

Recently I have noticed frequent calls for such institutions. For instance, the Royal Institution of Chartered Surveyors’ Housing Commission recently proposed that such an institution was necessary to address the housing crisis in order to end the,

“short-term and partial policies”,

that created it. During the Second Reading of the Energy Bill, several noble Lords were concerned that its implementation was likely to continue over the lives of two or even three Governments and of many Ministers, and that, if nothing else, we needed an institution to provide continuity. I concede that this may take power away from Ministers, but it would be an enabling and more effective implementation of policy that is seen to be in the public interest and free from unpredictability.

Science and technology is one area in which we are already doing this. When the Labour Government came to power in 1997, one of their first priorities was to increase the funding for science and to prepare a 15-year road map for large research facilities. The then Government supported collaborative and applied research, which was first administered by the DTI but then handed over to the Technology Strategy Board, an executive, non-departmental public body. That gave it the independence necessary for it to be staffed by people with industrial and technological backgrounds and experience. It is to the credit of the coalition Government that they have continued this work. They have made a number of key investments, including a national network of technology and innovation centres, as a means of improving our innovation performance as an essential component for growth.

An evaluation in 2012 of earlier R&D projects showed an average return of £6.71 in additional gross value added per pound spent. So we know that this pays. Perhaps this explains why Germany spends nearly 10 times as much on its equivalent institutions However, there are still doubters. An announcement last week that the Government will match £500 million of industry investment to develop cleaner car engines was greeted by the Institute of Economic Affairs with the comment that if the Government have £500 million to spare, they should cut taxes.

Transferring this work quickly into products and processes is a key to growth. Knowledge transfer is a means of achieving this. I declare an interest as the honorary president of perhaps the largest knowledge transfer network, the Materials Knowledge Transfer Network, funded by the TSB, the Research Councils and some 4,500 business members. I am trying to practise what I preach.

Although we have made progress in science and technology, we have failed in other areas. If we are to raise our game, technology is not enough. We must also raise our game in skills, finance and infrastructure. The latest McKinsey paper on innovation says that research and development is only 25% of what it calls our knowledge capital.

We have rehearsed many times the failures of the financial system. John Kay told us how savers have been let down by the system. The banking commission told us of serious flaws. We have rehearsed hostile takeovers, poor governance, short-termism and the isolation of shareholders many times. To achieve prosperity, we must ask again: what is the purpose of the financial markets and are they performing efficiently? The task is to create enabling institutions with a compelling vision that will change the culture and the narrative, so that the financial sector, rather than serving itself, serves society and the rest of business. I join many in thinking that the proposed banking Bill fails in this by not going far enough.

Some tell us that the economy is improving. Others ask if it is improving in the right direction, and point to the dangerous use of housing and consumption, instead of productivity, to rebuild the economy. A strong enabling institution, rather than a data institution, would recognise and help sort out these priorities.

Another area where we have failed is in the supply of technicians. This failure is there for all to see. There are currently many able young people who are unskilled and unemployed, in a nation that is desperately short of technicians. We are getting it right on technology, which is shaping our markets, economy and society. We are not getting it right on skills. We have millions of people working in jobs that do not earn them a living. Temporary work, zero-hour contracts and low wages characterise a trend that has been made worse by the recession.

Some seek inspiration from Germany. It is the strong trade associations in Germany that set the standards. Taking on apprenticeships is a condition of being in the trade association—and if you are not in the trade association, you are not in business. There are penalties for poaching and for apprentices who leave their courses early. The lesson is not just to copy Germany but to recognise that Germany’s success is associated with strong and long-lasting institutions that ensure that the world of education and training is synchronised with the world of work.

If we are to create strong institutions, Whitehall, too, has to raise its game. Yes, Whitehall does review its capabilities and is well aware of its problems. Its style of employment career planning, which rotates people, ignores building up the very expertise that Whitehall and Ministers need to create our lasting institutions. Even in the time of Harold Wilson, the Fulton Commission drew attention to these matters. So did my noble friend Lord Adonis in his recent review of BIS, as did the Institute for Government in its report today on the way that government outsources public services to the private sector. This was again referred to in the Private Notice Question.

So what about the private sector? There was a time when we had complete faith in private enterprise. Now we are not so sure. G4S, Serco and other companies seem to treat us as a business opportunity—an opportunity where vulnerable people who have no voice can be exploited, and where the private provision of public services is seen to be sometimes incompetent, often unaccountable and sometimes uncaring.

We tried to create institutions to support localism. They did not last long. We abolished the RDAs on an ideological whim, instead of developing them and building on what was there. The LEPs set up to replace them are embryonic and need time. The noble Lord, Lord Heseltine, tried to come to their rescue with a major amount of money. The Government watered this down to £2 billion, and then it transpired that this money was taken from local housebuilding support and the local road-building fund—hitting the political target, maybe, but missing the institutional point.

Many noble Lords will have heard businesspeople say that a major block on investment and business confidence is a lack of continuity, and uncertainty in government policy. A series of initiatives, however clever and generous, dealing with market failure or other problems is seen as short-termist and intermittent. Addressing this has to be shared between government and business. Properly conceived institutions will do this, as has been demonstrated by the TSB. We have to repeat this in other sectors with institutions which are long-term, continuous, in which we can take pride and which will look after the public interest in the battle between the parties. Whatever the future may hold, a crucial part of our competitive advantage must lie in the quality and closeness of the relationship between government and business. We have work to do. I beg to move.

--- Later in debate ---

[Lord Haskel]

My Lords, unfortunately our time is up and I cannot respond to each individual speech. I hope that the Minister on the Woolsack will give me a moment to say that this has been an informed, interesting and lively debate. I thank the Front Benches for their responses, which have been most fulsome. I hope that the rest of the Government are listening with an open mind because an awful lot has been said today that is based on knowledge, experience and an enormous amount of good will, which we can all value.

Motion agreed.