Employment

Lord Kestenbaum Excerpts

Thursday 27th October 2011 Lords Chamber

[Lord Kestenbaum]

My Lords, I congratulate my noble friend Lady Prosser on securing this vital debate. Its urgency seems driven very much by two different influences, one external and the other much closer to home. Externally, the days of economic power being concentrated in the hands of a few predictable nations—we were fortunate enough to be one of them—seem very long gone, as the noble Baroness mentioned. Consider the shift. In 1980 only 6 per cent of United States research and development was conducted overseas, yet 25 years later there are 750 foreign research and development centres in China. India produces 1.4 million engineers as graduates and 6,000 science PhDs. These are economic revolutions. China and India in particular, as we have seen, are the most profound threats to our own competitive advantage, not least because they have aggressive national strategies to prepare them for our very subject today—the changing world of employment.

The second influence is surely internal, namely the scale of job creation needed in the coming years as a consequence of deficit reduction—two words that have a huge impact on human misery. The Office for Budget Responsibility forecast is that between now and 2016, 610,000 public sector jobs will be lost. In addition, PWC’s estimate is that 500,000 private sector jobs that are dependent on public contracts will go, too. That will be 1.1 million jobs lost over the next five years, which makes our concerns today very real and very human. Therefore, I will focus my comments on two particular elements of this challenge: first, how growth will be at the heart of new employment; and, secondly, following on from the noble Baroness, whether our new workforce is being equipped with the right skills for this new economy.

In one sense, as the blight of worklessness increases, we know broadly where the new jobs will be. We increasingly talk of three things: a focus on core areas of strength—advanced manufacturing, aerospace and pharma; growing advantage in highly competitive smaller areas such as video games, visual effects, design and the creative industries; and the potential golden eggs of our economic future, namely graphene and biotech. Stian Westlake’s work at NESTA—where I used to be CEO—which he neatly calls Rebalancing Act, captures this rather well. Once we look deeper, not just at sectors but at which types of firms are really creating jobs, an interesting picture emerges. All the evidence shows, again and again, as my noble friend Lady Prosser said, that innovative, high-growth firms will produce the jobs of the future. NESTA’s research into high-growth is cited often in this House. It shows that 7 per cent of businesses in the UK, classified as high-growth, have been responsible for half the new jobs in the past decade. Seven per cent of our firms are producing half the new jobs.

What do the firms who are most likely to create new jobs have in common? Again, the evidence seems clear. They are not concentrated in particular sectors. Pleasingly, they are not found predominantly in one part of the country. That is good news. Rather, one factor links them all, and that is that they are disproportionately likely to innovate. These pockets of the innovation economy, from semiconductor clusters in the south-west of England to the creative industries hubs of eastern Scotland, could very well be the heartbeat of new employment.

My second point is that this changing world of employment will increasingly rest on skills. This innovation economy, as we know, needs the right economic infrastructure, access to capital and intelligent public policy, but above all it needs a very new and imaginative approach to skills. In my current role as chief executive of Lord Rothschild’s family investment business we come face to face daily with the opportunity to back new industries, and this new economy seems to require a new set of skills from the workforce that we meet. Not only does this involve the combination of technological, scientific and mathematical aptitude which one would expect but, increasingly, creative skills—particularly design—are coming to the fore. Most recent surveys show that employers also want the “softer” skills from their workforce: teamwork, collaboration, communication, problem-solving. I am sorry for that word because it does not capture it adequately, but for “softer” do not read “trivial”. It would be very helpful to know the Government’s approach to the crucial challenge of a new set of skills for a new economy, particularly—following on from the noble Baroness—learning these job-relevant skills at university. This is definitely a vital area for imaginative public policy.

My comments have focused on these two preconditions for employment in a changing world—high-growth firms and appropriate skills—but perhaps I may make one final observation. If we want new jobs, we cannot ignore innovative firms. There is, however, a human cost. For high-growth firms to flourish, poorly performing businesses must, as we know, shed staff and go under. Amidst all our talk of a new economy, we cannot be blasé about its effects on human beings. The noble Lord, Lord Layard, has written powerfully of the misery that worklessness creates. We need a system that allows our best businesses to thrive and create jobs, but we also need one that creates chances for those who fear unemployment or find themselves out of work, victims of what Schumpeter would have called “creative destruction”. It would be helpful to know what such a system is. Perhaps the German short-time compensation scheme the Kurzarbeit might be a useful model, and there are no doubt others which are imaginative partnerships between government, labour and business.

I make these concluding remarks on the social safety net not just because without it the human cost of this new economy is simply unacceptable, but, more broadly, because this debate is as much about the society we wish to build as it is about the economy which will help build it.