Ed Miliband’s heavily-trailed speech on banking reform was no political game-changer; however, it broadened and deepened his One Nation theme and set out specific policy proposals to help restore Labour’s economic credibility. Amid the cost-of-living crisis, the core challenge for Britain is to build a prosperous economy in which all, not just the few at the top, can share. That will be one of the key political battlegrounds in the months and years to come.
After Ed Balls’s unconvincing response to Chancellor George Osborne’s autumn statement, Miliband had a unique opportunity to set the political agenda for 2014. With another no-notes speech, he continued where he left off with his successful 2013 party conference performance, which yielded the energy price freeze that has made the political weather since.
Conservative and liberal critics are already dismissing the announcement to break up the big banks as another instance of Red Ed’s Maoist methods. But the better minds in Parliament and among the commentariat recognise that market economies are not just threatened by overbearing states, but also by cartels and monopolies. Indeed, most markets today are either monopolistic or dominated by a small cartel –- from the big six energy companies to the four banking conglomerates that dominate our high-street.
Nor is Miliband proposing some variant of Soviet-style central planning. Instead, he is calling on government to legislate in favour of much greater competition. Current competition law, both in the UK and within the EU’s single market, privileges incumbents and has failed to lower the barriers to market entry. It’s a case of corporate capture of the state.
What we are seeing is the collusion of “big government” and “big business”. Britain has suffered from an excessive centralisation of power and an unsustainable concentration of wealth both at once.
Surely it is the duty of government to correct both state and market failure. By opposing the break-up of banks, sections of the conservative press are in danger of sounding like American Tea Party activists, who view government as the devil incarnate.
Crucially, Miliband’s speech set out Labour’s thinking on the wider economy. His point that the broken banking sector reflects a dysfunctional economy is hardly controversial. Much of this was said by members of the Parliamentary Commission on Banking Standards – including the Archbishop of Canterbury Justin Welby.
A cartel of big banks stifles competition, fails to support the wealth creation of small businesses and rips off ordinary customers. All this highlights a broken economy beset by rising personal debt, a lack of investment, insecure jobs and unaffordable property prices.
Against the government’s claim that Plan A has been vindicated by the recent recovery, Miliband rightly warns that renewed growth is still unbalanced and benefits the few, not the many. In this way he develops his critique of “predatory capitalism” for which he was wrongly derided early in his tenure.
In contrast with the coalition, which is banking on deficit reduction and regulation alone, Miliband is committed to deep structural change that will transform both the market and the state. This means an industrial policy that promotes regional growth to rebalance the economy away from the domination of global finance in the City of London, and a “new culture of long-termism” to prioritise investment over speculation.
He also laid out plans for the promotion of vocational skills and sustainable job creation, a massive home-building programme, and promised to dismantle vested interests and repair broken markets to help get consumers a fairer deal.
Far from planning a “Stalinist attack on property rights” (as the Institute of Directors has rather hysterically claimed), Miliband will devolve power to councils, communities and neighbourhoods, and he will promote new institutions that nurture a sense of vocation, value and virtue.
For example, he promised the creation of a “new British Business Investment Bank, supported by a network of regional banks in every region of the country”. This has the potential to channel capital from short-term financial speculation to long-term investment into productive activities.
Here Labour need to go much further than Miliband’s announcements. Breaking up the big banks is a start, just like the energy price freeze. But creating just two new “sizeable and competitive banks to challenge the existing high street bank” won’t be enough to prevent a larger cartel, just like the energy market. In addition, Labour should consider ways of increasing the overall number of retail banks by lowering the barrier to entry and granting a banking license to other businesses.
Labour should also create a regionally decentralised investment bank specifically for small- and medium-sized enterprises, coupled with much stronger, guild-like professional associations (on the model of Royal Colleges) that can expel members who do not comply with the rules, regulations and ethos of a sector.
Finally, Labour should explore how government promotion of social banking and social markets more generally (through a system of new incentives and rewards) can be linked to international cooperation, especially at the level of the EU or the Commonwealth. Without new forms of such cooperation, global finance will be able to seriously undermine national measures.
A step in the right direction, then – but not yet far enough.