Labour Industrial Strategy Consultation Document
Earlier this year the Labour Party initiated a consultation into Industrial Policy as a preliminary to developing policy in the area. If this is a genuine consultative exercise as it seems to be, then it is very welcome and the quality of Labour’s policy will be increased by taking into account many different perspectives. Labour Affairs discussed the consultation and decided to submit answers to a limited number of the very extensive set of questions that were posed in the consultation document. We reprint the questions and our responses here.
Question 1: What are the causes of Britain’s poor productivity performance and how can they be overcome?
There are many causes, but the dominant British low value-added product strategy is a major one. Such a product strategy leads to a demand for low-skill, low-wage labour, leading to a prevalent low-skill equilibrium across wide swathes of the British economy. This tendency was exacerbated by the Blair-Brown strategy of subsidising the least productive and innovative sectors of the economy through wage and welfare payments as a substitute for wages, by the opening up of the economy to large-scale immigration thus giving firms a ‘training holiday’ and by the promotion of vocational qualifications of little or no value. Ultra-low interest rates since 2009 have allowed such businesses to continue as before, even when they are of marginal viability and an unregulated labour market has contributed to the phenomenon of increasing zero hours, short-term and bogus self-employment contracts (see question 5)..
This trajectory will continue in the absence of incentives to move the UK economy to a different product strategy which relies on highly skilled workers making high specification products. Such a shift will allow for changes in job design, allowing more discretion and autonomy to better prepared workers, as well as contributing to a delivering of management. A Labour government will need to work with local organisations such as trade unions and local councils to identify firms with the potential to grow (50% of GDP is generated within the SME sector). Such firms can be assisted through the government (through the Bank of England) buying their bonds to promote investment and training. Such a policy can be piloted regionally and modified as experience shows how it can be improved, before being adopted more widely. It would be wise to make a start in areas that have particular problems of economic decline – quite often these are highly localised, for instance even within the Greater London area.
Question 6: How can we improve skills and training across school, university, on the job training, adult education and reskilling? What should be the relative balance between these institutions in skills and training provision?
The fundamental problem with skill formation is lack of employer demand, for reasons mentioned in the response to question 1 above. We would recommend keeping the apprenticeship levy in place but administering it so as to favour certain product strategies for those firms that apply to use it. Government will need to provide enhanced advice and guidance to SMEs to help them to make the best use of the levy and to reduce bureaucratic costs for firms. Thus some of the levy should be reserved centrally to provide an Apprenticeship Advisory Service with a particular focus on the SME sector. There should be a clear legal definition of an apprenticeship as a minimum three-year level three qualification offered to 16-25 year olds. Not only will such apprenticeships be of higher quality than most that are now on offer, but a three year period of apprenticeship will allow employers to recoup their costs as apprentices increase their productivity. This will go a long way towards ensuring that employers find apprenticeship a self-financing proposition. There should also be a significant element of personal and civic education in all apprenticeships, which should be assessed along with the technical element. This should be paid for by government.
There should be decreasing reliance on private training providers, whose provision taken as a whole is of doubtful quality and the FE sector should be prioritised to provide the academic side of apprenticeship provision. A lot of VET will continue to be provided by the FE sector and the government should take more control of financing to ensure that national economic priorities are reflected in the activities of the sector. Control of financing of FE by local firms that are too often quite unambitious about skill development should be avoided in future and reduced in practice. Support should continue for reskilling and professional development, but it should not be erroneously badged as ‘apprenticeship’ as is now the case. Government should take a more active role in determining reskilling priorities and should work with the FE sector, LEPs and trade unions in developing regional centres for the development of skills needed by local economies. While 25+ VET should not be called ‘apprenticeship’ the government, through Ofqual, should make sure that retraining is, wherever possible, tied to the achievement of good qualifications which will allow workers to move between firms when they wish to do so. (NB: this also partly answers q.7 concerning the balance between state and employer-provided training, as well as q.8 concerning the quality and quantity of apprenticeships).
Question 9: How do we ensure parity of esteem between skilled apprenticeships and academic qualifications?
The priority will be to establish apprenticeships which are esteemed by young people and employers. It is not appropriate to aim for level 6 apprenticeships when we are currently struggling to provide even a minimum number of good quality level 3 apprenticeships. While there may be good reasons to cautiously expand the Higher Apprenticeship programme to provide a good alternative to university courses which may have limited employment potential, it is important to get our level 3 technical qualifications right. Minimum standards should be rigorously defined (see above) and all apprenticeship routes should be capable of providing progression to level 4 qualifications and above. It is however a mistake to turn apprenticeships into a form of quasi degree in order to chase the will-o-the-wisp of parity of esteem.
Question10: How can we improve careers advice in schools and colleges?
Over the last 40 years, culminating in the disaster of 2011 when careers advice was all but completely abolished, successive governments have chipped away at the careers service at a time when youth unemployment was steadily increasing. Germany and Austria, two countries with low rates of youth unemployment, have well-developed compulsory careers education from 14 years of age. A careers service should consist of two inter-related components: a) a labour market intelligence and brokerage service that works with schools, colleges and local employers b) careers education in colleges and schools. Careers education should be a recognised and compulsory subject at Key Stage 4 and a PGCE careers route should be opened up for intending teachers. The careers brokerage service should gather labour market intelligence and work closely with the government and economic development agencies such as Local Enterprise Partnerships (LEPs) and Sector Skills Councils (SSCs) to identify existing and projected skills and occupational needs. Careers teachers need to work closely with the local careers brokerage service (which can be called a Youth Careers and Employment Service) to develop detailed and accurate careers advice in conjunction with students and their parents. School funding will need to be revisited in order to ensure that schools do not have a vested interest in retaining pupils at KS5, when this is against their interests.
Question 1: What is the role of broad labour market regulation and workers’ empowerment in delivering our objectives, particularly with respect to jobs and productivity?
Theresa May announced at the 2016 Tory party conference that she would seek more worker representation on company boards. Her announcement was met with muted interest by most trade unions – apart from the TUC which has actively attempted to promote the issue of worker representation within the trade union movement.
This lack of interest by trade unions in worker representation on boards will act against the interests of British workers. The involvement of British workers in the management of their work will have a dramatic effect on jobs and productivity. Worker participation on company boards should be an essential component of any industrial strategy. An industrial strategy that does not have worker representation as a fundamental pillar will be much less effective. However we should be clear that it will take time for the benefits to arrive. We are looking at a 5-10 year lag before the benefits of worker representation on company boards on productivity and equality will become clearly visible.
Question 2: How can we improve cooperation and collaboration between workers and employers? What examples of good practice exist in the UK and elsewhere and how can they be replicated?
It is important that British workers increase their understanding of how capitalism in general and their own particular company work if they are to seriously advance their position in society and reduce inequality. Worker representation on company boards is standard practice in most European states and the workers are better off by virtue of that fact. Labour must insist on worker representation on company boards and confront the lack of interest on the part of the trade unions.
Question 1: What is the role of macroeconomic policy in delivering an industrial strategy? What should be the balance between macroeconomic objectives such as aggregate demand, inflation, debt etc.?
Macroeconomic policy will be crucial in delivering an industrial strategy so it is essential that Labour dominates the Macroeconomic policy debate. In 2008-2010 Labour adopted a macroeconomic policy that involved a huge expansion of the national debt and of fiscal deficits. This was a correct economic policy that prevented a complete collapse of the UK economy. However the Tories turned this on its head and claimed it was the fiscal deficits that had created the economic problem. Throughout the 2010-2015 period in opposition Labour failed to challenge this dishonest account and generally came over as embarrassed at the size of the fiscal debt. The point is that it is important to win the macroeconomic argument if you are to be successful in implementing economic policy in general. Labour should boldly state that, where private capital is failing to do so, the government will step in and do what needs to be done to maintain full employment and good living standards and that they will incur whatever level of fiscal deficit that implies. The main task will be to ensure that the fiscal deficit is incurred in a way that is of long term value to the economy rather than in short term consumption. Properly managed any such increased fiscal deficit will increase aggregate demand but not inflation. The writings of Professor Simon Wren-Lewis are particularly relevant for this area of policy.
Question 2: How should fiscal, monetary and regulatory tools be utilised to deliver these goals?
Use monetary policy as far as possible but where that fails don’t hesitate to use fiscal policy. By virtue of the design of the Eurozone national states in the Eurozone area have been unable to use fiscal policy. The result is there for all to see in an extremely slow recovery from the 2008 crisis.