Below is the text of the speech made by John McDonnell, the Shadow Chancellor of the Exchequer, at Imperial College on 20 November 2015.
I’m grateful to you here at Imperial College for having me here to speak today. And what an inspiring place it is to speak about the future of the economy and the world of work, at the College’s new Incubator where start-ups and entrepreneurs can work alongside some of the leading minds in science.
My own experiences of work began with the technological revolution of the time.
Looking back at it now, I think about the possibilities open to us then. There were skilled jobs available for the millions who, like me, didn’t go straight from university. There was generous access to courses at local FE colleges. There was free education for those who did go to university.
On modest means, a young person could buy a house. After all the advances we have made, why is it that so many things we took for granted back then are no longer available to our children’s generation? Wages for the under 30s have been decimated since the financial crisis, and are still 10% below their 2010 level.
Home ownership in many parts of the country is out of the reach of the millions whose parents are unable to help with a deposit. Social housing is almost a distant memory, and the insecurity of private renting means upheaval and uncertainty for a majority.
How did this come about?
How can it be, with all the productive and creative advances of the last few decades that in some of the most important aspects of life, my grandchildren have a less secure life to look forward to than mine?
John Maynard Keynes famously predicted in the 1930s that these expanding capacities would lead to a fifteen hour working week, the rest of the time filled with leisure activities rather than worrying about how to find more money.
For today’s young people, more than any other generation since, his dream could not seem further from coming true.
This is the backdrop to Jeremy Corbyn’s election. Jeremy was elected leader of the Labour Party by an overwhelming majority of members and supporters on the basis of a programme that rested on three pillars.
First, a New Politics, the creation of a more democratic, engaging and kinder politics in both the Labour party and society.
Second, a New Economics, laying the economic foundations of a prosperous, fairer and sustainable society.
Third, a New Relationship with the World, based upon a foreign policy promoting mutual co-operation, conflict prevention and resolution rather than military aggression.
The good society that I think most of us envisage is one that is free, democratic, prosperous, environmentally sustainable, safe and secure, based upon the values of fairness, equality and social justice, where everybody has the ability to develop their talents and enjoyment of life to the full.
Austerity provides none of this. Worse, it moves us further and further away from that vision. The impact is felt by the poorest and most vulnerable. Just one example, amongst many. The number of those sleeping rough has risen by a shocking 55 percent since 2010.
In the sixth-richest country in the world, that anybody should be without a roof over their head is a disgrace. And there is worse to come. Unless reversed by the Chancellor, under public pressure, tax credit cuts threaten over three million households with losing £1,300 a year. These raw figures hide the real stories – of huge suffering and personal tragedies now being borne across the country.
Yet none of this suffering is necessary. Austerity, as I argued in September and have continued to argue, is a straight political choice. There is no economic necessity behind it. There is a broad consensus, from the International Monetary Fund and across the economics profession, against it. Austerity is a political choice. It threatens our future economic security. It is, however, for George Osborne and the Conservatives, the easy option.
Since the late 1970s, governments across the World have promoted gains for the few in the belief that the many would, eventually, share. Capital markets were liberalised and taxes cut. But under successive governments, inequality rose. Not trickle-down, but trickle-up. It is time to change the rules of the game.
Neoliberalism – the current rulebook – has outlived its time. The old rules are failing the majority. And they will not cope with the changes that are ahead of us. My real concern is for the long term well-being of our economy.
If we are to thrive as an economy we have to base our future on the rapidly developing new technologies. It’s what many are calling the new machine age. Miss this boat and we will struggle to keep up in a competitive global market place. We will have a country divided geographically between the finance sector of the City of London – surrounded by a sea of low-paid, service sector jobs – and the rest of the country.
In many areas, the pace of industrial decline will continue to destroy lives and devastate communities. If this sounds dystopian, take a trip to Teeside and see what the loss of steel, of Potash mining and the loss of 300 HMRC jobs can do to threaten the life of a community.
Technological advance is forcing the pace of change. Bank of England research suggests that 15 million jobs could be at risk of automation over the next decade or so. And those most at risk from automation are the lowest-paid.
For those who own the robots, of course, it will be a different story. Wealth will flow faster into fewer hands. A minority will continue to profit immensely. But there is a different way. First we need government to understand and accept the strategic role it has to play in our new economy.
The current government is blocking the path to our future. They are willfully blind to the changes taking place. They privilege vested interests and the old ways of working. Our giant corporations are enjoying a boom time, taking their biggest ever slice of our national income as profits.
Some of the most powerful institutions in the land appear to act almost unhindered. Think about how little has been done to get even our publicly owned banks to clean up their act since the crash. So many of our underlying problems can be traced back to the domination of a few powerful institutions that have failed, over many years, to act in the public interest. And yet we have a government all but captured by vested interests.
Corporation tax, already the lowest in the G7, has been cut again and cut, heading towards just 18%. Featherbedding, through a wildly complex system of tax reliefs that now comes to £110bn a year.
Cutting HMRC, while turning a blind eye to rampant tax avoidance and evasion, running into billions. And whilst large corporations are treated with kid gloves, those who work are shown the iron fist. We already have the most repressive union laws in Western Europe.
The Trade Union Bill will tighten the screw still further. Labour will oppose the Trade Union Bill at every step of the way and, should it become law, repeal it in government. Unlike France or Germany, in the UK rights of workers to speak up in their own companies are limited in the extreme.
No formal provision exists for workers to have a say in decisions that affect not only their own lives but potentially those of their customers. We are throwing away the chance for those who work to bring their skills, talent, and in-depth knowledge into how our corporations make decisions.
Democracy isn’t just a political question. It is a bread-and-butter issue. A new contract for the workplace means securing a better balance between those who work, and those who employ. We will open a review on workplace representation, drawing on the best practice from around the world to unlock democracy in our workplaces and release its creative potential.
We will seek to break open the monopolies and oligopolies that dominate our essential industries, offering extended support to those seeking to set up cooperative and community ownership of their companies and assets. Meeting the challenges of the future requires a state that can think and act strategically. A new economics can start to provide an alternative.
We need to think about how government can operate on the basis not only of providing necessary public services, but also to meet challenges in the future. That is why we have launched reviews of the mandate of the Bank of England, and the Treasury’s function, to report on how they can operate in the best interests of society.
That is just the first step in a process that will see us work with businesses, entrepreneurs, scientists, trade unions and wider civil society to shape the economy of the future.
We know this can be done. Finland met its disastrous recession in the 1990s by transforming its economy from an exporter of lumber, to an exporter of technology. At the centre of its transition it established the Science and Technology Policy Council, chaired by the Prime Minister, drawing on expertise from across business, science, and civil society.
Labour in government will bring together business, unions, and scientists in a new Innovation Policy strategy, with a mission-led goal to boost research and development spending, and maximise the social and economic benefits from that expenditure.
We already have brilliant entrepreneurs like Dale Vince, who started the world’s first green energy company, Ecotricity, from a caravan in Gloucestershire. Ecotricity now supplies 75,300 homes with renewable energy and in 2014 had turnover of £66 million.
We need more creativity like this.
Thousands of new businesses are being created. We want government to work with, not against, those entrepreneurs helping create wealth in society. But rather than investing for the future, Osborne has overseen a slump in government funding for vital infrastructure.
As a share of GDP, public infrastructure spending has fallen from 3.3% in the final year of the last Labour government to 1.6% today. It is scheduled to fall still further, to 1.4%. Meanwhile, our major corporations, despite record profits, are sitting on vast cash piles. At least £400bn is held in corporate bank accounts – money that should be invested.
This is part of a pattern, identified by Martin Wolf, of slumping investment, relative to cash flow, across major economies. That slide has been amongst the worst in the UK, stretching back beyond the crash to the early 2000s.
Meanwhile, dividend payments are at an all-time high. So we have a government that won’t invest and corporations that won’t invest, a damaging cycle setting up the generations ahead for failure.
The consequences of this failure are all too apparent. Underpaid and overworked staff. Insecurity. Businesses unable to compete. Basic utilities under threat. The National Grid has warned of electricity shortages.
This in Britain, in 2015 – the sixth richest economy on the planet. Clearly, some of this has got back to Osborne. In a state of panic, he has been running around China trying to drum up funding. Osborne opposes nationalisation – except when it’s the Chinese or the French state doing it. Short-termism and antipathy to the state dominates every decision.
The OECD thinks that, as a minimum, a developed country like Britain should be spending 3.5% of GDP on infrastructure. Labour in power will meet and exceed that commitment, reversing decades of underspend. This could include renewable energy, energy efficiency, major public transport improvements and ultra-highspeed broadband.
Labour understands that government’s role is to provide the opportunity for massive advances in technology, skills and organisational change. A Labour Government would prioritise provision of patient long term finance for investment in research to support the technology that will drive future innovation in our economy. And we would look to change our corporate tax system to give companies incentives to invest wisely. A higher tax on retained earnings should be investigated, alongside improved deductibility for long-term investment.
The City of London and our financial institutions can also play their part. Labour will seek a new compact with financial services, looking for guarantees on stable, long-term domestic investment, mobilising their skills and resources for the wider public benefit.
I am hoping to meet with Mark Boleat of the Corporation of London later this month to discuss ways in which the City and finance can play their part in a new contract for Britain. We will retain, of course, the right to legislate if needed. It is science, technology and innovation that are shaping our new world. Britain has an extraordinary and proud legacy of scientific research, of which this institution is a part. It is still a world-leader today in the quality of its research.
But rather than build on that heritage, we are strip-mining it. Despite promising to protect research funding this has neglected it. Current expenditure on research and development has fallen by £1bn in real terms since 2010. This is having results. For example, the UK’s cutting-edge neutron source at Harwell is only running 120 days a year due to funding shortages, and leading scientists say we are facing irreversible declines in “particle physics, astrophysics, and nuclear physics.”
Britain spends less on research as a share of GDP than France, Germany, the US and China, all of whom are increasing their commitment to science and technology. We spend less than 0.5% of GDP on science and that is set to reduce still further. The UK has no long-term plan to increase R&D spending. Modern breakthroughs in research are the result of past investment by government, built on the foundations of an immense scientific and technical heritage.
However, in science, technology, and innovation, we are beginning to live off past glories. We can, and should, do better. The Royal Society recommends a target of meeting at least the OECD average spend on research and development by 2020. A Labour Government will aim to exceed this, with total spending – from both public and private sources – of at least 3% of GDP by 2030.
We will extend Labour’s Ten-Year Framework to cover the next decade and increase innovation support, ring-fencing this spending. Osborne may be trying to close the fiscal deficit. But by failing to invest, he is opening up a massive deficit with the future.
We believe that any fiscal rule should ensure government’s current spending is brought into sensible balance, consistent with sustainable economic growth, whilst allowing vital investment to continue. Another priority will be to ensure that our provision of skills is adequate to the needs of the new economy we wish to create.
At present, employer after employer reports dire shortages. Further Education colleges, a vital lynch-pin of the education system, are threatened with swingeing cuts. If every person is to have the opportunity to share in the prosperity that the new economy can offer, every person must have the opportunity to learn, develop and fulfil their potential.
Secure foundations for the new economy mean prosperity across the whole country. The widening gap between our richest places and the rest is clearly excessive. Average weekly pay in North-East Derbyshire is £389 a week while in the City of London it’s £921. Government’s response to this regional disparity has been persistently inadequate. Planned infrastructure spending per person in the North of England is one-fifth of its level in London.
We won’t get a “Northern Powerhouse” unless government is prepared to pay for it. Improved transport, greater autonomy in taxation and spending decisions, and powers to borrow will enable our regions to meet their huge potential. And of course we cannot allow government to strip local councils to the bone. Labour will continue to oppose the devastating cuts being made to local authority funding. Local authorities can, and should, be local engines of sustainable, long-term prosperity. How we work is changing.
Shifts in technology are opening up new possibilities. The spread of information technology, in particular, with the long-term decline in the cost of computing power has created opportunities that simply did not exist before.
Airbnb, for example, simply could not have existed before the internet. It does not own or rent rooms itself. It provides a space through which others can do so. Sometimes this has been labelled the “gig economy”. Its enthusiasts talk up its possibilities for more exciting, more varied consumption, making better use of the assets we own.
But a nice phrase can hide a grim reality for those who depend on the new world of work for their livelihood. The insecurity of self-employment. The uncertainty of not knowing where, or when, the next pay-cheque will be coming from. And the pressure this places on those in more typical employment, whether it is London taxi drivers threatened by Uber or call-centre workers placed on zero-hour contracts.
Millions of workers excluded from the hard-won protections of formal employment contracts. And relentless pressure placed on those, the majority, still protected. It was the labour movement that won shorter working days. Health and safety at work. Rights in the workplace. But technological change, and the unfettered free market, are tearing up the old work contract. Labour, instead, will offer a new contract for a new workforce. Security of income against uncertainty. The same rights and protections extended to all those at work.
This is why the fight over tax credits matters so much. The tax credit system is well-adapted to new forms of employment. Small businesses, providing a useful service to the community, rely on the tax credits system to get them on their feet and smooth out their earnings. So we will defend and, where we can, improve the tax credits system. Self-employment offers few protections. So we will look to extend maternity and paternity rights to all self-employed workers.
White van man – and woman – deserve just as much protection and recognition as white-collar workers. Austerity is a political choice, not an economic necessity. Unless we change our political choices, the vast majority will be denied the opportunities that technological change presents. We can’t afford to run a deficit with the future.
Working with businesses, workers, and civil society, governments today can and must seize the chance to change how we live and work, both now and in the future. We can break the stalemate and change course. A new economy, where technology liberates rather than traps. Where the fruits of scientific advance are shared by all. And where every one of us has the opportunity to develop our talents. A prosperous society built on sustainable growth, and predicated on the values of fairness, equality and social justice. It’s socialism, but socialism with an iPad.