Speech by the Rt Hon Liam Byrne MP, Shadow Minister for Universities, Science and Skills to the IPPR

Monday 9th December 2013

It’s a huge pleasure to be back at the IPPR to make my first keynote speech as Shadow Minister for Universities, Science and Skills.

There isn’t a better place to speak than here.

Over the last few months, your report from Commission on the Future of Higher Education was a milestone in critical thinking about the future of our colleges and universities.

It sets the benchmark for forensic analysis and creative policymaking.

And in the months to come, you’ll become the home of debate about the economic reform we need to build a progressive economy.

It’ll be an important theme
for you and I’m grateful for the chance to make an early intervention.

I wanted to mark too, before the year was out, a very special anniversary in Labour’s history.

The 50th anniversary of Harold Wilson’s remarkable speech to the Labour party conference in Scarborough.

The speech, famous for the phrase ‘the white heat’ of the technological revolution, where he asked the country to cast out the privileged old boy’s club running Britain, and put in its place a government prepared to drive through the reforms Britain needed to win a race to the top.

The speech where he captured not merely the spirit of the moment, but the spirit of the future.

Not merely 1963 but the 1960s.

Not the world that was passing.

But the world that was coming.

Wilson said bluntly: nostalgia won’t pay the bills; the world doesn’t owe us a living; and we must harness the scientific revolution to win in the years to come.

“This scientific revolution” he said “is making it physically possible, for the first time in human history, to conquer poverty and disease, to move towards universal literacy, and to achieve for the whole people better living standards than those enjoyed by tiny privileged classes in previous epochs”.

His agenda was bold;

A new ministry of science; A university of the air; A revolution in education and apprenticeships; Radical expansion of FE and HE; Action to stop the brain drain; the appointment of the first Government Chief Scientist Sir Solly Zuckerman.

And in the years that followed the Robbins Report, Wilson delivered this and much more. It was a revolution that helped people like parents go to college.

The spirit that inspired Harold Wilson in 1963 is the spirit the Royal Society calls for today.

That we put science and innovation at the heart of a long-term strategy for growth.

I’m here today to say: The Royal Society is right.

Wilson’s speech speaks to us today, because just like 1963, we too have a Conservative party locked in the past, trapped in old ideology, oblivious to the realities of family life around them and the cost of living crisis that defines their every day.

This is the crisis that Ed Miliband has put at the centre of British politics.

It is the crisis to which we offer urgent answers

A crisis from which, we propose, we earn our way out.

And we can do it: but only if we change course.

Our economy is still £10 billion smaller than before the crash – yet our competitors, like the US and Germany – are bigger

The growth we have doesn’t look bubble-free to me.

It looks like a good old-fashioned debt driven consumer boom;

We’re saving £3.6 billion less than we were a year ago.

We’ve got more on the on the credit card in August 2013 [at £238 million] than at any time since July 2011 – and that was a long way ahead of Christmas.

Meanwhile, our economy is refusing to rebalance :

Did you know, in over the past year the OBR halved its forecasts for export growth in 2013 from 3.1% to 1.2%?

Did you know national Investment is still [£10 billion] 27% below its pre-crisis peak, in real terms?

Did you know venture capital investment is still falling: Venture finance was €731.6m in 2012, a fall of 20% in real terms on the year.

Yet cash balances are still rising: companies hold £500bn in cash, up 25% since the financial crisis

So: we have high unemployment; poor investment and anaemic exports.

No wonder we’re becoming less competitive.

In fact, because our productivity is 4% lower than before the crisis, we need to work 1.5 hours more than we used to to produce the same amount of GDP as in 2008. In the US, they are working 3 hours less.

In short, despite our science base, we are not building an economy that is on track to win a race to the top.

And what that means for families struggling with the cost of living crisis today is that we’re simply not creating the good supply of high paid, high skilled, high valued added jobs that we need if they are earn their way out of today’s crisis.

Yet, 80% of the jobs created since the crash are in low skill and low paid sectors.

I ask you: how do we break out of the cost of living crisis with jobs like that?

We can’t go on like this.

We need a different way forward.

We need to learn the lessons from the crash – not ignore them and pretend it never happened

And we need that now.
2. The type of economy we're creating

What is striking is how many people now agree.

Ed Miliband and many others on the modernising wing of my own party have led the reflection on the lessons from the crash, the orthodoxy that preceded it, and the realities of a globalization that gave great prizes to some, and left others to pay the price.

Peter Mandelson was amongst the first to re-think.

In a recent speech, he put it like this;

‘We...largely relied on the assumption that markets will work their magic and that, with a little help from the tax and benefits system, the general rising economic tide will somehow trickle down to the population as a whole. But this has not produced the fair rewards expected.’

The best analysis though is not a speech.

It’s a book.

It’s David Sainsbury’s hugely influential Progressive Capitalism.

Once upon a time, people like me took Philip Gould’s great book, The Unfinished Revolution as our bible. We still do.

But alongside it, we’re all reading Progressive Capitalism.

You’ve probably read it too.

You’ve probably read like me, how between its pages, Lord Sainsbury describes the journey which convinced him that the neo-liberal political economy which has held sway for 35 years:

‘needed to be challenged and a new Progressive political economy put in its place’

My own study of how Britain is going to pay its way in the Asian century has taken me on a similar path – to a similar conclusion.

There is simply no way neo-liberalism is going to equip us to compete with the state capitalism of the East, nor help us change to a low carbon economy, nor concede a better balance between the price and prize of globalisation.

As the facts of life have changed, I have changed my mind.

This tradition of Progressive political economy has of course been growing for some time.

Many academics have made this argument for some time.

Next year is the 25th anniversary of Will Hutton’s book The Stakeholder Society, a early introduction to the theme.

My old teacher Michael Porter at the Harvard Business School has made the argument about a new approach to shared value for several years now.

More recently, Sir George Cox, in his report for the Labour Party on Long Termism, argued that our institutions in Britain today

‘militates against the development of the internationally competitive businesses and industries that are essential to the UK’s future economic prosperity’.

Yet the consensus stretches wider than academia and former ministers.

Amongst faith communities, the debate has a new profile.

In the Catholic church, Archbishop Nichols has tasked business leaders to develop a Blueprint for Better Business.

At this year’s conference, his Grace said this;

‘Our society is looking for a new narrative for the place of business...A fresh examination of the social purpose of business – alongside profitability’.

This works connects to a much older and wider theory of Catholic social teaching, applied anew to today’s economic challenges in the encyclical Caritas et Vertiate which concluded with a call for a:

‘profoundly new way of understanding business enterprise’

‘Business management’ it said ‘cannot concern itself only with interests of the proprietors, but also assume responsibility for all the other stakeholders’.

But the debate is even wider than former ministers, academics, and faith leaders.

It includes business leaders too.

Dominic Barton, MD of McKinsey, recently spoke for many when he said:
How many in business under huge short term pressure, now confront the corrosive challenge of the ‘divided self’; the way they feel forced to act, and the way they believe they should act.

Can I suggest that when former ministers, academics, faith leaders and business leaders all advance a similar argument, then something is changing.

Sea-changes, said Jim Callaghan in 1981, only come about every 30 or so years in politics.

They are famously, not fast.

Indeed the last great sea-change, the arrival of neo-liberalism, in British politics back in the 1970s, arguably took four decades to arrive.

You can trace its roots to the famous exchanges between Keynes and Hayek, which started back in 1931, but were perhaps best crystallised in the Road to Serfdom in 1944.

The Institute of Economic Affairs was not set up until 1957

Milton Friedman didn’t make his speech on monetarism as President of the American Economic Association until 1968

It was not until 1974, in Preston, that Sir Keith Joseph declared he had been converted to ‘true Conservatism’ Prof Friedman had set out

The year later Mrs Thatcher became Conservative party leader, and in 1976,
The Right Approach heralds the return of neo-liberalism, thirty two years later.

The task of progressives today is to ensure that the sea-change now swelling through business, through academia, through business schools, through faith communities runs through the mainstream of British politics, not over three decades, but now.

Be in no doubt this will be a battle royale.

Some Conservatives, it is true, toy with phrases like ‘industrial policy’.

David Willets, one of the most thoughtful Conservatives since his work on Civic Conservatism, has written extensively about “high tech industrial strategy”, an echo of the Chancellor who claimed his budget last year amounted to a ‘modern industrial policy’

But in politics you have to separate the rhetoric from the reality...

The truth is the Conservative’s agenda is trapped in the same old model of neo-liberal model dreading what the authors of Britainnia Unchained called

‘the siren voices of the statists’

And offering simply an agenda to ‘cutting deadwood from the public sector’ deregulate, and eliminate job security.

When the Right Approach was published in 1976, it boasted that it was;

‘a return to common sense’.

‘People at home and abroad’ it said ‘have increasingly been feeling that many of the policies pursued in Britain in the last two years make no sense at all’.

I’m afraid we can say the same today.

If we’re to win a race to the top, we can’t simply eliminate the state, we have to reinvent the state.

Not a big state.

But a smart state.

A smart state with new answers to organising the three most important competitive advantages in the 21st century; people, ideas and money.

As David Sainsbury puts it:

‘beliefs of Progressive thinking give the state a key role in the economy..[but] an enabling one, which is very different fro the command and control of traditional socialism or the minimalist role of neo-liberalism’.

The truth is this tradition is not some new-fangled theory; it connects to some of the founding traditions of British capitalism.

Too often, the Victorian chapter of our history is written as the high noon of laissez faire.

But students of business history know that it was in the 19th century that great British capitalists, from Joe Chamberlain in Birmingham, to Titus Salt in Yorkshire, to Sir John Brunner in Liverpool stepped into public life to create good housing, free schools, new universities, strong councils; the core of the modern local state.

In Birmingham, we called it the ‘civic gospel’.

It was the era when great British capitalists, especially the Non-conformist or Quaker families, like the Darbys in Coalbrookdale, the Cadbury’s in Birmingham, the Clarks in Nottingham, or others like the first Lord Leverhulme, who founded Lever Brothers in Port Sunlight, pioneered an ethical capitalism that was as concerned for the welfare of workers as it was for the bottom line.

3. How to lose the race to the top

The reality is that we will not compete nor win in the world taking shape around us with an agenda that is simply reduced to ‘cutting the deadwood of the public sector’.

Let me give you an example.

It has been obvious for twenty years that we can’t compete on the basis of low wages.

Manufacturing workers in Singapore are paid half as much as manufacturing workers here.

That’s why today if you don’t have a skill, then most likely you don’t have a job.

Only 1 in 10 employers in the UK offer apprenticeships: employers in our main European competitors offer four times as many.

That means we need a strong state, not a weak state, making sure our workers are up-skilled.

Second, It’s been obvious for years that we can only compete by out-innovating others.

We can all think of our favourite technology company – and ground-breaking medical breakthrough.

Yet as Mariana Mazzucato reminds us in her brilliant book, some of the world’s most extraordinary companies, from Google to biotech, owe their origins to public investments, from DARPA, to the National Institutes for Health, National Science Foundation grants, Medical Research Council funding, or the Small Business Innovation Research Programme.

 

What’s more, just look what we’re up against.

We like to think that we’ll win with high value added industries like aircraft manufacture, or pharmaceuticals, or financial services.

Well, go to the richest coastal cities in China like Tianjin, and what are they building? Aircraft, pharmaceutical, and financial services industries.

China’s current five year plan entails a $2.15 trillion investment in mastering seven strategic industries.

As a brilliant report by Nesta/ University of Sussex said a couple of weeks ago, Chinese companies like Huawei, China Mobile or China Aerospace are now amongst the biggest R&D spenders in the world – and companies like Xiomi, Sina Weibo, Tencent are amongst the most innovative.

We won’t beat this competition by simply ‘cutting the dead-wood of the public sector’.

We need to reinvent strong public institutions in our universities and regions that will help us stay ahead of the curve.

Or take the business of money.

The authors of Britannia Unchained pray in aid the start-up miracle of Israel, a country with more venture capital per head than Silicon Valley and the world’s most impressive start-up rate.

Yet, they write out of the equation the critical role of the military, public immigration policy and crucially, the state-backed Office of the Chief Scientist which puts $500 million of public money each year into risky ventures.

We won’t emulate this by simply ‘cutting the dead-wood of the public sector’.

We need to build strong public institutions capable of mobilising finance because our banks have stopped doing it.

What the world is telling us is that we need a smart state to create the institutions we need to up-skill our people, out-innovate with ideas, and crowd-in new investment we need for the long term.

This is the new common sense.

And it is Labour which is turning these ideas into policies.
4. Labour’s approach

Money

Let’s start with money.

The critique is well known.

As John Kay put it: “we conclude that short-termism is a problem in UK equity markets, and that the principal causes are the decline of trust and the misalignment of incentives throughout the equity investment chain.”

If we’re to change this, we need banking reform. That’s why Ed Balls has called for:

A shift in the culture and professional standards in the banking sector; imposing duty of care across all financial services, and reform of remuneration practices.

But it is also why my colleague, Gregg McClymont, has set out how we can begin to change the rules of the game for our pension funds:

“If we want financial services that prioritise the savers’ interest, fiduciary obligations deliver these. Fiduciary obligations will most effectively be delivered in pensions where pension schemes are managed by independent trustees.”

And in our regions, where so many businesses confront a banking sector that is focused on property and finance, and fails to invest in the real economy,

That is why Labour has called for a British Investment Bank and a network of regional investment banks: civil institutions with a remit to promote local growth. These can make a real difference to organic growth in a region, and could ensure that high-tech SMEs working with Catapults can achieve their full potential.

Ideas

Second, let’s take ideas, or more specifically science and innovation.

Our goal must be to ensure that Britain is not simply the world’s best place to do science - but the world’s best place to do collaborative science.

What’s needed is a ‘double-shift’

On the one hand, we need to attract a bigger share of global science spending – and on the other, science needs to power a bigger slice of our regional economies.

Yet, have a look at the global collaboration chapter in BIS’ innovation strategy.

It won’t take you long.

About a minute in fact.

It’s not good enough for the decade ahead.

96% of global R&D spending is spent outside these shores and that figure is set to rise dramatically.

Surely it should be our aim, in these days of tight budgets, to maximise our share of that money.

We are well connected with two of the world’s great R&D power-houses, the US and Europe.

Our task now is to connect better to the third; the rising power of Chinese science.

Our traditions go back a long way. Amongst the earliest archives of the Royal Society are catalogues of samples from China.

But the question on which I would like advice from British science, is do we best foster three crucial partnerships.

The first is a partnership between the very best people from different countries, with backing for the long term to go where their curiosity takes them. This is an idea that

Sir Paul Nurse has championed, and I think he is right to do so.

Second, how do we foster better partnerships between institutions, no doubt led by our very best research institutions, in creating global federations that allow them to better share ideas, teachers, researchers and students. This I’m afraid will be an elite sport.

And third, how do we foster the best partnerships with the greatest private sector R&D partners.

The last BIS global R&D scorecard revealed that just 1,400 companies control 50% of global R&D spending. The last Booz and Co, Top 1000 study revealed the 1,000 biggest spending spend $638 bilion a year.

How do we ensure that these companies house their R&D here?

How do we incentivise them or encourage them to develop shared science and research platforms in our best universities?

You can begin to see this happening now in telecoms, pharmaceuticals, and automotive.

How do we step it up?

Part of the answer is a long term framework for science spending.

The 10 year framework which Labour put in place runs out next year. As John Denham put the case in his CaSE lecture in 2011:

“It’s essential that the forthcoming Budget sets out a clear framework for science funding well beyond the current spending period, and ideally for a 10-year period”

That’s my position.

And that’s why I was pleased to hear the Chancellor announce that a Science and Innovation strategy will be unveiled next year – but of course we have no details yet.

In an ideal world it would encompass: (i) Revenue (ii) Capital (iii) Ideally departmental spending

Allied to it, whole government strategies for significant sectors, and life science, defence industrial strategy, low carbon.

Crucially, we need a long term framework for science capital.

Scientists, researchers, university vice chancellors are telling me the lack of a long term framework for capital, indeed the advent of announcement based research projects is at times clearly violating the Haldane principle.

Surely our objective must be the restoration of this framework.

And while we’re at it, surely we must look harder at how we protect and indeed better coordinate with departmental science spending, especially in the fields of defence and health.

If we strengthen universities’ role in global science, research and development, I think we can transform universities power in their regional economies.

We must now see universities as engines of regional growth.

IPPR’s commission on higher education made important proposals for building on the Catapult Centres to deepen technology transfer and applied research links in the regions.

But, let’s ask how can new regional investment banks and perhaps regional venture funds can better work with the Technology Strategy Board in developing innovative businesses. I plan to explore this question together with Toby Perkins, my colleague who has responsibility for regional growth, and Lord Adonis.

University finance

I know that our universities and the stability of their finances are the key to our national success as a science leader – and right now, there’s an awful lot of worried finance directors.

The recent revelations that BIS has disastrously miscalculated student loan repayments confirms that a progressive and sustainable student finance system will require whichever political party is in government in 2015 to make reforms .

It appears we are now close to the point that despite tripling fees, the new student finance system will cost the taxpayer more than the old system.

In the meantime, there are four big questions I want to explore with universities;
First, on access: Are we using the money universities are required to spend improving access to the best effect? Can we achieve more with less?

Second: on foreign students access, how can we together start sending the right signals to foreign students who are so important to us and our future? What about a Prime Minister’s Initiative Mk3?

Because can I let you into a secret?

Vans with “Go Home” emblazoned on them, do not send the right message and nor do requirements for students to queue to register for six hours outside a police station.

And while I’m at it, can I point out that a long term target of reducing net migration to tens of thousands is always going to be a risk for universities when students make up 38% of the migrant inflows. The IPPR’s recent report shows the damage being done to universities from the Government’s policy.

Third: have we got the framework for reimbursing high cost courses, especially those courses with high levels of contact hours or high capital costs, like STEM subjects.

Fourth: does it make sense to give private colleges complete freedom to educate foreign students, with equal access to the student finance system?

People

Finally, we need a smart state that renews the institutions we have for upskilling our people.

Frankly, people won’t be happy if we grow the leading edge to our economy, home to lots of jobs with great wages, unless we can train far more of our people to work there.

Right now in Birmingham, we have great firms expanding and importing workers from abroad, right next door to constituencies like mine with the highest youth unemployment in Britain.

We need to close the gap between the class-room and the career in this country; not just for one magic moment in life, but for all of life

This is a huge issue for the UK.

Economic success depends on the supply and utilisation of well-trained employees. Young people depend on the quality of training to prepare them for work and responsible adulthood.

The last Labour Government’s target to get 50% of young people into university expanded opportunity and increased the skills of the workforce. But while the academic route provides a clear route to work, the ‘forgotten 50%’ of young people are faced by a complex mix of vocational courses, too many of which do not offer any progression to good jobs or further study.

Only 8% of employers offer high quality apprenticeships, and according to the Wolf Review, hundreds of thousands of young people are in vocational courses of no labour market value.

The failure to tap into the talent of these young people caps aspiration and holds back businesses that can’t get the skills they need to succeed.

Did you know that by 2020, there will be 2 million additional highly skilled jobs and the number of ‘science, research, engineering and technology associate professionals’ needs to increase by nearly 45% (720,000)?

Yet, right now the lack of high quality vocational training means that we still have skills shortages in industries dependent on STEM:
• Nearly forty per cent of firms that need employees with STEM skills have difficulties recruiting staff;
• 41% expect these troubles to continue into the next three years, especially for technicians and experienced STEM staff.
• 70% of engineering/IT employers are struggling to find senior engineers.
Perhaps worst of all, we have rising skills shortages in areas of very high unemployment, like my own in the West Midlands.

In fact in the north west and the West Midlands, nearly one in five vacancies are caused by a problem attracting the right people yet across those two regions we have 540,000 people out of work.

We can’t go on like this. We need to close the regional skills gap.

So, I’m pleased to announce that together with Stephen Timms,
Keith Wakefield, Leader of Leeds City Council, and the Core Cities lead on skills, and Sue Murphy, the Deputy leader of Manchester City Council, and the Chair of Britain’s largest college we’ll be reviewing how we close the regional skills gap.

If Britain is to win a race to the top, we need our regions to grow faster.

Britain’s regions face significant output gaps, which are now compounded by significant skills gaps which are growing.
To address these issues, a year ago Ed Miliband set up the independent Skills Taskforce, chaired by Chris Husbands, Director of the Institute of Education, to examine how to significantly raise the quality and quantity of vocational training.

The Husband Review has since set out a powerful case for boosting apprenticeship numbers and reforming vocational education.

It has called for FE colleges to play a key role in delivering high quality vocational education for young people - with a licensing system to ensure gold standard vocational provision.

And it has called for a something-for-something deal on apprenticeships: giving employers more control over skills money and apprenticeships, in return for their offering more apprentices.

The opportunity now is to build on these ideas with strong regional skills policy aimed at driving down unemployment, meeting the skills gaps facing employers and increasing the opportunities for the forgotten 50% of young people that do not go to university.

All over Britain, Labour leaders in local government are beginning to pioneer ways of achieving this often together with colleges partners.

Their goal is simple: to transform the skills base in our city regions.

So, this new advisory group will consider:
• How can we build on the recommendations from Labour’s Policy Review to deliver on our agenda for the forgotten 50% at the regional or local level?
• What are the options for local government/LEPs to be involved in co-commissioning welfare-to-work provision, and in setting skills funding priorities at the sub-regional level?
• Ways of driving up demand for apprenticeships through Group Training Agencies/ Apprenticeship Agencies, in partnership with local colleges and employers
• Options for widening access to HE through reform of the college sector, and in particular, what are the options for radical expansion of Level 4 and Level 5 apprenticeships? How can we use work-based learning to drive expansion in an era of fiscal constraint?
• The role of colleges in fostering enterprise, particularly amongst young people
Conclusion:

Let me conclude with one final thought about the importance of getting this argument right.

I joined the Labour party at the tender age of 15. I have been a member ever since.

My background as a Labour politician is unusual; but there are thousands of members like me who believe that wealth creation and social justice are not polar opposites but partners.

We do not believe the state is the enemy of enterprise but it’s essential partner. But you need a state in the right shape.

The right state, the right public institutions, is the only way we can build a different kind of economy, an economy with a bigger supply of high skilled, high paid jobs, and if we build a better escalator for people from all walks of life, then we will create a more socially mobile society.

We will be able to say and mean, that no matter who you or where you’re from, if you work hard you will do well. That is the promise of social democracy – and a promise on which you can win an election.