31 March 2015

Ed Miliband doesn’t understand markets


There is a terrific piece in the Financial Times today on the grave difficulties that the Labour party is having convincing business that it has no plans to turn Britain into Cuba crossed with modern Greece.

“Many chief executives,” writes John Gapper, “fear he (Ed Miliband) would lead a left-wing government with far less sympathy for business and the private sector than New Labour under Tony Blair and Gordon Brown.”

You can read the whole piece here.

But does Miliband hate markets and the concept of profit? As that FT article goes on to explain, the truth is much more interesting than the caricature. Gapper analyses the thinking of Lord Wood – the academic, friend of Miliband and member of the shadow cabinet – who thinks that Britain has much to learn from Germany. Miliband’s assault on “predator” capitalism is rooted in a belief that he shares with Wood, that government must redesign the rules of the market to stop short-termism and what they define as excessive profit-making.

Yet, for all Germany’s undoubted strengths, there are major weaknesses in that model. On CapX, the economist Michael Wohlgemuth of Open Europe Berlin, has highlighted the way in which the fabled Mittelstand is failing to produce innovation. And Germany has a demographic problem too, with an annual decline anticipated in the working age population of 200,000 in the coming decades

But the real problem with Miliband and markets is not that he is seeking to apply a German model in Britain, a country with a different economic history and different social norms. It is not that he hates profits or the people who produce them. The real problem is this. Markets, business and private enterprise lie entirely outside his experience, They exist in another space, which he sometimes visits as part of his job as a party leader touring factories, but his worldview is relentlessly, unblinkingly statist.

Someone who worked with him very closely in the last Labour government, explained it to me as follows a few years ago. Ed, he said, thinks that if you are working in the private sector you are, essentially, doing something intrinsically selfish and inferior to the work carried out by decent public servants in the public realm. Nice people work for the government and if he sees a problem – large profits or the uneven outcomes that competition produces – he wants nice people, working for the government, to fix it. It is not just that he dislikes the alternative. He cannot comprehend it.

This helps explain why Miliband in the early years as leader of the opposition was so good at diagnosing some of the problems facing Britain and the West but so bad at prescribing solutions that might work. His speeches on cartels in finance and energy rightly zeroed in on the dangers of over-mighty concentrations of interest that disadvantage the consumer.

To deal with this, he could have taken a Teddy Roosevelt view, promising to “trust-bust” monopolies – although that would have been difficult because Miliband likes monopolies if they are state-run. He could have gone for radical amounts of increased competition but he did not. What he came up with on banks was so off the pace – and behind the developments brewing thanks to digital banking and the potential rise of insurgent start-ups – that he might as well not have bothered.

Miliband ended up with price fixing and profit capping, and rhetoric about predators, because that is what he knows.

Iain Martin is Editor of CapX