Inclusive Growth: How New Ambitions and New Alliances Can Rebuild the Opportunity Economy

Rt Hon Liam Byrne MP

June 2013

Client’s Logo here

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Context (1): clearing up the crash

High Debt-GDP ratios mean faster growth essential

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Context (2): the price and prize of globalisation

Workers’ share of

earnings is collapsing

In swathes of the west, the majority of wealth goes to the

minority of people

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The challenge differs in different countries...

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And within countries...

Breakdown of wage squeeze in the UK

Young people are bearing the brunt of the wage squeeze

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But the problem is getting worse everywhere...

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Productivity gains are no longer fairly shared

In the UK productivity and pay link broke down in 90s

And living standards are

likely to remain flat for a long time

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So: what do we do?

Competition policy/ New Market Entrants (aka

‘Enterprise’)

Demand

Supply

Capital Labour

Regional policy Fair Tax

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Demand side: we need a bigger market

“A potential TTIP is estimated to yield an increase in UK national income of between

£4-10 billion annually, or up to £100 billion over a ten-year period (which corresponds to a 0.14-0.35 per cent increase in GDP levels.)” Centre for Economic Policy Research, March 2013 , page 6

EU-China: “Such a deal would deliver a sizeable economic prize with initial economic analysis suggesting it could be

worth up to £1.8 billion every year to the UK economy alone”.PM champions EU free trade deal with China, 2 December 2013

“a TPP agreement provides global income benefits of an estimated $223 billion per year, by 2025. Real income benefits to the United States are an estimated $77 billion per year. The TPP could generate an estimated $305 billion in additional world exports per year, by 2025, including an additional $123.5 billion in U.S. exports.” – Petersen Institute1]

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Supply side: we need better science and innovation

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1. Put science and innovation at the heart if a strategy for long-term economic growth;

2. Prioritise investment in excellent people;

3. Strengthen Government’s use of science;

4. Reinforce the UK’s position as a hub for global science and innovation;

5. Better align science and innovation with global challenges;

6. Revitalise science and mathematics education.

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Countries are rapidly increasing R&D spend

OECD average

China

Korea

Chinese Taipei

Germany

Japan

European Union (28 countries)

France

Russian Federation

United States

Italy

United Kingdom

Canada

-2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%

3.2%

16.3%

13.2%

10.7%

6.3%

3.8%

3.6%

2.4%

1.3%

1.2%

0.6%

0.5%

-0.9%

OECD: average annual growth in science spend 2008-11

Patient capital

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“A crucial breakthrough would occur if the major players in the market, particularly the big asset owners, joined the fight—something we believe is in the best interests of their constituents”. 

Focusing Capital on the Long Termby Dominic Barton and Mark Wiseman

"The idea that the smartest, richest elites of society find this an acceptable activity. This predatory activity.“ M Lewis

2004 2007 2012 2020 (estimated)0

20

40

60

80

100

37.3

59.463.9

101.7

Global AuM ($TRN)

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Pro-work, pro-skill = productive workers

France Germany Sweden United Kingdom United States Australia0

10

20

30

40

50

60

70

80

37 40 49 52 54

72

% of Under 25s going to University

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Pro-work, pro-skill = productive workers

Nation Reform

Netherlands •About half of graduates from highest VET track (MBO 4) continue into professional bachelor's degree programmes

Germany •Access to university for students without the normal HE access qualification substantially enhanced in 2009.

Switzerland •Specific vocational matriculation examination (the Berufsmaturität) to provide access to tertiary education.•Today, they represent half of the students in applied science universities

Austria •Lehre mit Matura introduced in 2008.•Five year vocational colleges provide route into tertiary education•One in four university students, and almost one in two university of applied science students are now vocational college graduates.

Korea •Around ¾ of vocational high schools graduates immediately enter tertiary education

Key Reforms to Apprenticeships in OECD

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Pro-work, pro-skill = higher pay

Pressure for higher minimum wages is growing globally

Country Minimum wage reform Switzerland Vote on wage floor of £14.90/hour

Seattle City-wide minimum wage of £9 (2X Fed Min Wage)

Germany Bundestag vote on £7 NMW next month

China Minimum wage ordered up 40% of average urban salaries by 2015.

UK.  Former PM advisor calls for £8 /hour (20% up) + £10 in London (50% up)

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Pro-work, pro-skill = higher pay?

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20133

4

5

6

7

822% rise in 13

years: but 0.8% since 2009

OECD Minimum Wage ($)

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Competition/ Enterprise

A tiny fraction of firms...

Are creating a huge proportion of

jobs

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‘Inclusive growth’ means no place left behind

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Fair taxes

Amazon UK paid £2.4m tax last year, despite £4bn sales – BBC, 16/5/14

Starbucks pays UK corporation tax for first time since 2009 – BBC, 24/6/13

‘Companies have to pay their share. Tax is a moral issue’ – Rt Hon Margaret Hodge MP, Chair Public Accounts Committee

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Fair taxes

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Fair taxes

Question #1: Do you consider the amount of Federal Income Tax you have to pay is too high, about right, or too low? 

Gallup 2014, quoted,  http://globaleconomicanalysis.blogspot.com/2014/04/52-say-taxes-too-high-54-say-taxes-fair.html#u0OBf7JPy7Hs6oHG.99

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Where are the win-wins? And who are they with?

1. A bigger market-place + better infrastructure2. Strong science and innovation policy3. Patient capital to encourage long-termism4. Good HE + better vocational education the key to unlock better pay5. Fair competition and enterprise as basis for market regulation 6. Regional policy that supports local clusters7. Fair taxes connected to business needs