In It Together: Labour’s new relationship with business

There are good reasons why a new approach to business – where concerns around economic long-termism, public health, environmental sustainability and strong local communities become integral to a profitable British business model – should appeal to both the political instincts of the left and to the bottom line of businesses.

For business, maintaining a sustainable supply chain, a healthy customer base, a happy work force and a cohesive community to operate in are not just nice things to have but fundamental to profitability in the long term. They are also increasingly important to consumers.

For Labour, it speaks to the two key insights from the party’s recent period in opposition. First, there has been a reckoning with the limits of state-led redistribution as a mechanism for achieving social goals, brought on by a stark fiscal reality and the diminishing returns achieved by a technocratic centralised state. Instead, social policy debate in recent years has been focused on moving ‘upstream’: preventing harms happening in the first place, rather than going through the expensive and cumbersome process of trying to repair the damage after the event. Second, the left has recognised that it too readily seeks to do things ‘to’ people, rather than attempting to achieve its goals in cooperation and partnership.

These insights have informed a shift in thinking to large swathes of public policy, from anti-poverty strategy to public services, but have yet to be applied to the party’s approach to business. A Labour government is going to need all the help it can get to achieve its social mission and so needs business as an ally, not an enemy. Rather than seeing markets as needing regulation to prevent them being socially destructive, the left needs a greater focus on how they can be helped to create social good.

But there are currently two major obstacles to this happening. The first is relationships. Simply put, business doesn’t trust Labour. The second obstacle is perverse incentives. Short-termism is entrenched in parts of the British economy and damaging to our competitiveness. But maximising profit in the short term, rather than maximising value for the long term, is often a rational response to the institutional incentives which present themselves to business.

So a Labour government would need to start by making it clear that it will take business to heart, not keep it at arm’s length. It then needs to focus its agenda on working with business to make it easier to do the right thing.

It should do this by making, much as David Cameron did to the Liberal Democrats in May 2010, a “big, open and comprehensive offer” to business on taking office that it will seek to govern in coalition with the private sector. This partnership – an invitation to join the government of Britain – would be founded on a clear set of principles of the government’s vision for the economy. These would be enshrined in a charter outlining what business could expect of government and what government could expect of business.

This report sets out some ideas to form the basis of this charter, though agreement on the specifics is not what’s most important at this stage. What matters most is for Labour to engage business in dialogue and then ‘co-produce’ a set of solutions that can achieve its vision of a more responsible capitalism. Strong relationships are crucial to the effective delivery of this agenda. Too often, current debate has been a dialogue of the deaf, with each side sceptical of each other’s motives or expertise, rather than developing the common ground which exists but is often obscured.

 The Fabian Society’s report ‘In It Together’ by Rob Tinker and Ed Wallis is available to read online here.