Setting Business Free

Speech by Vincent Cable MP delivered to Liberal Democrat Conference Delegates on Wed 24th Sep 2003

I am not, I know, one of the pin-ups of the radical, Liberator, wing of the party. But I share its distaste for mushy, Third Way, policies and its enthusiasm for clarity and distinctiveness. The title of this debate and the working group report may surprise and offend some of you. I confess that it is intended to.

The Liberal Democrats have never been a socialist party. We have always believed in setting people free, not cutting them down to size. This applies to business too. That is why we resist measures which strangle business with red tape from Whitehall or Brussels or with Byzantine tax regulations: the hallmarks of a Brown Economy.

Setting people free also means setting business free - to make money - profits - or to go bust. We are not a corporatist party. We reject the begging bowl culture of an industrial - or agricultural - welfare state.

Our starting point is the proposition set out in the 2001 Manifesto: "Liberal Democrats are committed to a free market economy in which enterprise thrives. Competition and open markets are by far the best guarantee of wealth creation". This is a statement that carries the weight of over 200 years of liberal history.

You might say - so what. Capitalism has been embraced by the New Labour Government with the same zeal as other new converts like the Chinese Communist Party. Tea with the TUC has been replaced by power breakfasts with Captains of Industry and canapés and cocktails in the City. Icons of the Left have been jettisoned for new Blairite heroes. Bevan has been replaced by Bush and Berlusconi; Marx by Murdoch; Hegel by the Hinduja brothers.

The central problem with New Labour's relationship with business is that it is not a marriage of minds but ideological adultery: a steamy love affair in which the language of free enterprise masks cronyism and sycophancy towards the rich and powerful.

There is a new model of capitalism being fashioned in George Bush's America which Blair and Duncan Smith, both slavishly seek to imitate. It preaches free trade but practices protectionism whenever imports of food, or steel, or even Vietnamese catfish, threaten the interests of the President's friends and party supporters. The essential cynicism and corruption of the model was no where better revealed than when war provided a pretext for handing out contracts to party cronies; or when the Americans held the WTO trade negotiations to ransom by saying that, since they could not be expected to stop subsidising cotton plantations owned by friends of the President, the poorest countries in the world should develop a comparative advantage in something else.

In Britain a similar symbiotic relationship between big business and the State is emerging. Government ministers act as errand boys for arms salesmen promoting dodgy deals in Tanzania, India or Saudi Arabia. MOD procurement contracts are fixed for favoured companies whose talents lie primarily in political lobbying. PFI producers, drug companies, airlines and agribusinesses alike have learnt that it is not sound business or sound science that counts but an inside track to Downing Street.

But hundreds of thousands of businessmen and women get no help. They are not on Downing Street's list of mendicants and supplicants. They are too busy running their companies in the face of mounting piles of Whitehall and Brussels generated red tape and the complexities of Gordon Brown's tax regime. One of my constituency's proudest monuments is the Hampton Court maze; but it is a doddle compared to the daily routine of running a small business under this government or getting access to the DTI's 178 different schemes for industrial assistance.

I want to see the DTI got rid of. There is no need for an industrial welfare state. Let us close it down. I cannot believe that the £3.4 billion slush fund the government has just legislated for is to provide unspecified industrial assistance or the vast sums of public money under writing the liabilities of the bankrupt nuclear power industry or the hundreds of millions a year spent subsidising arms exports could not be better spent. It would be better spent on education - which is the real driver of a modern knowledge economy - or, for that matter, giving the taxpayers their money back.

It is consumers not producers who need more protection. 'Rip Off Britain' is alive and kicking under Labour. The Government has washed its hands of endowment and Equitable Life policyholders and split investment trusts and occupational pensioners who have had their pensions stolen by unscrupulous employers. Credit and store cards, and so called 'debt restructuring' companies are among the well-organised scams. Under funded, under equipped trading standards officers are often consumers only protection.

Genuine wealth creators are not queuing up for government handouts. Authentic entrepreneurs, like Ghulam Noon, pleaded at a business conference a few months ago: "Will the Government please stop trying to help us?" If the government really wants to help small business it won't do it by setting up civil servants in offices in London offering advice on how to run a company. It should be using aggressive competition policy to stop over-charging by the cartel of clearing banks. It should break the monopolistic grip of newspaper distributors over newsagents, of supermarkets over small farmers.

Competition and open markets are not just good for consumers. They have - as economic liberals from Adam Smith on have reminded us - a moral purpose. The system of agricultural protection in Europe, which provides lavish subsidies to the likes of the Duke of Devonshire and keeps out the products of poor countries, is as economically insane as it is deeply immoral. The unfairness of the trading system, stemming from misguided, and corrupted, government intervention is not just inefficient, it is actually killing people in poor countries.

Morality and market forces also come together in the face of problems like the scandal of fat-cat pay. I have absolutely no problem with entrepreneurs, risk takers, good managers or creative artists being paid very large sums of money - be they Bill Gates, Richard Branson, Sir John Browne, Pavarotti or David Beckham. But I do have a problem with managers who award themselves, or get their friends on remuneration committees to give them, vast salaries, bonuses or pension as a reward for failure. In Marconi, British Energy and Telewest we have seen large - obscene - pay awards while workers, company pensioners and shareholders have suffer from their mismanagement. This is wrong and must be stopped. The illiberal way is for the government to try to regulate pay directly, which would result in bureaucracy and large-scale evasion. The liberal way is to strengthen legislation to ensure that shareholders have the power to veto unacceptable executive pay deals and to ensure that lazy institutional investors - the people who run our pensions funds and insurance companies - get off their backsides and use their - that is, our - votes to demand socially responsible behaviour.

You may say - what about all those jobs created or saved by the government? This unfortunately is an economic fallacy as old as the hills. Every billion pounds spent underwriting BAe systems or British Energy or subsidising prairie farmers is a billion pounds not spent on schools or hospitals or a billion pounds paid in extra tax by genuine wealth creators.

It is also said that if other countries subsidise loss making companies and exports we should do the same. That is the road to financial ruin. But we do need a tough international discipline on state aids. One of the virtues of the European Union is that it does just that. That is hwy the authority of the European Union must be upheld in forcing the loss making Alsthom into bankruptcy and refusing Chirac permission to bail them out.

It is easy to be seduced into the belief that government 'help' must be useful. Take the innocuous seeming amendment that asks for research funding of "innovation". But why should the taxpayer be subsidising the likes of Monsanto or Ford to carry out commercial research to develop their products? This DTI led obsession with commercially useful and relevant research has killed off the creativity of British science. There were 30 Nobel Prize winners in the four decades to 1970 and only 2 since. If Einstein or Newton applied for a research grant their work would be turned down flat as lacking "relevance". Please reject this amendment.

Let me turn to the other amendments. No one is suggesting that in a liberal society we should contemplate removing the right to strike. I am proud of the good relations we have with the trades' union movement. We support many of the aims of progressive trades unionists in improving the work life balance and cutting the scale of death and injury at work. But there is no justification for the disruption caused to the general public by militants in public utilities and essential services. We simply suggest that there should be an obligation on both sides in disputes to seek arbitration, and I stress not binding arbitration; just an obligation to talk.

The other amendment relates to the Post Office. There are two issues here. As Sarah Teather will confirm from Brent East, one of our most successful Liberal Democrat campaigns has been that to stop the destruction of the Network of urban and rural post offices: small private businesses who provide a crucial service notably to the elderly and vulnerable. We shall continue to fight to defend the Network of post offices from the savaging which the government is planning.

A quite separate issue is the Royal Mail. It faces growing competition from fax and email. It will shortly face more competition from courier companies when the market is opened following liberalisation initiated by a Liberal EU Commissioner. It cannot sustain the management and labour practices of an old nationalised industry. There are the tensions that almost led to a national strike. The Royal Mail will have to adapt. One mechanism that has proved successful in Holland and Germany is the use of private capital and management while ensuring that there is regulation to protect the Universal Service Obligation to which private companies should contribute. This is one of several possibilities. I would like to have these possibilities looked at in an open-minded way through the normal machinery of the Federal Policy Committee. What would do us no favours is a doctrinaire refusal to consider the option as in this amendment. I have to say that if the Dutch Liberals and the German Social Democrats can live comfortably with private mail companies I can't see why it should frighten us even to discuss it.

But my main appeal is for a cultural change. A liberal economy is not the same as laissez faire. Governments, of course, have a key role but government is not a good thing in itself. Every new regulation has a cost. Many existing regulations are over complicated and unnecessary and are slowly destroying wealth creation. We want to set creative, productive people free whether they are entrepreneurs, teachers, scientists or doctors or shop floor workers and free them from the culture of form filling, box ticking, and the mind numbing bureaucracy which Whitehall departments like the DTI have come to represent.