At the core of Southern Discomfort Again - the report I recently co-authored with the Labour peer and biographer Giles Radice (full text available online) - is the argument that any party seeking to recover from electoral defeat has to develop a coherent analysis of why it lost, and what ought to be done to put it right. If Labour is to escape the impotence of opposition, it will need to frame a compelling political strategy that can enable it to win next time. That has to mean addressing the crippling political weakness that the party faces in the South of England.
This latest study, carried out in conjunction with Policy Network and You Gov, is the sequel to the Southern Discomfort series undertaken by the Fabian Society in the early 1990s. (Available online at the LSE Fabian archive: tracts 555 and 568). Then as now, Labour achieved an appalling result in much of the South and the Midlands, threatening its status as a national party. Both reports were based on in-depth qualitative and quantitative research with 'floating voters' in southern marginals, a technique pioneered by the polling expert, Deborah Mattinson.
At the same time, the strategic inferences drawn from the research diverged starkly. In the 1992 election, voters saw Labour as a class-based party rooted in the past, which had little to offer aspirant families such as their own. They wanted change after thirteen years of Conservative rule, but feared that a Labour Government would mismanage the economy, raise their taxes, and put the country in the grip of trade union power. As a result, Labour suffered its fourth consecutive election defeat.
Today, many of the strategic weaknesses that afflicted Labour in the early 1990s have been eliminated. Clause Four has been re-written. Memories of the Winter of Discontent and trade union extremism have been banished from popular memory. Few voters now reject Labour as a matter of course, and the party is no longer regarded as unfit for office. Labour has every reason to be cautiously optimistic about the future, but it can ill-afford to be complacent about the depth of the ideological and strategic challenge the party now faces. The ‘one more heave mentality’ will not be enough to secure victory next time.
In 2010, insecurity has replaced aspiration as the dominant concern of wavering Labour voters. This means that Labour will not recover electorally simply by reviving the core New Labour assumptions of the 1990s, nor retreating to the comfort zone of Blair and Brown’s modernisation agenda.
At the heart of the Blair-Brown model were two core premises of political economy. The first was that economic growth in the British economy was only amenable to supply-side intervention in infrastructure and human capital. The role of government was to set the optimal framework conditions through macro-economic fine-tuning, leaving globalised markets to deliver higher aggregate output and productivity. This left the UK economy dangerously unbalanced, heavily skewed towards financial services.
The second assumption was that governments should ensure that the rising tide of growth 'would lift all boats' in Robert Kennedy's phrase. The purpose of fiscal and social policy was to narrow inequalities between the bottom and median deciles of the income distribution. As a result, relative poverty rates fell during the New Labour years, but lower and middle income Britain was increasingly left behind due to soaring, run-away inequality at the top.
The consequence of these discretionary policy choices, combined with globalisation and technological change, was that by the early 2000s, Britain's middle income earners were increasingly squeezed. As the TUC's influential 'Unfair to Middling' (2009) report by Stewart Lansley revealed, three factors placed lower and middle income earners in the slow lane of economic prosperity:
A sustained wage squeeze has meant that average earnings are now rising more slowly than productivity. The share of national income going into wages has declined sharply, from 65 per cent in 1973 to 53 per cent today.
The earnings pool is increasingly concentrated at the top, compounding the squeeze in average wages.
The employment opportunities that are available to those on lower and middle earnings are also in decline.
As the report makes clear:
"The wage squeeze is only part of the story behind the slipping in the relative standards of middle Britain and the nation's changing social shape. The impact of falling average wages has been compounded by another apparently systemic economic trend - the increasing concentration of earnings among the highest paid". At the root of greater insecurity is the higher level of income inequality and income volatility.
As Robert Skidelsky, biographer of Keynes, has noted: "Keynes argued that excessively unequal income distribution greatly increases the danger of financial instability, leading to economic collapse. He favoured policies of income redistribution to increase what he called 'the marginal propensity to consume'. Instead we have allowed median incomes to stagnate and wealth to pile up in the hands of a financial oligarchy, with growth increasingly reliant on financial speculation and over-borrowing (Skidelsky, 2009).
The structural context of greater risk, financial instability and pervasive insecurity in the UK is acutely relevant to Labour's strategy for electoral recovery in the South and the Midlands. The key group of wavering voters are on middle incomes of £20-35,000 per annum, far from conventionally affluent. They have seen modest improvements in living standards since 1997, but in recent years pay rises have failed to keep pace with inflation, household incomes are more unstable than at any time in the last forty years, and job insecurity is widespread with increased polarisation and hollowing out in the labour market as the result of technological change, migration and temporary agency working.
At the same time, middle income families have been forced to absorb greater responsibility over the last thirty years - from higher education funding to pensions and social care - as collective provision has gradually been withdrawn.
This 'great risk shift' in Jacob Hacker's phrase will not be reversed overnight, but the strategy of 'rebalancing' our economy is crucial, as well as re-imagining the collectivist institutions that protect people from risk and ensure a fairer distribution of opportunities. Rebalancing has to mean making the UK economy less dependent on debt; making institutions more resilient in the face of global shocks; reducing the vulnerability to poverty of those in work and increasing incentives to find employment; most of all, it means reversing the pattern of declining wage share by putting the UK economy on a high-wage, high-skill trajectory.
That requires a pro-active industrial strategy, in which governments are prepared to shape and restructure markets in the public interest, investing strategically in sectors from energy and low carbon to new hi-tech industries that will help to spur innovation-led growth. On skills, Labour has to accept that supply-side interventions will do not overcome market failure, and that sectoral skills’ strategies are required in which employers contribute fairly to the long-term cost of retraining, as part of a new deal with business.
Developing a new British economic model will be fundamental to Labour's electoral success across the country, reviving Britain’s industries and services after the global financial crisis. But it should also enable the party to regain a crucial foothold in the battleground seats of the South and Midlands, on which victory next time will depend.
Patrick Diamond is Senior Research Fellow at Policy Network and Nuffield College, Oxford.