Before criticising capitalism, he praised it by saying this:

Capitalism may be today’s political punchbag, but let’s take a long view: it’s one of history’s great success stories. No other human innovation has driven progress  and raised living standards so consistently. Markets catalyse ideas, invention and experimentation. When they work well, they are meritocratic and liberating. And they generate the wealth to support the most vulnerable and needy in society.

Capitalism, a great success story! Really Nick? Are we talking about the same capitalism? The capitalism that so often exploited the poor to fill the pockets of the elite? The capitalism that exploited the poor so much that Labour had to introduce a minimum wage in order to help the most vulnerable and needy in society? The capitalism that created a healthcare system which leaves so many Americans without health insurance because they can’t afford it?

Nick argues that the problem isn’t too much capitalism but  that too few people have capital. Whilst in some cases that might be a problem, some of the biggest successes in capitalism have come from positions where getting capital was incredibly hard.

Mainstream opinion says you need three things in order to be successful in a capitalist system: large sums of money, the greatest minds in a particular field and a market to sell into.

Let me give you an example.

Back in the early 20th century everybody was trying to create the first controlled powered flight, one of them was Samuel Pierpont Langley. He was given $50,000 to figure out how to achieve a controlled flying machine, money was no object. He was well connected and hired the best minds of the day. The market conditions were perfect, the New York Times followed him around. Everyone was rooting for him to succeed.

Yet, we’ve not heard of Samuel Pierpont Langley. Why? Because the Wright brothers got there first. What did the Wright brothers have? Nothing, they had no capital, they used the proceeds from their shop to fund their dream. The proceeds from the shop was peanuts compared to the capital that Pierpont Langley had access to. No one on the team had a college education, not even the Wright brothers and nobody followed them around.

How did they do it? They believed in what they were doing. They believed if they could work out how to do this flying thing, they could change the world. Everyone who worked for them, believed in this too so they gave their blood, sweat and tears.

Samuel Pierpont Langley was doing it for the fame and the fortune. He quit when he found out the Wright brothers had achieved what he was trying to achieve.

Look around the world today, what is everyone looking for today? Is it to change society, to make society better or are they in pursuit of the fame and fortune?

I think when people talk about the good qualities of capitalism like innovation and experimentation; they aren’t talking about capitalism but are talking about a political system that allows human creativity to flourish. A political system that oppresses, a society that oppresses and sometimes people’s own fears stop creativity, stops experimentation, stops innovation.

We have approximately 3 million people unemployed in this country. That is 3 million minds going to waste, 3 million minds that could be innovating, sitting at home twiddling their thumbs and learning how not to be innovative. 3 million minds looking for jobs instead of innovating, creating businesses and creating jobs.

Capital and markets will never be as important as people. We never hear human capital stressed enough when it comes to the economy.

Human capital is why an open liberal society is so important because it allows people to be creative, free from excessive state interference, free from rigid societal structures, free to be creative, innovative and successful.

I have managed to infuriate the bank bosses; acquire a fatwa from the revolutionary guards of the trades union movement; frighten the Daily Telegraph with a progressive graduate payment; and upset very rich people who are trying to dodge British taxes. I must be doing something right.

But I am told that I look miserable. I’m sorry, conference, this is my happy face. ‘Aren’t you having fun?’ people ask. It isn’t much fun but it’s necessary: necessary for our country that our parties work together at a time of financial crisis. And it is an opportunity for the party to demonstrate that we have the political maturity to make difficult decisions and wield power, with principle.

As for real fun, I am introducing dancing classes into the coalition. Unfortunately, I keep treading on Theresa May’s toes and my partners think I have two left feet.

But what is it like being in bed with the Tories? First, it’s exhausting; it’s exhausting because you have to fight to keep the duvet. But to hold our own we need to maintain our party’s identity and our authentic voice. We had to go through a merger to found our party….we’ll never merge again.

We will fight the next general elections as an independent force with our options open. Just like 2010. But coalition is the future of politics. It is good for government and good for Britain. We must make sure it is good for the Lib Dems as well.

Labour and the Economic Crisis

What brought this coalition together is the need to clean up the inherited economic mess: the aftermath of the banking collapse; the largest fiscal deficit in the G20.

This is bound to hurt. Strong disinfectant stings. The public is, broadly, sympathetic to the coalition. But we are faced with an aggressive Labour opposition which has chosen the easy option of deficit denial. Deficit; what deficit? Nothing to do with us, guv.

It has everything to do with them.

There was, of course, a global financial crisis. But our Labour predecessors left Britain exceptionally vulnerable and damaged: more personal debt than any other major economy; a dangerously inflated property bubble; and a bloated banking sector behaving as masters, not the servants of the people. Their economic model combined the financial lunacies of Ireland and Iceland. They built a house on sand and thought that they were ushering in a new, progressive work of architecture. It has collapsed. They lacked foresight; now they even lack hindsight.

In an emergency it was right to accept large scale deficit financing. But the deficit must now be corrected. Public spending was ramped up using tax windfalls which have gone. We are a poorer country than two years ago and the budget must reflect what we can afford.

We know that if elected Labour planned to raise VAT. They attack this government’s cuts but say not a peep about the £23bn of fiscal tightening Alistair Darling had already introduced. They planned to chop my department’s budget by 20 to 25%, but now they oppose every cut, ranting with synthetic rage, and refuse, point blank, to set out their alternatives. They demand a plan B but don’t have a plan A. The only tough choice they will face is which Miliband.

A proper debate is impossible with people who start from the infantile proposition that there isn’t a problem; and simply hark back to a failed world of ‘business as usual’.

The Lib Dem Response

But our party will emerge with credit from this crisis. We were the first, by far, to warn of the crisis to come. And last year, Nick Clegg and I warned of future cuts. This inconvenient truth wasn’t popular but you heard it here first.

Then, we established in government the need to combine firmness and fairness. Yes, there has to be a freeze on public sector pay, to save jobs and services, but the lowest paid should be protected. Yes, there will be higher taxes overall. But the broadest backs should carry the biggest burden.

But I am also optimistic about the party’s future because I know there is stamina and determination born of years of real life experience in local government. Those of you who took power from Labour in Newcastle, Hull, Oldham, Bristol, Sheffield and here in Liverpool had to take unpopular decisions to correct budgets which didn’t add up. Nationally we have the same problem on a grander scale and want to learn from your experience.

Growth and Recovery

But the real debate is not ‘cuts versus no cuts’ – an absurd parody of the policy choices – but how we balance cuts with economic recovery and job creation.

Growth is essential. Recovery is not possible without sorting out the public finances; but the public finances cannot be sorted out without the revenue from economic growth. Moreover the growth has to be balanced and sustainable, not based on another bubble.

The Banks

But economic recovery will not happen automatically, by magic. Government has a key role. It has to sustain demand. That is basic Keynes. Liberal economics also requires us to remove obstacles to growth led by private enterprise. Among them is the threat to recovery from a credit squeeze by banks on small businesses.

On banks, I make no apology for attacking spivs and gamblers who did more harm to the British economy than Bob Crow could achieve in his wildest Trotskyite fantasies, while paying themselves outrageous bonuses underwritten by the taxpayer. There is much public anger about banks and it is well deserved.

But I am not seeking retribution. We have a pressing practical problem: the lack of capital for sound, non property, business. Many firms say they are already being crippled by banks’ charges and restrictions.

The Chancellor and I have set out a range of sticks and carrots to get banks to support the real economy. Tough interventions will be needed if capital which could be used to support business lending is frittered away in bonuses and dividends.

The Coalition Agreement was crystal clear, too, that the structure of banking must be reformed to prevent future disasters and promote competition. Our agenda can be summed in seven words: make them safe and make them lend. I agree with Mervyn. We just can’t risk having banks that are too big to fail.

New Investment

Beyond the banks, there are vast amounts of institutional capital – in pension funds and the like – looking for productive outlets. The Government is proposing to establish a Green Investment Bank to support environmentally valuable projects and infrastructure alongside these private investors: making the rhetoric of the Green New Deal real.

And looking further ahead, my colleague Ed Davey is doing valuable work promoting mutual ownership and also – as in the Royal Mail – spreading worker ownership alongside private capital.

I want to announce today that employees in Royal Mail will benefit from the largest employee shares scheme of any privatisation for 25 years. The Liberal Democrats were the first and only party to call for an employee stake and we are now implementing it in Government.

The Post Office is not for sale. There will be no programme of closures as there were under Labour.

And the principle of responsible ownership should apply across the business world. We need successful business. But let me be quite clear. The Government’s agenda is not one of laissez-faire. Markets are often irrational or rigged. So I am shining a harsh light into the murky world of corporate behaviour. Why should good companies be destroyed by short term investors looking for a speculative killing, while their accomplices in the City make fat fees? Why do directors sometimes forget their wider duties when a cheque is waved before them?

Capitalism takes no prisoners and kills competition where it can, as Adam Smith explained over 200 years ago. I want to protect consumers and keep prices down and provide a level playing field for small business, so we must be vigilant right across the economy – whether in the old industries of economies textbooks or the newer privatised utilities and cosy magic circles in auditing, law or investment banking. Competition is central to my pro market, pro business, agenda.

The Knowledge Economy

But the big long term question is: how does the country earn a living in future? Natural resources? The oil money was squandered. Metal bashing? Mostly gone to Asia. Banking? Been there, done that. What is left? Actually quite a lot. People. Skilled and educated people. High tech manufacturing of which we already have a great deal. Creative industries, IT and science based industries and professional services. In my job I meet many outstanding, world class, British based companies. But we need more companies and more jobs in the companies we have.

It is my job as Business Secretary to support business growth. And this knowledge based economy requires more high quality people from FE, HE and vocational training. Here, we have a problem. Businesses cannot grow because of a shortage of trained workers while our schools churn out young people regarded by companies as virtually unemployable. The pool of unemployed graduates is growing while there is a chronic shortage of science graduates and especially engineers.

There has to be a revolution in post 16 education and training. We are making a start. Despite cuts, my department is funding 50,000 extra high level apprenticeships this year – vital for a manufacturing revival. My Conservative colleague David Willetts and I want to sweep away the artificial barriers between universities and FE; between academic and vocational; between full time, part time and continuing life long learning; between the academic and vocational. I was the first person in my family to stay on at school beyond 15. I want everyone to have the chance to continue their education.

There are some unhelpful, cultural, prejudices and vested interests to overcome. The belief that only A-starred A levels count; not apprenticeships. Or a gold standard as defined by the Russell Group not good teaching institutions like Teesside University or Liverpool John Moores. Or the assumption that top Oxbridge maths brains should go to Goldman Sachs or hedge funds not to Rolls Royce or into teaching. Wrong. Completely wrong.

Paying for Universities

But what do we do when there is less government money?

I realise that there are people in the hall who believe that education at all levels must be free and the taxpayer should pay up, regardless of the bill. In reality the only way to maintain high quality higher education with less government money is for the graduate beneficiaries to make a bigger contribution from the extra earnings they enjoy later in life.

I am doing everything I can to ensure that graduate contributions are linked to earnings. Why should low paid graduates – nurses, youth workers or science researchers – pay the same as corporate lawyers and investment bankers? We have to balance higher contributions with basic fairness.

Fairness and Tax

The biggest test of our party’s contribution to the coalition is whether we can ensure fairness more widely. You’ll remember our Conservative colleagues campaigned in the General Election to lift the inheritance tax burden on double millionaires.

But they have dropped that commitment. They have gone halfway to accepting our case for equalising income tax and capital gains tax rates. They have accepted in the Coalition Agreement that the priority for cutting income tax is for low earners not top earners.

Ironically, we may be able to make more progress on a fairness agenda with the Conservatives than New Labour was willing to do. Labour was constantly on its knees trying to prove that it was a friend of the super rich.

It will be said that in a world of internationally mobile capital and people it is counterproductive to tax personal income and corporate profit to uncompetitive levels. That is right. But a progressive alternative is to shift the tax base to property and land which cannot run away and represent, in Britain, an extreme concentration of wealth. I personally regret that mansion tax did not make it into the Coalition Agreement but in a coalition we have to compromise. But we can and should maintain our distinctive and progressive tax policies for the future.

I started by saying that I am reporting back to you conference. I want to conclude by saying that your role is crucial. In government we are trying to put Lib Dem ideas into action; your job is to keep us honest. We have punched above our weight in government because we have a democratic party which has clear principles and policies. In a few short months we have showed how we can advance our party’s policies and principles while serving the wider national interest. But we need to sell this message. The Tories will not do that for us. We have to do it ourselves. That means focus leaflets and doorsteps. That means you. We need you. All of you.

The problems – however astonishing and severe – are symptoms of the financial sector alone.”
Financial Times leader, 28.12.08

At the moment I would hazard a guess that we are about one-fifth of the way through the current crisis of Zeitgeist. I read last week, on one of the more respectable financial websites, that, with so many companies financially weak, 2009 would see ‘a bonanza for mergers and acquisitions’. For the nth time, a member of the Cabinet parroted that “global problems require global solutions”. Two UK banks seemed unwilling to take the hit for £32 billion worth of losses in 2008: Alistair Darling thought they should absorb them from ample existing capitalisation, but the bankers failed to see why they couldn’t have more taxpayers’ money instead.

The day before, I listened to six property experts on BBC Radio 4 debating how to get the housing market moving again by loosening credit. Later on BBC News I heard Gordon Brown reaffirming his desire that nobody should be repossessed as a result of “overstretched” borrowing.

Everything you’ve read in inverted commas so far in this Opinion piece is about as wrong as wrong could be.

Our problems did not emanate from some oddly No-mates organic thing called ‘the financial sector alone’. They came from bankers forcing debt onto people who had in turn decided to suspend disbelief. And they, in turn, are the products of a dumbed-down Western culture fixated by material well-being, targets, the Office, bling and GDP.

But, apart from the more gullible suckers, long before there was any sub-prime debt (surely the euphemism of the Millennium) most articulate western consumers had accepted that dealing with any commercial manufacturing or service-providing concern of any size involves ignoring all the lies, noting the lack of ethics, and being prepared to threaten in order to get even minimal satisfaction or after-sales service.

Enormous global combines without a clear culture have exacerbated the problem by basing their business models solely on production output and the whims of remote shareholders. In that context, ethics are for wimps – and if the only answer to large-scale failure is yet more M&A activity to satiate even greedier shareholders, then I have news for us all: it can only make things worse. The bigger an organisation gets, the more remote the customer becomes.

Global problems most emphatically do not require global solutions: we’ve tried that to the current tune of $8.5 trillion, and it’s made no impact at all. What we need is to question the whole validity of globalism in an environmentally threatened world, and reject the Friedman/Levitt drivel that started all this nonsense in the first place.

We do not need to bail out any more bankers: we need to remain calm and tell the banks ‘no more bailouts until you start lending to sound young businesses’.

We do not need to loosen housing-purchase credit and allow intemperate borrowers off scot-free: we need more people to accept that houses are places to live in, give the more completely infantile borrowers some proper financial advice about cutting costs and making do – and give those who’ve been chasing the ladder for five long years a chance to get on it.

It seems to me the West is like a patient who has suffered a major heart attack, but interpreted it as the green light to eat more fat in order to lubricate that heart. The banking system (barring further meltdown, which I think entirely possible) nevertheless looks set to survive pretty well intact. The word ‘regulation’ is being bandied about, but ideas about how to give it teeth without biting the hand of commerce are absent. Fiscal stimulus is the new black number on the roulette wheel. Careless spending, poor long-term savings ratios and hopelessly scored credit have been shown up – at last – as the road to Hell in a handcart: but all the G20 has to offer is more of the same. The conclusion seems to be that without an eternity of retail therapy, unwise borrowing and blunt-instrument global regulation, all will be lost.

Why?

The worst forecast available for 2009 is that the world economy will grow by 0.4%. How is it that the best commercial and financing model we can come up with goes into catatonic breakdown when global wealth is still moving forward?

The answer is, I think, not too complicated: a whole generation has risen to positions of responsibility without ever questioning the assumption that growth = inevitable = good. They aren’t the first generation to do so, but it would be nice to think they might be the last. Instead of downsizing their expectations, governments are putting out fantasies about short recessions and recoveries beginning in Autumn 2009.

The assumptive, unquestioning nature of commercial management and commentary during this crisis has been profoundly depressing; but the paucity of creativity being applied to the revitalisation of our economic system – and the means of financing it – is terrifying. I have yet to hear a mainstream opinion leader come out and seriously suggest that the model is intrinsically flawed.

Given the evidence to hand, this is astonishing. Major stock markets lost over 45% of their value in 2008 – not because a large asteroid is on collision course with Earth, but because banks will have to dig into their capitalisation, and thus their ability to lend ‘normally’ has been compromised. This in turn means that at most 4% of the world’s population is going to have to accept lower dividends, or perhaps none at all.

As the Americans are wont to say ‘nobody died’. Many people in the Third World will, of course – but this will be a direct result of muddled thinking on the best use of wheat, and it’s consequently rising price. The notion that The End is Nigh because banks have lent carelessly and global growth has slowed down is so daft as to be surreal.

At base level, global Bourse reverses since late 2007 have been based on three things: unreal material aspirations, banker hubris, and the ever-present plutocrat greed that breeds fear. The fear – ‘Oh my God, I’m not going to be obscenely rich after all’ – is scant reason indeed for talk of meltdown. Personally I’d go further and say it borders on criminal: the pauperisation of over half of us as a result of the stupidity of under 7% is already producing a simmering resentment among otherwise law-abiding citizens. Pensioners going without food so reckless borrowers can avoid pain is a reality that will come into sharper focus as 2009 unfolds; we should all be ashamed of it.

It’s cold out there, and the capitalist coronary victim is revealed to be without clothes. So far, none of the major UK political parties has come out overtly to suggest he should abdicate in favour of a more enlightened and free-thinking prince. In the US, Obama is already showing signs that – albeit cautiously – he doesn’t accept the old rules.

The analysis of Nick Clegg’s first year has, by and large, pinpointed his solid if unspectacular progress in at least taking a step outside the cosy Westminster Establishment. His early promise to deal with any coalition partner prepared to democratise the electoral system showed admirable clarity. Sadly, hardly anyone noticed.

As the peripheral minority candidate, the Lib Dem leader has the least to lose from a single-minded gamble. In truth, it’s not that big a throw of the dice: with RBS and other UK banks already admitting to further big write-offs, British companies queueing up to go into administration, senior Treasury officials talking in private about currency collapse, the IMF offering only dire predictions for our outlook, and Russia about to infect the EU with its own uniquely awful problems, by the late summer of this year a large proportion of the electorate will be ready to accept the necessity for a ‘new model’ capitalism.

Clegg’s natural partner in this endeavour would of course be Vince Cable; more than any other MP, he has thought and predicted the unthinkable early. Just as Obama represented genuine change in the States, the Liberal Democrats could take on the mantle of commitment to constitutional, economic and fiscal change – a change designed to shift the balance back towards the small, the weak, and those whose spirit offers a future in which responsible business replaces rip-off, and honest, vibrant corporate cultures replace the tired and vapid mantra of the globalists.

* John Ward is the owner and editor of www.notbornyesterday.org, a satire and advice site dedicated to promoting new ideas, better ethics and true reform of our constitution, economic model, and community policy objectives.