10/01/2012 06:44 GMT | Updated 09/03/2012 05:12 GMT

Dynamic Labour, Is It Possible?

Times have changed. There was an era when Labour could pitch itself on 'Robin Hood' economics. Tax the rich and distribute the money through various benefits to the poor. So Labour got the label of the high tax and spend party. But that sort of economic policy is now defunct, particularly in a globalised economy. In a globalised world, the game is wealth creation then distribution. That's the complexity.

Right wing economics, labelled capitalism, is easy. Cut down Government to its bare minimum. Let the rich become richer. The poor will benefit from trickle down economics. Simple in the days when the rich could not transfer their wealth to another tax haven at the click of a mouse or change their domicile. If the rich invest abroad and spend abroad, there is hardly going to be money to trickle down. Thus the weakness of capitalism in a global period. Capitalism and State responsibilities do not make good bedfellows.

Most of us, or rather the vast majority of us, can't have houses in Jersey, London, New York and Botswana with the luxury of making any of these 'permanent' residence depending where there is minimum taxation. Neither do we have businesses that can relocate to China, Brazil or India wherever labour is cheap. We are glued to 9 to 5 jobs or small and medium businesses in one country and obliged to pay the taxes as and whatever they are. We are the 'country'.

So there have to be enough jobs in the country to occupy the skilled, the educated and the rest. And there have to be enough earners in the country for small and medium businesses to have a reasonable domestic market to thrive.

Therefore either the rich have to be 'highly' responsible voluntarily and invest within the country to create all these jobs, however small the returns and however high the overheads or the State becomes active in wealth creation. But 'responsible capitalism' is Alice in wonderland economics. One doesn't become a tycoon by first being an economic philanthropist. It's the other way around. People make their money first then might decide to be a philanthropist. Capitalism in a global age does not work for the vast majority.

Unless there is active State management. That's is why Brazil, India and China are booming. They all have active planning commissions or institutions which enable the State to direct the overall investment strategy depending on maximum market returns and trends. They are not obsessed with simple distributive economics. The State works with the market to generate wealth to distribute. And everyone wins, at least in theory. Thus India concentrated on IT and pharmaceuticals; China concentrated on manufacturing everyday goods and electronics; Brazil concentrated on natural resources, finding partners and markets. Global capitalism works with State management.

That's is where Labour needs to concentrate. Instead of 'responsible capitalism' it needs to develop a dynamic form of socialism. It should do this by unhinging socialism from economic policy to socialism meaning widening the scope of the social contract. Thus the social contract goes beyond simply providing a non violent environment with human rights to a broader set of responsibilities. Such as maximising employment prospects, enabling an effective education system and education opportunities for all, ensuring and providing a reasonable health care, caring for the less fortunate and those who are physically and mentally challenged. All that Labour introduced in 1945 as revolutionary and fundamental responsibilities of the State and has strived to make them a permanent commitment of the State. Such as the NHS.

Labour has to re-embrace all this and add creation of wealth to its principle purpose. It has to resurrect Keynesian economics as a reformed model and make the State an active participant in wealth creation, incentivising talent, skills, entrepreneurship and influence capital investment. The State has to be both the enabler and the provider. It also needs to legalise social responsibilities of wealth creators.

For instance remunerations and bonuses need to be linked to a broader set of factors such as job creation, profit enhancement and wealth for the State along with the profits for the company.

In other words, Labour should be dynamic in its economic policy. It should uphold its basic principles of a socially responsible party but be flexible in its choice of economic strategy. It should be able to pick its economic strategies from a mixture of free market economics to State run economy depending what creates the wealth to fulfil its essential aims.

But whatever economic policy it choses should not damage the ability of the country to continue to create wealth in future. In other words, high taxation and direct State investment without sustainable efficiency and wealth creation is no longer an option in a highly competitive globalised world. A prudent and reduced State budget with investment in wealth creating infrastructure, guidance, financial assistance and skill development would be a much better and sustainable model of economic strategy.

In summary, Labour needs to be a dynamic party, flexible and imaginative with its economic policies but firm with its social principles. A dynamic Labour party for the twenty first century in a highly globalised and competitive world.