On Friday, Ed Miliband pledged to introduce greater competition in our banking market. Last September, he pledged to freeze energy prices for 20 months while our broken energy market is reset to expand competition and consumer choice.
Reforming broken markets to increase competition and address the long-term sources of our cost-of-living crisis might seem an unusual theme for Labour to champion. In fact it is an approach that has learnt from a progressive conservative tradition, one that understands the importance of reform to ensure that markets remain open and competitive.
Noone understood this idea better than the American President Theodore Roosevelt – a passionate believer in free enterprise, and a tenacious advocate of market reform.
Roosevelt became the 26th President of the United States in 1901, when William McKinley was assassinated just under a year after taking office for his second term. It was a period of Republican ascendancy in America: for 24 of the previous 32 years a Republican had occupied the White House. This was the era of rapid economic expansion, when the USA was undergoing the transition from the agricultural economy ravaged by Civil War of the 1860s to becoming the world’s industrial powerhouse.
Yet the 1890s had been lean years for many Americans. The Depression following the stock market crash of 1893 brought misery to millions. Thousands of businesses shut down, unemployment soared, wages declined and soup kitchens opened across the country to help the destitute. As Doris Kearns Goodwin puts it, ‘an immense gulf had opened between the rich and poor; daily existence had become more difficult for ordinary people, and the middle class increasingly felt squeezed.’
The experience of the 1890s convinced Roosevelt that continued prosperity, and the widespread enjoyment of the fruits of prosperity, needed a different approach to government than the economically laissez-faire Republican Party had hitherto advocated. The good times had returned for many by 1901, but Roosevelt knew that politics had fallen out of touch with a changed America, and had to catch up.
Roosevelt understood three central truths about the economic condition of his country.
First, that the foundation of true prosperity was not the interests of the privileged few, but the enterprise of ordinary Americans, ‘the greater number of small men who are decent, industrious and energetic’.
Second, that economic success brought concentration of economic power in industry and banking – resulting in large corporations (or ‘trusts’) whose dominance kept prices high and competition low. These were ‘tendencies hurtful to the general welfare’ and produced in Roosevelt the ‘sincere conviction that combination and concentration should be, not prohibited, but supervised and within reasonable limits controlled’.
Third, that protecting the interests of ordinary Americans – as entrepreneurs, workers and consumers – demanded an active government that was on their side. ‘No one matter is of such vital moment to our whole people as the welfare of the wage-workers’, Roosevelt said in 1901.
It was this philosophy that lay behind Roosevelt’s demand for a ‘Square Deal’ for Americans: checking the market power of huge corporations in areas such as banking and railways, protecting workers against oppressive terms of employment, and introducing unprecedented protection for consumers.
Though a conservative by instinct, Roosevelt knew that to protect the competition and enterprise on which prosperity depends, a different kind of approach to government was needed from the Republican administrations of the past. He spoke of ‘constructive statesmanship for the purpose of broadening our markets and securing our business interests on a safe basis’. It required reform of markets that weren’t working in the public interest, practical regulation to prevent excessive concentration of power, and new bodies to exercise oversight to ensure the rules were observed. Active government, in Roosevelt’s view, was not the enemy of a free economy, but was essential to secure the conditions under which a free economy can both work, and work in the interests of all.
A century later, and an ocean away, David Cameron’s Conservative Party seems impervious to the wisdom of Roosevelt’s progressivism. In their view, a nation’s prosperity is first and foremost based on the efforts of those at the very top; while concentration of economic power holds no threat to the sustainability of the recovery or the cost of living crisis faced by tens of millions. George Osborne’s anaemic efforts at reform of banking, and his characterisation of Labour’s energy reforms as straight out of Das Kapital, reveal a conviction that the attempt to repair broken markets is foolish and dangerous. It is an assumption of an automatic affinity between the interests of the private sector and the public interest that would have shocked Teddy Roosevelt, the progressive conservative.
Curious as it may seem, Labour under Ed Miliband is better placed to understand the enduring wisdom of Roosevelt’s progressivism. We have shown that in our banking and utilities, we want open competition, not broken competition. We understand that prosperity depends on the energy and enterprise of the many, which is why we reject trickle down economics and prioritising tax-cuts for the most well-off. We understand that sensible reform to bring about greater competition – in banking, energy and elsewhere – is not the enemy of free enterprise and efficiency, but its precondition.
Where does that leave David Cameron’s Tory Party? Wedded to an approach that favours wealth over enterprise, the status quo over reform, and vested interests over the public interest. And we can do better than that.
Lord Wood is minister without portfolio in Ed Miliband’s shadow cabinet.