Three years ago today, on the 29 April 2006, one of the 20th century¿s great thinkers died at the age of 97. John Kenneth Galbraith, the leading Canadian-American economist was a Keynesian and a leading proponent of 20th century American liberalism and progressivism. He served in the administrations of four Democratic Presidents, working for Franklin D Roosevelt, Harry S Truman, John F Kennedy and Lyndon B Johnson. His economics books were bestsellers from the 1950s to 1970s, providing valuable and enduring insights of the past and the present.
For Galbraith, the Wall Street Crash of 1929 illustrated how markets became decoupled from reality and immersed in a speculative boom. In his most famous work, The Affluent Society, published in 1958, he urged that the US needed to make substantial investments in highways and education funded from general taxation. These views contributed to Kennedy and Johnson's "War on Poverty" during the following decade.
I wonder what Galbraith would have made of the repercussions of the US subprime loans crisis, the odour of toxic debts and the collapse of Lehman Brothers? One thing is for certain - he would have found ample material for a few more bestselling books.
Introduction
This morning I want to talk about the great economic change we have experienced in recent months and discuss its impact on the delivery of the Government's welfare reform programme. After the longest period of growth in UK history we have entered a new economic climate in late 2008. The global financial crisis has led to a collapse in confidence, a contraction in international trade and sharp falls in exports and output in all OECD economies worldwide.
And one of the dangers in a recession is that leaders learn the wrong lessons from history. This is true both domestically and internationally.
The UK Government has learned the lessons of the past. Things will be done differently in the future. Light touch global banking regulations led to the excesses of an unscrupulous few and the demise of hitherto mighty financial institutions. A right touch approach needs to be adopted in line with Lord Turner's Review of Global Banking Regulations.
Likewise, the UK Government is determined to follow an opposite course to the policies pursued by previous administrations in the face of the recessions of the early 1980s and early 1990s. We are committed to not repeating their mistakes which left families and communities to cope on their own. We will never leave the poor behind. This Government is committed to supporting the poorest in our society. Our focus is on delivering real help to all of our people.
The past decade has been a time of improvement and prosperity for many but not all. We must not tolerate exclusion but strive for inclusion. We have an economic and moral duty to help all members of society. Not to abandon the poor and the marginalised, as was the way with some previous governments, but to bring them along too. To give them and their families fair access to the services and opportunities we all expect in the 21st century. My Party was founded on these principles. This is the same progressive ethos that was at the heart of the Christian Socialism which challenged poverty in late Victorian Britain. And today we will still stand by the poor and not stand on the sidelines.
Even in these tough times right across the world we are determined to provide the extra support needed by families, pensioners, jobseekers and homeowners. We adhere to the principle that you must grow your way out of recession. You cannot cut your way out. That was the message in November¿s Pre-Budget Report and reinforced in last week's Budget.
Global Recession
The banking crisis and the ensuing credit crunch resulted in an unprecedented global economic downturn last autumn. Let us be clear. It was and is a global problem. This is the first year since the end of the Second World War that the global economy will shrink.
From the outset, the UK Government, like the American and other governments around the world, has taken exceptional and responsible measures to limit the impact and contain the damage to our economy. An active policy was the only policy. Doing nothing was not an option. I think that Galbraith would have approved of our actions.
The Real Help Now policies implemented by the Government in recent months have proved to be essential. We have taken a three pronged approach - firstly, stopping the banks from collapsing; secondly, injecting fiscal stimulus into the economy; and thirdly, getting lending going again.
A banking system that was heading for the cliff edge was saved and stabilised - devastating runs on the banks were avoided, savings were protected and pensions paid. As a result not a single depositor has lost a penny.
The UK has earned international approval for its rapid and responsible response from such renowned bodies as the OECD. Without intervention in the financial sector the rest of the UK economy faced collapse. I don't want to even imagine the repercussions of the Royal Bank of Scotland going to the wall - a bank which held one-third of UK savers' deposits. We must not forget the severity of the situation last autumn and the necessity for rapid response.
The fiscal stimulus announced in the Pre-Budget Report has delivered a shot in the arm for the economy, helping businesses and families - through a combination of tax cuts, the VAT reduction, lower interest rates and accelerated investment in public infrastructure.
The VAT cut alone put an additional £12.4 billion into the UK economy. The Centre for Economics and Business Research reported this month that retail sales over the last three months are about £2 billion above what they would have been otherwise. They concluded, "The figures are clear; the VAT cut is working. It appears to be good value for the tax payer."
We know that it is vital to support our small business sector, which plays such a crucial role in the Scottish economy, employing over half of our workforce and accounting for 99% of our businesses. I know that support for small businesses is a priority for the Cabinet and the National Economic Committee.
So it is imperative that banks actively support good and viable businesses. Businesses have to be able to access loans, keep trading and keep employing. Through Real Help, the UK Government is providing specifically tailored solutions for businesses and not blanket subsidies.
And we're highlighting the help on offer. We want to make it easier for people to find the help most suited to them.
We have outlined all the measures currently available to people and businesses in our booklet Real Help Now in Scotland. It was published earlier this month, jointly with the Scottish Government and demonstrates the central role of the UK Government in getting Scotland through the recession. This wide ranging booklet does what it says on the cover -providing advice to homeowners concerned about making their mortgage payments, employees worried about losing their job and businesses trying to raise capital.
Help from the UK Government has enabled over 6,500 Scottish firms to defer tax payments totalling over £122 million to HM Revenue and Customs over the last four months. Businesses across Scotland have deferred tax payments. This practical help assists businesses with the pressures they are facing and helps support the employment of tens of thousands of people.
And there is much greater awareness of Real Help assistance. The value of bank loans backed by the Government¿s Enterprise Finance Guarantee has jumped ten-fold across the UK from £3 million per week in January to £30 million per week in March. Lenders, representing 90% of SME lending have now signed up to the scheme.
Similarly, the Government guarantee is supporting innovation and investment by enabling the banks to provide an extra £1.3 billion of credit to SMEs with viable business plans but who cannot access normal commercial lending in the current economic conditions.
At grass roots level Scottish companies are seeing the benefits of initiatives such as the Enterprise Finance Guarantee Scheme. We want to see money being channelled more quickly by the banks to the businesses who need it.
But neither the UK nor indeed any one country - even the US or China - can solve the crisis of credit and confidence alone. Action is required on the international stage.
The UK is leading on international measures through its presidency of the G20. At the London Summit on 2 April two key measures were agreed by the leaders of the world's major powers:
Firstly, they agreed to a global plan for recovery - £1.1 trillion package of support to restore credit, growth and jobs across the globe. The equivalent of a 2% fiscal stimulus at global level.
Secondly, they agreed to a common approach to kickstart credit and lending channels.
World leaders were also mindful of one key lesson learned from the mistakes of the 1930s - the importance of promoting world trade. Eighty years ago leaders on both sides of the Atlantic took the opposite approach and entered into a chilling pact with regressive protectionism. But when trade barriers start to rise recession lengthens into depression.
Thus in our globally interdependent economy responsible measures much transcend the challenges we face at local, national and international levels.
And the challenges we face in the areas of unemployment and welfare have come ever more sharply into focus since the dawn of the downturn.
Unemployment
A contracting economy cannot be met by shrinking efforts by government or individuals to find a job. Unemployment has risen and will continue to rise.
But the Chancellor's Budget for Jobs made the UK Government¿s position clear. We do not want the newly unemployed to become the long term unemployed. And we are committed to do more to protect our young people from the damaging impact of long term unemployment.
The alternative would be to return to the days of the 1980s and the 1990s when a whole generations found themselves abandoned to a future on the scrap heap. Struggling on in broken communities, bereft of hope - existing through giros or incapacity benefits. This is no alternative. It is economically and morally wrong. It is not the approach of an intelligent or compassionate leadership. We want to combat the scourge of worklessness.
Following the Chancellor's budget, on Monday I announced a £95 million Future Jobs Fund programme for Scotland - to provide employment or training for under 25s who have been in receipt of Jobseekers Allowance for a year.
From this week we will begin work with councils and voluntary groups on developing new jobs through the Fund. By January next year, every 18 to 24 year old who is approaching 12 months of unemployment or has been jobless for longer will be guaranteed participation in meaningful activity. We want to engage with Scottish local authorities and the third sector on this. DWP has already started a programme of direct engagement.
The Fund will create 15,000 jobs in Scotland. It is a responsible measure to ensure that the vulnerable do not fall behind and gives individuals the opportunity to acquire the skills necessary for their and their community's future.
But, of course, not all the help targeted in the Budget was directed at the young unemployed.
The Chancellor earmarked a further £1.7 million for the Jobcentre Plus network across the UK and for the Flexible New Deal.
In total, the UK Government measures amount to £500 million being spent to put Scots back to work.
These measures come on top of the National Economic Partnership where participating employers pledged in February to recruit over 300,000 people in the next year. And it is mirrored in the successful efforts of Local Employment Enterprises across Scotland and the UK.
While Scottish unemployment has continued to rise it remains below the UK average. But that is of no consolation for the individual losing a job.
I have seen myself that there are districts in Scotland caught in a jobs squeeze. Facing escalating redundancies while the number of advertised jobs falls even faster. Areas like Lanarkshire where I met with key local bodies earlier this month to consider the challenges and how they can be addressed. In marked contrast to previous recessions, finance and business services have shed most jobs. Architects and software designers are joining the ranks of the unemployed in growing numbers. In Glasgow, Jobcentre Plus has been providing a New Deal for newly unemployed professionals over the past two months.
The Government has invested £1.3 billion in Jobcentre Plus in the Pre-Budget Report to make sure that those looking for work get individual support. A further £0.5 billion has been invested to help the long term unemployed. An additional 1,400 Jobcentre staff will be recruited over the next 18 months.
Directing resources to Jobcentre Plus is money well spent. Their early contact with the newly unemployed followed by regular review is proven to deliver benefits savings. That's why funding for rapid reaction programmes is so worthwhile - to provide targeted help to those facing redundancy.
I greatly admire the work of Jobcentre Plus - their proven track record, their capacity for innovation, their professionalism and their delivery of efficient change. They have been part of the UK's remarkable labour market success of the last decade, a time of historically high employment levels. And even in the four months to March over one million people across the UK came off Jobseekers Allowance and took advantage of the help on offer.
Welfare
It is against this backdrop of escalating unemployment and shrinking vacancies that some have called for the scrapping of welfare reform plans.
I cannot agree. Particularly when jobs are harder to find, it is even more important that we help prepare for work through practical help and support. So that they can remain close to the labour market, ready to take advantage when the economy picks up. And our welfare reform plans are about changing the system to provide even greater support for those looking for work. Helping people at their time of greatest need.
At the same time society's expectations of welfare, training and employment have moved on too. Individuals want flexible, tailored help and assistance to ensure their participation in a fast-changing economy.
Old models of welfare served us well but are no longer appropriate for today¿s challenges and opportunities.
William Beveridge's welfare model was a transformation from the grudging relief of the interwar years. But it was the least that the British people could expect after decades of depression, war and austerity.
Beveridge's timeless values have to be re-applied in our modern world.
The Government¿s welfare reforms are a key step in giving the UK a modern, ambitious welfare regime fit for today and beyond. We are reforming welfare and transforming lives.
People who want to work must have the chance to work. And we certainly need them to work. Our ageing society means that by 2050, there will be only two people working for every pensioner. A far cry from 1950 when the figure was 10 working for every pensioner.
The Welfare Reform Bill will put in place the systems and support to ensure that everyone will get the personalised support that they deserve as they try to return to work. They will form the bedrock upon which we will build a welfare system that is responsive and fit for the challenges we will face moving into the next decade.
This government advocates opportunity for all. A fair future and fair rules to get us there.
Five key welfare reform principles are at the heart of our programme:
Firstly, we are stressing the importance of a stronger framework of rights and responsibilities, moving benefit claimants from being passive recipients into being active jobseekers.
Secondly, we are promising a personalised, responsive and effective approach to individual needs.
Thirdly, we are committed to a partnership between the private, public and third sectors.
Fourthly, we aim to target areas of high worklessness by devolving and empowering communities.
And fifthly, we want jobs that pay well, offering the opportunities for individuals to progress and improve their skills
This is legislation aimed at raising expectation and increasing support. This reform is about people. Work is the best form of welfare. It is good for your health and your mental wellbeing. It offers a chance to contribute to society and to bring up your family through your own endeavours. And work is the only sustainable route out of poverty.
We are not prepared to write people off on benefits indefinitely for two good reasons. It isn't fair on the taxpayer and it isn't fair to the people who have been abandoned without any help.
My Cabinet colleague James Purnell has stressed that these reforms are geared to transforming people's lives, building a fairer benefits system and supporting people as individuals and not just as claimants.
I agree. Its about changing lives and giving people control of their lives. We want people to acquire the skills needed for tomorrow¿s economy, trapped in welfare dependency. And unlike our predecessors we will not leave anyone behind as we face up to global recession.
Conclusion
In these uniquely testing times it is critical that we both work closely with employers to support people in work through Real Help measures, and at the same time, give more support to help people back to work.
The Public Finances are a cause of great concern. The Chancellor was upfront about borrowing in his Budget statement. He has started to implement the tough fiscal decisions which will be needed to bring public borrowing back into balance.
But tax rises under this Government will be based on our underlying principle of fairness.
That's why we have increased tax to 50% for those earning over £150,000. Tax must be fair and progressive. In contrast the Conservatives seek to penalise the many to pay for tax cuts for the wealthiest few. They talk the talk about austerity but only offer savage cuts to public services and irresponsible giveaways to the wealthy. It sounds only too familiar. A real blast from the Tory past.
This is certainly not the medicine that J K Galbraith would have dispensed. He was at odds with the re-distribution to the rich which characterised the Reagan years.
We will all need to tighten our belts, whether we live in Stirling, Sheffield or Swansea. Like families and businesses across the UK, Government needs to make every pound go further and work harder.
The Scottish Government has been asked to find £367 million of efficiencies next year. This should be achievable. The UK Government is pledged to find nearly £5 billion of savings without any reduction in frontline services. It's only common sense that Scotland pays its share like the rest of the UK.
Scotland has reaped the benefits of the £20 billion fiscal stimulus and the rescue of the banking system. Similarly, the Real Help and Future Jobs Fund initiatives show that Scotland's recovery and future success is inextricably linked Scotland in the UK.
The Scottish Government has seen its budget doubled to £34.8 billion after a decade of devolution. On top of this, the UK Government spends a further £22.5 billion on reserved areas such as welfare and defence in Scotland.
For the Scottish Government to constantly complain about cuts while we are increasing investment in public services, including their budget, is to pursue an argument based on political dogma in denial of the facts. It is wholly irresponsible and of no help to Scots trying to cope with recession.
Scots are entitled to better than this, rightly expecting their politicians to work together during the Downturn.
Government also has a duty to look towards the upturn and recovery.
The Government has a strategic vision for the UK's recovery through new industries and new jobs. The Budget supported green jobs in the low carbon sectors. This is the route to sustained and sustainable growth as part of a global economy which will double in size over the next two decades. Supporting Scottish business as they identify new opportunities to thrive in the mass middle class markets in the emerging economies of China and India. Just last month I saw for myself the appetite for Scottish goods and services in the growing Chinese market.
We remain committed to the idea of markets where possible and government only where necessary. That's why in the Budget and in other recent strategy documents the focus has been on key strategic industries with high growth potential. Sectors such as advanced engineering, electronics, biosciences and renewable energy are areas of future demand which can be the cornerstone of our recovery.
I believe that an innovative, competitive Scotland playing to its strengths, keeping ahead of the game and deploying its many skills can reap the benefits of the Green Revolution and future global growth. And I know that the Government's programme of progressive welfare reform will better equip us for the recovery and renewed prosperity.