This is the text of the speech given by shadow Chancellor John McDonnell at Labour’s New Economy conference today.

Thank you very much for coming here today…

I think this is the first event of its kind organised by a shadow chancellor.

I wanted to lay out, briefly, our strategy on the economy.

As Jeremy made clear this week, speaking at the Ralph Miliband lecture, Labour is not a party only of protest.

Protest matters, and protests make a difference.

I hope we’ve shown, over the last eight months, how an effective Opposition can make a difference.

We’ve helped win U-turns on cuts to tax credits, cuts to disability payments.

We’ve won U-turns on forced academisation.

The government has U-turned on cuts to solar panel subsidies, and on the tampon tax.

They’ve U-turned on Sunday trading, and on taking child refugees, and now even on the inclusion of the NHS in TTIP.

It’s almost dizzying, watching them from the opposite benches.

That’s what an effective Opposition can help do, alongside the protests and the movements outside of Parliament.

But it’s not enough to block and protest.

If we want to make a lasting difference to people’s lives, we have to offer an alternative.

So Labour is not only a party of protest.

It is a party of government.

The Tories may be in disarray. But even as they fight like rats in a sack over Europe, they will agree on one thing.

That is the need to tear up hard-won rights, and smash up the civilising institutions previous generations have won.

From the BBC to the NHS, from our schools to the welfare state, nothing remains safe whilst they are in power.

That means we have a responsibility to show the British people how Labour is not just an effective opposition, but a credible alternative government.

We will defend the good that has been won already.

But we can go further than this.

We should aim to show how we can improve on what we have.

Labour’s great reforming governments have always had a vision, whether in creating the NHS, or introducing the first national minimum wage.

When we return to government, we must aspire to be another great reforming administration.

I want us to surpass even the Attlee government for radical reform.

The situation demands nothing less. Simply undoing the damage inflicted by David Cameron and George Osborne will be a huge task.

But we should aim higher than this.

Not just cleaning up the mess and addressing the challenges, whether that is inequality or climate change.

But making the most of the opportunities that could be opened up.

New technology and new ways of working could help create a better, more prosperous society.

Our whole society could do so much better than we are.

What we’ve attempted, over the last eight months, is to lay out the framework by which Labour can win the next election and then set about the fundamental business of transforming capitalism.

We should aim at nothing less than that.

It’s important that we state our objective clearly.

Our aim is that is that in the life of one Parliament we lay the foundations of a new society that is radically fairer, more equal and more democratic, based upon a prosperous economy which is economically and environmentally sustainable and where that prosperity is shared by all.

And we aim to introduce a new era of transformative economics to achieve that goal.

Policy package

That means we have to be ambitious. We have to “rewrite the rules” of the economy, in the words of Economic Advisory Council member Joseph Stiglitz.

The old rules have failed too many.

They have meant rising inequality, and wasted talent.

Prosperity has become too concentrated in the hands of too few, and the best opportunities in life restricted to a gilded set at the top of society.

We have trampled all over the natural world, and squandered its resources.

This is a bigger project than offering just a few appealing policy tweaks here and there.

It means striving for a transformation in how capitalism in Britain operates.

That means a fundamental shift in how future governments relate to the economy.

We are a long way from the election. But in outline this rewriting of the rules has three parts.

Fiscal Credibility Rule

First, we need to make an absolute commitment to responsible financing by a future Labour government.

Let me spell out what that means.

The old rules meant the last Labour government relied too heavily on tax revenues from financial services, and too heavily on off-balance sheet spending through the Private Finance Initiative.

It didn’t do enough to clamp down on tax evasion and avoidance.

It helped create an unfair tax system.

In Opposition today we are doing all we can, here and at an EU level, to hold this government of tax dodgers to account.

This country will no longer act like a tax haven for the super-rich under Labour. And nor will those other places it exercises jurisdiction over.

And on the other side, it means every penny of government spending will be accounted for.

Unlike the current government, we won’t gamble with the nation’s finances, setting unachievable targets and leaving black holes in their accounts.

If we don’t show that we are responsible custodians of the people’s money, they will not give us the right to govern.

We can reject the dreadful choice of austerity and maintain solid government finances.

We’ve enshrined these commitments in our Fiscal Credibility Rule, drawn up with help from the world-leading economists on our Economic Advisory Council.

This Rule says we will close the deficit on day-to-day spending over a five year period, but we’ll make sure government has the capacity to invest in the future.

If there was a single biggest failure for George Osborne, it has been his failure to invest.

But he is the worst of a long tradition of weak investment by British governments. We want to break with that.

Investment is the key to shared prosperity now, and in the future.

We’re not just a Party that thinks how to spend money.

We need to be a Party that thinks how to earn money.

The clue is in our name. We are the party of labour – the party of the wealth creators, of technicians, designers, machinists, entrepreneurs, the self-employed – the party of workers and small businesses.

Entrepreneurial state and industrial policy

Second, we need to reshape how government and the economy relate to each other.

Another Economic Advisory Council member, Marianna Mazzucato has written about how what she calls the “entrepreneurial state” can help support new industries and technologies.

This breaking with the failures of the hands-off approach.

We’ve seen, just in the last few months, what happens when a government thinks a vital industry like steel can be left to the mercies of the market.

It means plant closures and job losses, devastating communities.

It means a key industry for the future left on the brink of disappearance.

We responded rapidly to the steel crisis, arguing that government had to step in.

To nationalise to stabilize the industry.

Use government spending to buy steel from British plants, protecting jobs here.

And work with, not against, our European partners to stop the dumping of cheap steel.

I’m pleased to see our do-nothing Business Secretary has been forced to respond to pressure to act.

But we need to think beyond crisis management.

If, for instance, we’re serious about seeing a shift towards a low-carbon economy, we’ll need to transform how we produce and use electricity.

More public transport and more renewables have to be a part of the mix.

And that has to mean supporting a steel industry here.

So we’re not just seeing industrial policy as a response to crisis.

Too many governments in the past, and not just this one, thought government should only intervene when something goes wrong.

We think government intervention should be there to make sure things go right.

The swift actions taken by the previous Labour government, for instance, to support the car industry in the aftermath of the 2008 crash mean that, today, Britain exports more cars than ever before.

So we know intervention can work. We have to apply it properly.

Jeremy has argued before for a National Investment Bank.

This could supply the investment needed for the big infrastructure projects, like high speed rail, that form the backbone of a modern economy and in which Britain is sorely deficient.

It can help local and regional institutions provide the financing for our small businesses, still starved of funding by our existing banks.

And we’ll look for ways to ensure new technologies get the funding they need not just for research but for dissemination and adoption.

Renewables in particular need attention.

As we develop our policies, we’ll be drawing on the best research and expertise to show how this new institution could work

We must overcome the arrogance and isolation of government.

Civil servants do not always know best. Nor do politicians.

Too many governments in the past have believed that they do.

But it should be fundamental to a genuinely democratic approach to economic policy that governments are there to bring people together, to facilitate discussion and to listen.

Not to impose, but to seek consensus.

When we return to government, I’ll be looking to set up an Economic and Innovation Forum which will provide a space where representatives of businesses, unions, and wider civil society can come together with government at a national level.

We’ll create a real partnership in policymaking.

We will restore that line of communication right from the shop floor, the office, the studio and the R and D department to the heart of government.decision making.

We think we are far more effective when we work together, when we co-operate.

But intervention can take place not only at the national level.

Pioneering councils, under the cosh of Tory austerity, are having to think creatively about how to deliver local services and secure the local economy.

Transformative councils like Preston in Lancashire are developing a “local entrepreneurial state”. The council there is working with major local institutions, like the university, to help support the local economy.

Procurement spending is being rerouted back into local businesses. They’ve provided a multi-million pound boost to the economy in Preston and beyond.

Alongside that, they’re helping workers set up co-operatives to sustain local employment.

Housing

We think this bottom-up approach can be applied more widely.

Take the scandal of the housing crisis.

At the national level, Jeremy has made the shadow housing minister a fully-fledged shadow cabinet post for the first time in years.

This reflects the high priority we are giving to housing and solving the serious housing crisis.

Sadiq Khan has rightly highlighted the issue of housings costs in London.

The cost of housing in London is arguably the biggest single blight on this city.

Many, particularly young people, who are unable to get onto the housing ladder are then at the mercy of an unforgiving, unrestrained housing market.

Other urban areas are suffering from skyrocketing rents.

We’ll look to give local authorities the powers to impose rent regulation to secure fair rents where these are needed as Labour committed itself to at the last election.

We know the supply of housing is simply not sufficient to meet demand.

My colleague the shadow housing minister John Healey has set out his plans to build 100,000 new council houses a year, funded from savings in the Housing Benefit bill.

With fewer new social rented homes built last year than at any time in over two decades, it will be a top priority for a Labour government to reverse the short-term and counter-productive cuts in housing investment made by George Osborne.

But we have to also meet the aspirations of people to own their own home.

We are also looking at how we can reverse the freefall decline in home-ownership amongst young people.

There are now a third of a million fewer home-owners under 35 than when David Cameron became PM, and the biggest drop is among working class young people.

We know that part of the reason why the Tories are failing on home-ownership is that their support is not targeted at those who need help the most.

Thousands of households earning over £100,000 a year have benefited from the government’s ‘help to buy’ scheme, while their so-called ‘starter homes’ will cost up to £450,000 each.

So Labour would make it a mission to ensure families and young people on ordinary incomes aren’t locked out of home-ownership as they are under the Tories.

It is Labour councils providing innovative solutions to the housing crisis.

Councils in Manchester, Warrington and Sandwell, offering cheap, local authority-backed mortgages to first-time buyers in particular.

With too many first-time buyers excluded from the housing market by high-street banks, we’ll be looking at ways to securely expand local authority mortgage lending.

We need action now to solve the housing crisis.

With Mayors elected across major cities in this country, and more Mayoral elections to follow, there is a new enthusiasm and capacity to take the initiative locally.

Bristol’s new Mayor, Marvin Rees, and his administration have announced plans to build 2,000 new homes every year.

They’ve immediately released land the size of 80 football pitches for new building.

Along with Jon Trickett, our Shadow Secretary of State for Communities and Local Government, I will be convening a Mayors’ Economic Forum to bring together local leaderships to participate in the development of economic policy making.

For the first time, national economic policy making will be influenced directly by local decision makers representing their metropolises and local communities.

Clearly one of our first agenda items will be solving the housing crisis.

We can all learn from each other in this, but we need mechanisms to make it happen.

Socialism from below

This leads to the third policy area.

We need to unlock the potential of the whole economy, and society.

The economic institutions that we have were developed in an earlier age.

Too many of them are not fit for purpose in the 21st century.

Our banking system failed in 2008 and still fails too many small businesses today.

As Lord Turner has detailed, it pumps lending into the property market, but fails to invest in the productive economy.

No other major developed economy has a banking system so dominated by a few corporations.

We need to end that domination, developing a range of new institutions including the National Investment Bank.

We need to make sure every part of our economy has access to the financing it needs, not concentrate it in one sector and in one place.

Similarly, the fixation on shareholder value and short-term results means that our giant corporations are sitting on giant cash piles – perhaps up to £700bn.

Instead of investing money productively, creating new jobs and opportunities, our corporations are hoarding cash.

And those responsible for running them are paying themselves obscene amounts of cash.

Shareholders have risen in revolt against excessive executive pay.

I think we need to open up the whole question of how our major corporations are structured.

Put an end to the short-termism. End the fixation with shareholder value. Start to think how employees and customers can be brought into the decision-making process.

These aren’t just good in themselves. There is a hard-nosed economic case for addressing these questions.

We know that there is a clear boost to the economy from worker ownership and management.

One recent academic literature thinks worker-managed companies enjoy a productivity bonus of 6-14%.

I’ve said I want to at least double the size of the co-operative sector in Britain.

Similar economies like the US and Germany make far more use of co-operatives than here.

There is a long labour movement tradition in Britain of support for grassroots ownership and decentralized economies, from the Rochdale Pioneers onwards.

That tradition has been buried for too long. After the Second World War, Labour adopted a model of centralized ownership and control for the economy.

This model worked well enough, for a time. But it always had problems.

Today, the proliferation of small-scale and digital technology can grant a new lease of life to the tradition.

From community-owned renewable generation to open source software, collective and shared forms of ownership can provide fairer and more efficient ways of working than the older business models.

So the future has an ancient heart.

I’ve said before that democracy and decentralization must be the centerpiece of our economic policy.

From the ground up, we can start to transform how capitalism in Britain works.

Previous Labour governments were content to only think about how to redistribute income.

Today, technological change means we have to think more closely about ownership.

I’ve spoken before of moving beyond the Tory Right to Buy and creating a Labour Right to Own.

This can be at the centre of our offer to Britain.

A radical decentralization of economic power and authority back to working people and local communities.

Institutional reform

If we are to make all this work, we have to go beyond simply thinking we can pull the levers of government, and expect to deliver results.

The machinery of government that we have for overseeing the economy is looking increasingly rusty.

Those levers cannot be relied on.

We have an HMRC that, time and again, lets major corporations off the hook when it comes to their taxes – whilst hounding hard-pressed small businesses.

I want to pay tribute to the staff of Revenue and Customs, who have been cut and cut again by Osborne.

Staff at HMRC generate revenues. Cutting their numbers is self-defeating.

But serious questions have to be raised about its management.

Economists from across the political spectrum are questioning whether, after 2008, we need a new way of making monetary policy.

Andy Haldane, chief economist at the Bank of England, has raised interesting future possibilities for monetary policy, including more quantitative easing and even negative interest rates.

The current architecture was established in 1997. We can raise a legitimate question as to whether the Monetary Policy Committee’s remit still fits changed circumstances.

And then at the heart of economic policymaking in Britain sits the Treasury.

Its powers, already expansive under Gordon Brown, have grown hugely under Osborne.

It dominates not just economic policy, but the whole of domestic policymaking in Whitehall.

Its staff are talented and dedicated. But, time and again, it has faced serious questions about its own role.

Is it too short-term in its outlook? Too focused on London? Too unimaginative in its approach?

Iain Duncan Smith has even gone so far as to call it “the worst thing in Britain”.

I’ve commissioned a series of reviews, led by experts, to report on the functioning of these three critical institutions.

Lord Kerslake, former head of the civil service, is reviewing the Treasury.

Professor Prem Sikka is reviewing HMRC.

And Professor Danny Blanchflower is conducting a review of the Monetary Policy Committee.

All three will report back over the next period, and make recommendations that will feed into our own policymaking.

We are creating our own architecture for sound economic policy making and implementation.

Education, education, education

Even in outline, this is a bold programme.

But economics isn’t a spectator sport.

I’m heartened to see so many here today, just as hundreds upon hundreds have turned out across the country for the lecture series.

Everyone here has a critical role to play.

Fundamentally, we have to reshape the narrative on the economy.

It’s been dominated for too long not only by the ludicrous claims of the austerity-mongers.

Going back further, it’s been the dominated by a particular belief that free markets are fundamentally always right, and that free market outcomes are always the best.

We have to break with that.

But that means winning the argument.

It means all of us being prepared to take on and challenge the arguments when they arise.

It means we’re all ready to make the case for a different way of doing economics, based on the best possible expert advice and with a clear vision for the future.

So the debates and discussion we hear today aren’t supposed to stay on this campus.

They need to be taken to every town and village in the country.

If we want to realise the kind of programme I’ve laid out, we need to be prepared to take that message to every corner of the country.

I’m convinced there’s a real thirst out there to see something new.

You don’t need to spend too long convincing most people that things aren’t working as they should.

But unless we have a credible alternative, and the people prepared to make the case for it, we won’t be able to change how things work.

It doesn’t mean shouting and berating those who disagree with us, but patiently explaining how we can do things better.

So I think this conference should be the first of many.

Slowly but surely, we need to reshape the discussion.

Each one of us has an important role to play in this.

We need you all to help raise the quality of economic discourse in this country.

We need you all to be the advocates of the transformative economics we are developing to achieve that fairer, more equal, more democratic, sustainable prosperous society we aspire to.

And as we approach the election, we will work together to sharpen and develop our ideas collectively.

If the Tories are the party of a failing past and present, Labour must be the party of the future.

If the Tories are the party of fear, Labour must be the party of hope.

That’s what this conference today is all about.

Let’s go to it.