Soft Brexit is a mirage

Centrist politicians are hard-wired to look for a middle way when confronted with difficult problems. So after absorbing the shock of Britain’s vote to leave the EU last June, it is only natural that so many have sought one on this most perplexing issue. It goes by the name of “soft Brexit”, to contrast with “hard Brexit”, which refers to an uncompromising break. But is such a solution viable?

This question revolves around one issue above all: membership of Europe’s Single Market. The Single Market allows for the free movement of goods, and some services, across Europe’s borders. This came into being in 1990 as intra-European trade was stagnating, and restored momentum. The problem was that Europe’s free trading arrangements at that time did not go far enough. There were no tariffs, but plenty of scope for non-tariff barriers. There were many such barriers – I remember a particular story about all French imports of one particular type having to be sent to Poitiers to be inspected.

The Europeans had a clear model in front of them: the United States of America. This towering economic power was so successful  in large part because of its huge domestic market, which gave businesses time to develop products before having to tackle export markets. But here we bump into a famous trilemma, first articulated by US economist Dani Rodrick in his book The Globalization Paradox. People must choose between democracy, national self-determination and the benefits of global integration. You can have two of these, but not three. To achieve global integration means setting global rules. If nation states choose to participate in globalisation, they will sacrifice their voters’ rights to change the rules. The only way to make it democratic is to make it so at the global level, which means losing national autonomy.

And so forming the Single Market meant that the members of the European Union sacrificed significant sovereignty – albeit with the creation of some democratic structures at European level: the European Council of heads of state, and the directly elected European Parliament. Critics of the EU say that it is undemocratic – but the only ways to address this are either to dissolve it and lose the Single Market, or strengthen its union-level democratic structures, undermining the nation-state further. The problem with soft Brexit is that it attempts have all three elements of the trilemma at once.

Brexit means British withdrawal from the European Council and Parliament, to say nothing of its influence in the European Commission, the EU’s executive arm. But taking part in the Single Market, or even aspects of it, means leaving the rule-making to these European institutions. This cannot be acceptable. Norway, and to some extent Switzerland, suffer this indignity already. It is hard to see it working for such a big country as Britain. Voters would rightly ask what the point was in leaving the EU. “EU rules”  would still be the bureaucrats’ excuse of choice for badly implemented regulation, alongside that British favourite “health and safety”. Political suicide, surely?

Neither will it be easy to pick apart the structure of EU regulations so that the country opts out of bits of it. British politicians often assume that there is a deal to be done to limit EU migration into the UK. Businesses want to tackle EU labour regulation and various other things, like regulation of poisonous chemicals. The trouble is that the other EU countries will see this as trying to get an unfair competitive advantage – which could undermine the entire edifice.

And furthermore, Britain’s bargaining position is weak. One of the key arguments made by the Brexiteers was that because Britain imports so much from the rest of the EU, the EU (German car makers, and French cheese makers in particular)  will be desperate to give us an advantageous deal. That looks optimistic. Take the motor industry. This has significant economies of scale, and a single national market, even the size of Britain or Germany, is not enough to sustain a domestic industry. Before the Single Market, Britain’s motor industry was dying. After it Japanese and other carmakers invested in factories in Britain as an export base for the whole of Europe. Britain’s car industry revived, though it is still in deficit. If Britain withdraws from the Single Market, this industry comes under threat. If it withers, then surely other EU countries will gain. Why should Volkswagen press for an easy trade deal that would save their Japanese competitors? Britain can’t sustain its own motor industry, so it will have no alternative but to keep importing cars from its nearest neighbours in the EU – and perhaps in even greater quantities as Nissan and others are forced to divest.

I am tempted to suggest that angling for soft Brexit is just the bargaining phase of the five stages of grief from Remain supporters, coming after denial and anger. Depression comes next.

Of course the real situation is not as black and white as I am painting it.  But if Britain has to be outside the EU, its best bet is to start with hard Brexit, and then negotiate arrangements sector by sector – much as Switzerland does. Except that we would not go anything like as far as Switzerland. But we have to acknowledge that the UK will lose its comparative advantage in industries that benefit from the Single Market – like the motor industry. That will mean quite a bit of dislocation.

But it won’t be the end of the world. Basic economics teaches us that where comparative advantage diminishes in one sector, it emerges somewhere else. The country may be poorer as a result, but it need not be a disaster. Where will this new comparative advantage lie? We cannot do a Singapore, a favourite of some Brexiteers  – which exploits its strategic position on key Asian trading routes. But industries that are not subject to Single Market rules will be at a relative advantage. This may help Britain’s successful service industries – though making headway in this highly protected arena will be hard. The county’s geographical position should help wind and tidal energy – though not solar energy, presumably. We also need to look for areas where EU regulations look badly implemented.

But just how big any short-term disruption will be is unclear. It is also not clear that the British public actually intended to sign up to it. If they didn’t the only way back is to reverse the Brexit decision itself. That is the true alternative to hard Brexit. But that is another matter.

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Corbyn’s victory shows that Westminster politicians are losing their grip

As expected, Jeremy Corbyn was re-elected as leader of Britain’s Labour Party over the weekend. Thus ended the attempt by the bulk of Labour’s parliamentary party to remove him. There is much comment in the usual places that this will be a disaster for the party, and by and large I agree. But we are missing the wider significance. Mainstream Westminster politicians are losing their grip on politics. Wise politicians will need to change tactics.

Ironically enough, the heart of the MPs’ challenge on Mr Corbyn was that he was incompetent. That may be true, but the MPs’ attempt to unseat him failed to show any serious political competence itself. It is interesting to speculate as to why professional politicians should be so comprehensively outmanoeuvred by the amateurs. Britain’s electoral system does not in fact encourage serious electoral competition by its leading politicians. Most MPs are elected to safe parliamentary seats – so the main political skill is getting selected in the highly competitive, but internal, process of choosing candidates. Advance after that comes through ministerial or shadow ministerial promotion, which is even more about schmoozing that cut-and-thrust. When faced with a serious electoral challenge amongst a mass audience, MPs are often ill-equipped. This was demonstrated dramatically by Labour in Scotland, rich in formerly safe Labour seats, when they proved quite incapable of handling the SNP surge in 2015. It is also why there is little prospect of the MPs breaking away to form their own party – they don’t have the nous.

This is not so true of the Lib Dems, whose seats are much more competitive, with an important exception. In 2005 many Lib Dem seats really were safe, and were successfully passed over to politicians with little experience of hand-to-hand politics. These included Nick Clegg, David Laws and Chris Huhne, who then proceeded to take over the party’s leadership in parliament. The former, at least, proved ill-equipped for serious political competition.

But it hasn’t just been the MPs who have been routed. Their professional advisers (who like to style themselves as “strategists”) have been proved wanting, for all their clever talk. The Lib Dems are sore about the coterie of advisers that Mr Clegg surrounded himself with. Labour Leader Ed Miliband’s fared little better in 2015. The Conservatives’ David Cameron clearly felt they had cracked it. Relentless negative campaigning had seemed to win the day in the Scottish referendum in 2014, and for the Tories in 2015. But it fell apart in the Remain campaign in the EU referendum, against a Leave campaign that was sparky but distinctly amateur. Meanwhile the rout of the professionals is being perpetrated by Donald Trump in the US, to say nothing of Mr Corbyn’s  impressive victories in 2015 and 2016.

What accounts for this? Mainstream politics has lost its appeal. Perhaps it is too defensive. By and large the easy way to win elections is to undermine your opponent – but this has the long-term effect of undermining all politicians. Then there are the inevitable compromises of office, as the complex problems of the modern world will not yield to quick solutions. And the checks and balances of democratic politics mean that politicians have to cooperate with people they disagree with in order to get anything done, be that within parties or between them.

And then there is the fact that economic development does not seem to be going so well in the developed economies. Globalisation and technological advance helped roll back poverty in the developing world, and raise living standards for many in the rich countries too, but there were significant losers, who feel let down by their leaders. Then there was the economic crash of 2008/09, which showed that much of the economic growth in the previous decade was a mirage. Since then the developed world has been stuck in a period of low growth that mystifies economists – though many explanations are offered (poor macroeconomic management; inequality; the wrong sort of technology; demographic changes; reversing gains from trade; too much regulation; too much greenery – each has its fans). Confidence that mainstream politicians know what they are doing drains away.

And people are getting fed up. Exploiting this fed-up-ness lies behind the success of the amateurs, like Mr Trump, Mr Corbyn and the Brexit campaign. This has a very dark side. These campaigners may be sparky, but their main weapons are destructive memes, which bear little relationship to the truth. Indeed it is often referred to as post-truth politics. It doesn’t seem to matter what Mr Trump or Mr Corbyn says, his followers lap it up. Many of them know that a lot of it is untrue, but they love to give the other side a beating. That may be a bit harsh on Mr Corbyn, who is nowhere near the Trump or Brexit league of untruth, but his supporters seem unable to engage with adverse evidence, especially about the electoral appeal of their policies. The rise of modern media makes it very easy to live in a bubble of like-minded people who avoid checking their beliefs with reality. It is ironic that these same people accuse professional politicians of being in a bubble of their own. Actually polling, focus groups and various other techniques of politics make modern politicians more informed about popular feelings than most. It doesn’t help.

What to do? All this brings to mind Visconti’s film of Lampedusa’s novel The Leopard about the struggles of the Sicilian aristocracy during the Risorgimento (and perhaps my favourite film ever): “Everything must change so that everything can stay the same” says the leading character.

Some, like the FT’s Janan Ganesh, urge staying true to old-fashioned, pragmatic politics that the Conservatives have made their own. That is unappealing for those on the liberal left and centre. It means giving ground to the narrow-minded.

Instead I have to draw deep on my liberal optimism. Deep down people understand the truth, and will put up with lies only for so long. That is how Soviet Communism was destroyed. It is why the BBC brand remains so strong – look at the hoo-ha over Bake Off. Liberal politicians must stick with it: don’t play the dark forces at their own game.

But they must do more. They must be exciting again. They must discover new ways of tackling the modern world’s problems, and sell them to the public. To be fair to Mr Corbyn, this is part of his appeal, though he harnesses the dark, post-truth side too, and a lot of his ideas look like 1970s nostalgia. But some of his supporters seem willing to search for new ideas. Never has  this been so important.

Slowly the liberal left is finding these ideas. A new constitutional settlement for more inclusive and devolved politics. An economy less dependent on big corporations. Environmental sustainability being at the centre of the way we think, rather than endless attempts to expand consumption. Education for all that promotes modern skills and wellbeing. Public services that solve human problems rather than applying inappropriate big-industry models. Celebrating cosmopolitanism rather than give in to inward-looking nostalgia.

This thinking has to be finished and turned into an exciting synthesis that people from across political parties can take up, and which will appeal to the sceptical. Bridges must be built between the more open of the Corbynistas, the Labour centrists, the Lib Dems and the Greens – and not forgetting liberal Tories and Nationalists too. Surely that is our best hope.

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TIm Farron aspires to lead the political left. This is optimistic

Tim Farron, the Lib Dem leader saved the best until last. His speech to close the party conference in Brighton yesterday was a barnstormer. He was interrupted by standing ovations several times. It was up to the standard set in Bournemouth last year. How much substance lies behind the expansive rhetoric?

The speech was ambitious. Tim set out make the Lib Dems the main opposition to the Conservative government, accusing Jeremy Corbyn’s Labour Party of abdicating the role. This is another example of the supreme, irrational optimism that, as former MP David Howarth pointed out in a fringe meeting, is the Lib Dems greatest strength and weakness.

Tim continues to use his big speeches to stake out the political ground for the party, on which we might hope for more substantial things to be built. The party’s policy motions at the conference failed to build anything much though. The many new members were no doubt delighted to meet up with so many like-minded people, and learn  about how politics works – but would have struggled to understand what the policy debates were for.

Tim places the party is the unambiguously on the left (or among the “progressives” in the favoured, rather misleading word), by defining it in opposition to the Tories. With the Conservatives hitched to Brexit, this is safer than it has been – but not as safe as trying to get the party to define its own, distinctive place in politics. Interestingly he made an appeal for the Lib Dems to be the party of business and free enterprise, and urged businesses to switch allegiance – and this went down quite well amongst the members. This is not the first time he has planted such hints, but I’m still unclear of what it will mean. Where I want it to go is a model of regional economic development not dependent of central state largesse. We shall see.

But the main policy fields sketched out were on Europe, health and social care, and education. The party is unambiguously pro EU, wishing to draw in Remain supporters. Tim advocates a referendum on whatever alternative to the EU the government eventually reaches. This may be cunning positioning, but I struggle with the idea as serious policy. The “destination” as he calls it probably will not be clear until Article 50 has been invoked and the bridges burnt. Hopes for some sort of middle way between hard Brexit (being outside the single market or a customs union) and full membership are fading. Still this is changing terrain and a more coherent pro-EU position may emerge. Nothing came out of the conference on the party’s vision for the EU itself, even though the institution is clearly in crisis. Where Tim was much stronger was in acknowledging the concerns of working class Brexit voters, referring to his own Lancashire working class roots. He is not trying to blame the voters, but to build bridges. This must be right, if not entirely consistent with some ideas of a “core vote” strategy.

He is much braver on health and social care. Tim, and his former leadership rival Norman Lamb, have identified that health and social care are in crisis. Norman, who remains highly respected in the party, is putting together a commission of experts to develop new vision – and one that will probably involve higher taxes. This is promising – it entails some thought leadership on an issue the public really cares about. With Labour bogged down in union vested interests, and the Tories lacking convincing policy, this development starts to answer the question “why the Liberal Democrats?”.

Alas there was much less thought leadership on education. The party’s instincts are sound enough, but I don’t think Tim, or many in the party, have quite caught up with where schools really are, rather than some rather lurid caricatures. But with the Conservatives veering off to the blind alley of school selection, the political opportunity remains for the party. Yet it would be good if it could develop more ambition. There is a policy working group on education (I applied but was not included) – but these groups tend to square off the party’s internal pressure groups, rather than try to develop a wider public debate – which the health initiative is clearly intended to do.

Tim also developed a general direction of travel for economic policy. He wants more for the regions outside London and the southeast – led by infrastructure investment. He said that these areas had been let down by both the Thatcher and Brown/Blair governments, who were seduced by the bankers, and under-invested in infrastructure and skills. There is something in this. And he did not walk into the leftist trap of employing abstract villains, such as neoliberalism or austerity. This is all sound, but not very distinctive. He could have been much stronger on green investment, but I think the party has sound instincts on that.

But what of my question of last week, about how the party is developing a narrative on coalition? It still wants to play both sides on this, and Tim talks about it as little as possible. He neither sells the coalition’s achievements, nor condemns it as a mistake. I attended a very interesting fringe with former ministers David Laws and Chris Huhne on the coalition years. They acknowledged errors – on tuition fees, benefit reform and NHS reform in particualr, but still enthused on what the coalition had achieved. Fine, but the party still has to explain how it can be of the left and at the same time prop up a government of the right. “That was then, and this is now” is about as good as it gets. The truth is that it very hard for the party. Some members expressed frustration that it does not make more of its achievements – others find many of the things the coalition did (notably on benefits and legal aid) a betrayal of the party’s principles. Expect the muddle to continue for a while. Personally I want the party to rethink its exclusive identification with the left, while seeking to identify areas of agreement with it. The party will help the left by becoming semi-detached – but in the right circumstances it will work with the right too.

And that takes us to a further question. How will the party work with other parties to get things done? It is all very well for Tim Farron to condemn Mr Corbyn’s leadership of Labour as an abdication, but what if Labour, under Mr Corbyn or otherwise, gets its act together? Tim did not rule out working with other parties, and there was plenty of talk at the conference of working with Labour and the Greens. I have bought a book, The Alternative, which tries to develop this – and I will report back when I have read it. For now it is far too easy for us Lib Dems to simply rule out working with Labour and dream to replace them, rather than wake up to the cold, hard realities of how little party is trusted. Working with Labour is about the only way  the party is going to achieve anything practical if it rules out working with the Conservatives again. It is fanciful to suggest that Labour will collapse and leave the field clear for the resurgence of the Lib Dems. But the party can still pick off Tory seats beyond Labour’s reach. Surely we are better off trying to get some form of constructive engagement?

What is clear to me is that the left needs to develop a new policy agenda which is capable of capturing the imagination of a sceptical public. The Lib Dems are engaging in this process. But, to put it at its kindest, it is far to early for the party to imagine that it can lead it.

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To progress the Lib Dems must confront the coalition years

This weekend the British Liberal Democrats go to their main annual conference, in Brighton. They expect little media coverage, but buoyant membership should ensure a lively event. These members face a troubling question: how to rebuild the party’s electoral base. To do this they will have overcome its ambiguous feelings about its recent past.

Notwithstanding increases in membership following the 2015 General Election and this year’s EU referendum, there can be no doubting the party’s dire straits. It lost the overwhelming majority of its elected representatives at all levels over the period 2010 to 2015, when it was in coalition with the Conservatives. It has just 8 MPs (down from 57). The party’s poll ratings bump along at about 8%, ahead of the Greens, but usually behind Ukip, and nowhere with sight of Labour, notwithstanding that party’s troubles, never mind the Tories. There have been gratifying local by election successes over the summer, but only where the party has sufficient ground strength to fight an intensive campaign; elsewhere the party’s vote is as like to shrink to 2-3% as to advance to the giddy heights of 10% or so. There is no sign of a substantive breakout.

To do this, as I have written before, the party is going to have to do two things, which are in tension. The first is to build up a loyal, core vote of people with open and liberal attitudes, that will stick with the party no matter what. The coalition years exposed the lack of such a core mercilessly. Even the 8% that party managed in 2015 can’t be classed as a core vote. And yet there are plenty of  people out there who are potential core supporters, if the party can build trust. This is the pitch made by election expert Mark Pack and former Cambridge MP David Howarth. I broadly support this, but the second thing the party needs to do is win over floating voters at elections – people who don’t quite get the party’s core values, but who can be persuaded to support the party temporarily on, usually, quite narrow grounds.

This tension haunts all political parties, but Lib Dems need to understand it better. The problem is this: Mark and David have shown persuasively that potential core voters are left-leaning. But the most promising pool of floating voters are right-leaning. No other party is going after soft conservatives – and these could be decisive. The Lib Dems need to be a left-leaning party that can appeal to right-leaning voters.

There’s another dimension to the problem though. It is the general disengagement of the public from the ins and outs of politics. A friend, Douglas Oliver, made this point to me recently. He made the same point to columnist Matthew Parris in 2012. Mr Parris coined two laws; Oliver’s first law: “Memories dilute each other” and Oliver’s second law: “In the study of politics, close attention distorts judgement.” What Douglas is suggesting is that we who follow politics closely lose the wood for the trees. We are concerned with events and details that never receive the attention of the wider public. This has two consequences. The public will base their judgements on a much narrower range of facts and ideas than experts. And they have much longer political memories than experts, because events do not crowd out memories in the same way. It took over 20 years for Labour to exorcise the memories of their disastrous rule of the 1970s – and only then after their leader, Tony Blair, made that exorcism his prime focus – putting it ahead of party unity. Equally, Labour leader Ed Miliband’s failure to be clear about Mr Blair’s legacy fatally undermined the party at the 2015 election, leading to one of its worst results ever. The public weren’t impressed by lots of fancy new policies and warm words, and Miliband’s idea that the party should focus on the future, not the past. But the past is the main thing ordinary voters know about political parties.

That’s tough for the Lib Dems, because about the only thing the public really knows about the party is its record in coalition.  All conversations by the party with ordinary voters will start with the coalition. The party might want to start somewhere else – Europe perhaps – but they are as unlikely to succeed as Mr Miliband was with energy prices, austerity or inequality. Which means that the party must decide what it thinks about its recent past.

There are two ways this can go. The first is to attempt what Tony Blair did with Labour. To exorcise the coalition years as a terrible mistake which the party will never repeat. This will need more than words. It will mean rebranding the party, perhaps even changing its name (though unfortunately there is another “Liberal Party” already registered – perhaps “the New Liberals”?), as well as relegating those closest to the coalition, such as former leader Nick Clegg, to the outer edges of darkness. If people leave the party, that only shows that it is serious. Confronting the past is more important than party unity, Tim Farron, the party’s leader, is sufficiently distant from the coalition to pull this off – though he would have to eat some words.

But it is risky. Because if you throw away the coalition, what are you left with? You have to build an alternative vision of what the party is about, and then then sell it to a public with a short attention-span. The vision needs to be different enough from the Green Party and Jeremy Corbyn’s Labour for ordinary people to care – and abstract dissertations about the nature of “liberalism” won’t do; there must be concrete contrasts on topics that matter.  I hear quite a bit of use of the word “radical” from people of this general inclination, but very little about what they want to be radical about – apart from opposing any attempt to reform public services that does not involve a lot of extra taxpayers’ money. Which the Labour left already do. I’m being unfair, perhaps, but politics is a brutal business – and that’s how it looks.

Which leaves us with the second route: embracing the coalition years and claiming that time has vindicated them. At first blush this is just as hopeless. After all, if the public agreed with that idea, they would not have deserted it in droves. And there are aspects of the coalition years, especially the breach of the pledge on student tuition fees, that have taken on a high symbolic importance. Do the Lib Dems acknowledge mistakes, diluting the message, or brazen it out?

But there are advantages to embracing the coalition. It is a good starting point for a conversation with centre-right floating voters. Look at what happened when the Tories governed without a coalition: Brexit, grammar schools, tax breaks for the rich, etc. It is more challenging for the left-inclined potential core voters – but at least it drives a hard line between the party and the Greens and  Labour. It shows that the party stands beyond tribalism for a new sort of politics; when needs must the party will deal with the Tories, provided that certain red lines aren’t crossed. That’s a tough message, but a distinctive one.

I am not a fan of internal party “democracy” (self-selecting groups like political parties are fundamentally undemocratic), but this is something that is best decided by party members. The most interesting thing about Brighton will be to see how that group of more motivated party supporters thinks about the coalition years. I doubt that they are yet ready to confront the party’s past in the way they need to, but there should be signs of which way the wind is blowing.

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Theresa May’s policy on grammar schools is a new phase in the class war

Chatterers on the left had a clear narrative on the class tensions running through British politics. The Conservatives were led by toffs, who went to elite private schools, had no idea about how ordinary people live, and feathered the nests of their rich friends. They shrugged as they heartlessly condemned people to food banks. The appointment of Theresa May as Prime Minister does not fit that narrative, and that will make the left uncomfortable.

Mrs May is not one of the toffs. She went to a state school, and she has promoted others who were similarly state-educated, such as Justine Greening, the new Education Secretary. She has tossed out many of the toffish types, such as George Osborne, who had been Chancellor of the Exchequer and Oliver Letwin, in charge of the Cabinet Office.  At first this drew some positive comments, to the effect that Mrs May was more “grounded”. That honeymoon is now over. Mrs May wants to bring back grammar schools.

At face value, this is a throwback to the 1950s. The brightest children were selected by exam (the 11 plus) and sent to grammar schools, while the rest were sent to secondary moderns. The grammar schools were treated as the elite of the state system, and got the best teachers, and were run with an ethos close to private schools, for whom selection was at the core of their being. The grammars were the route to advancement for many a working class or lower middle class boy or girl – thanks in large part to the vast expansion of middle class jobs in the era. They were sold as an engine of social mobility, and quite popular right across the class spectrum, though the toffs trended to sneer at them. Secondary moderns, by contrast, were neglected. The powers that be did not consider that most people needed a good education – there were plenty of lower-skilled working class jobs to go round, and even the more skilled ones did not require much formal education.

There were plenty of weaknesses in this system, which was especially hard on late-developing children. The secondary moderns were inadequate for the way in which society was developing – which required ever increasing levels literacy and numeracy, to say nothing of other disciplines. In the 1960s the Labour government drove through a move to merge the two types of school into comprehensive schools. This had broad, cross-party support. Grammars were not so popular with those that did not get into them. But people taught at grammar schools retained a soft spot for them, and they remained popular with what might be called the aspirant classes. The system lived on in a number of areas, such as Kent. The middle classes, however, increasingly understood how to game the system, so that the remaining grammars lost any aspirant working class character they might have had, and became a sort of state substitute for private schools.

Conservatives did not reverse the Labour move away from grammars, though they did experiment with selective admissions for some schools. But the grammar school system retained support amongst middle-class families who disapproved of comprehensive schools, and those who were nostalgic for the 1950s. A recent poll showed that more of the public favour more grammar schools than those who either want the system to stay the same, or who want to abolish all grammar schools. It did not help that the country’s school leaders and teachers were ill-prepared for the move to comprehensives, and, in general, made a hash of it. A new ethos is required to make a non-selective schools work. British educationalists have only learnt slowly how to do this – though by and large they are doing a good job now. But public memories are seldom up to date. And in any case the suburban middle classes are very wary of social mixing.

And into this situation has stepped Mrs May, whose secondary school was a grammar that converted to a comprehensive while she was there. She has picked up on the popularity of grammars across swathes of the middle class and now wants to increase their number, to the horror of the educational establishment. She does this amid much rhetoric about meritocracy, and insisting that, somehow, all schools will be good. As a (Labour) friend of mine recently remarked, this is a bit like Jeremy Corbyn saying that he is going to pay for his extravagant spending plans by making the economy grow faster. The fine words cover emptiness.

As a policy idea, grammars make no sense to me – I agree with Michael Wilshaw, the government’s outgoing Chief Inspector of Schools on this. But the politics is interesting. We find the politicians characterised by the left as “toffs” were quite close to the metropolitan middle classes that are the backbone of the left – some of whom have rather toffish backgrounds themselves (disclosure: I went tot he same school as Mr Osborne, though not at the same time). Mrs May is speaking for what I will call the suburban middle class, who are much more conservative. If the toffs are The Times and the metropolitan middle class are The Guardian, Mrs May is speaking for The Daily Mail. Her gender merely reinforces the stereotype: the Mail has a strong female readership.

This is going to harder for the left. The toffs were a small minority, and the left could pile on the sneers with little cost. Alas the suburban middle classes are a wholly different matter. They are numerous, and they are often close in attitudes to aspirant or better-off working classes. The sneers will come at a political cost.

Indeed this group of middle class and working class voters are critical electorally. Whichever political party secures their loyalty is practically guaranteed a close grip on power. Margaret Thatcher made them her own in the 1980s for the Tories. So did Tony Blair for Labour in 1997. The desertion of these voters in Lib Dem seats in the 2015 election proved catastrophic for the party.

So this looks like sound political strategy by Mrs May. The left – Labour and the Lib Dems -will have to work out how to craft an appeal to these voters. Opposition to grammars, which both parties must sustain. won’t help, though some lines of attack are better than others. They need to find ways of pointing out that they could damage many existing schools, knocking onto property prices and causing an influx of less desirable children…

Mrs May will be more worried about opposition from the metropolitan middle classes in her own party than anything from the left. Class could yet fracture the Tories.

 

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Globalisation has undermined economic autonomy by more than most people realise

“We are all in this together.” Thus spoke George Osborne, Britain’s Chancellor of the Exchequer in 2010, to justify the austerity policies of the Conservative and Liberal Democrat coalition. He meant that the burden of austerity should be shared right across society. Whether or not his government delivered on that promise, it is true in another sense. The world increasingly works as a single economy, and individual nations are losing their power to manage their own  microclimates.

This is the message of a very interesting article in last week’s Economist. The immediate point of the article is to criticise Germany for its persistent and large current account surplus. This is making it harder for its neighbours, especially in the Eurozone. It is sucking demand out of the European economy; meanwhile, through its strong advocacy of budget discipline, Germany is making it very hard for other European countries to make up the shortfall, especially in countries like Greece, who arguably need it the most.  This is an old story, which has been pursued many times by commentators such as the FT’s Martin Wolf; some recent IMF research just underlines the matter.

But the article goes on to make a wider point. There seems to be a wider contagion problem in global demand. In weak economies, demand falls, and one way or another this reduces current account deficits and increases surpluses. Weak demand directly reduces imports; a weak currency or pressure on wages makes exports more competitive. Greece has turned a spectacular deficit in 2009 into a significant surplus. But this reduces demand in healthier economies, spreading the weakness. There arises a cycle of doom, unless surplus economies, like Germany, start borrowing to stoke up demand.  But there is little political imperative to do so: there are political benefits to surplus, which tend to strengthen the hands of ruling elites and allow greater stability. Financially secure deficit countries, like the US and Britain, might also do a bit to stoke up demand – but ultimately their deficits limit their capacity to do so. Sustained fiscal stimulus, as practised by Japan for example, really requires a current account surplus.

But this is only the start of global interconnectedness. Both inflation and interest rates seem to be determined more by world markets than domestic policy – in the developed world at least. Hence a remarkable convergence between nations as far a apart as Japan, Britain and the USA. The penny does not seem to have dropped amongst many economic commentators, though.

What accounts for this degree of interconnectedness? It was not so evident in the 1970s, when there was much more divergence between the major economies: compare that decade for Britain, Germany, Japan and the US. The most important single driver was the collapse of the Bretton Woods system of global capital controls, and the liberation of currencies to float where markets took them. There is a paradox here: these freedoms should in principle make governments more independent. Alas there are no free lunches in economics.

Free capital movement frees up countries to run large current account surpluses and deficits. In a system of limited capital flows a surplus country had a problem of what to do with its foreign currency earnings. Meanwhile deficit countries can find it quite hard to find the money to pay for imports. The decades before the 1970s were dominated by balance of trade crises. Older Britons will remember the devaluation crisis in 1967 (which I still remember though I was but 9 years old – such was its impact). In 1956 the US abruptly ended Britain’s adventure in Suez as it threatened to cut support for the UK currency.

Now governments find it much easier to ride imbalances of trade, though eventually deficit countries run out of road (Argentina comes to mind); surplus countries find things much easier, except every so often their foreign financial holdings can take a hit.

But the freedom to run up surpluses and deficits has also given rise to a dependency on global capital markets to fund businesses, governments and private individuals (typically to fund house purchases). The financial crash of 2008-2009 was only the nastiest episode of many, where events in one country shook economies far away. The British government of the time could not believe that a tumble in US sub-prime real estate prices could totally derail their own economy. Labour politicians still put on an air of injured innocence – though Britain’s dependence on global capital flows was positively reckless.

There has been an important second development, apart from the freedom of global capital, though: the rise of global supply chains, and of China in particular. It is hard to underestimate the impact of global trade and global competition on the world economy. This has led to the biggest reduction in world poverty in human history – but the impact on traditional industrial areas of the developed world has not been so benign. One of the most important consequences has been to change the dynamics of price movements in both the labour and goods markets. A rise in the price of goods does not automatically lead to a rise in wages, as it used to. In the 1990s and 2000s economists attributed the remarkable stability of inflation in the developed world to sound monetary policy. But the globalisation of supply chains was a large factor – which may have allowed monetary policy to be looser than it should have been, contributing to the eventual crash.

All this leads to a key question in the current world economy. Does the generally disappointing level of demand in the developed world arise from the lack of coordination of economic policy, rather than deeper factors like demographics and changes to technology? The recent G20 meeting seemed to suggest as much, but no concerted action was agreed upon. I have always suggested that deeper factors where more significant – but  Economist article poses troubling questions.

And then there is a question of economic strategy. A global economic government is clearly out of the question. We only have to look at the struggles of the Eurozone to see that. So is there a way of regaining control of our microclimates, without throwing away the gains from world trade? This applies, incidentally, not just to countries, but regions within countries. Clearly the answer is not the free movement of currencies, as some Anglo-Saxon commentators like to think.  But we do need to think about how to manage the movement of capital better, both internationally and within our countries.

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Where do Remainers go from here?

Last Saturday I joined the March for Europe in LondonIMG_1114. These are the hard core of people who voted Remain in June’s EU referendum. By my estimate between 10 and 20 thousand marched from Hyde Park to Parliament Square, with Liberal Democrats prominent among them. The anger of these marchers was evident. Where to go next politically was not.

It is worth considering what the feelings of the protesters is, as media types and professional politicians attempt to move on. These people feel that a part of their birthright has been taken away – that the result is an assault on their very identity. They were not pro-EU because, as the Remain campaign emphasised, they thought they would be a bit better off economically. They feel part of a bigger Europe. And if there is one single thing they feel most acutely about, it is freedom of movement, because those rights to move and work around the Union are the most tangible and beneficial to them. Some were citizens of other EU countries who have settled here, having felt secure in rights to do so. Many more were British but want the right to move around the rest of Europe – or more strongly, they want that right for their children. It was an Australian, with a British daughter, that made that point most forcibly to us; Ozzies are acutely aware of the difference that an EU passport makes in freedom to move around, and they prize that freedom.

This is significant because British politicians have rightly identified that the issue that bothers Brexit voters the most is precisely freedom of movement – or fear of immigration from other EU members, especially the less developed countries or the less skilled workers. Many are searching for a compromise whereby much of the single market is preserved, but freedom of movement is restricted. This would cut no ice with most of the protestors, though the umbrella Remain organisation, Stronger IN, has hinted at compromise, while renaming itself Open Britain.

It is easy to understand the politics of the compromisers. The Brexit majority was small, and within that 52% there was a clear divide, between those who reject globalisation and want to adopt protectionist policies (echoing Japan perhaps), and those who chafed at the EU’s slow engagement with the rest of the world, and want Britain to embrace free trade (echoing Singapore). If you detach the latter group, and attach it to the Remain 48, you might get a majority behind a “Swiss” solution, with one foot in the EU, but nevertheless outside. Except it would not be like Switzerland, because the UK would need to be able to restrict immigration from EU countries, perhaps severely.

This would not satisfy the hard core Remainers. So what do they want? They want to stay in the EU, and to ignore or reverse the referendum result. A number of arguments are made. The Referendum was merely advisory: parliament can take a different view. Only 38% voted to leave the EU (even if 36% voted to stay) and therefore isn’t a strong enough mandate for such a drastic change. The Leave campaign was deliberately misleading. They might give credence to reports of buyer’s remorse immediately after the result. Alas these arguments carry little weight in the current political landscape. Most (estimated at 421) English and Welsh MPs will have found that their constituencies voted Leave. Under a first past the post constituency vote there would be a majority to leave of  getting on for 220. That strengthens the mandate. The aftermath of the vote has turned to anticlimax, allowing Brexiteers to say that the economic costs of the vote were highly exaggerated by Remain supporters, neutralising the “lies” argument somewhat. There is little hard evidence to show that buyer’s remorse adds up to anything substantial. There is no basis to call a repeat referendum.

And what would a second referendum be about? A popular proposal is to have one on whatever new deal for exit is eventually struck. The trouble is that we will only know what that is long after Article 50 of the EU treaties has been invoked, by which time the situation will be nearly irretrievable. The UK would in effect have to re-enter the EU: but on what terms? The danger is that we have yet another referendum whereby a loss by the government will create uncertainty and chaos.

Still, the political situation may change. A backlash by Brexit supporters against the claims made by leave campaigners would start to build the case for a reversal. The trouble is that even if they wake up in time, they are likely to blame the Remain politicians anyway. This is clearly the narrative that Brexit politicians are now trying to build. The government should have prepared the ground for Brexit better, they say. The politics of anger and resentment is like that. Admitting you are wrong is as hard for voters as it is for politicians.

So do we hardcore Remains give up and shout abuse from the sidelines? Not yet. The government’s majority is small; it will find it hard to form a consensus around a new vision for Britain. A constitutional deadlock could yet unfold. In that situation things could change.

That is a small hope at the moment. Otherwise we must await a generational shift of voters’ attitudes. Brexit is almost bound to disappoint a large number of its supporters, if only because they want so many different and incompatible things . Younger people are more international and open in their outlook; their views will increasingly become mainstream. Re-entry to the EU, or perhaps a reformed successor is still something to hope for. But this time the case needs to be made on identity and emotion, and not by pretending that such things don’t count.

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Academies and charter schools show the flaws in modern policymaking

Last week’s Economist carried a remarkable article about education policy. It looked at the idea of allowing independently managed but state-funded schools, called charter schools in the United States and academies here in Britain, an idea the newspaper has long supported. It reveals weaknesses in the policy. These weaknesses are very revealing.

Independent management of schools has always been more popular with policy wonks than with educationalists. Nevertheless studies were commissioned to show that charter schools and academies performed better than ordinary state-managed schools, usually based on exam results. This is referred to evidence-based policymaking. And it drives me mad. The effectiveness of such an approach depends on the questions you ask the evidence to answer – a process that always entails risks. Schools policy shows two major ones: looking at the wrong question, and making success criteria too narrow.

What’s the problem? Research is now showing that, now that the policy is becoming more mainstream, these independent schools generally perform no better, and often worse, than state managed schools, especially in middle-ranking schools. Worse, there is some evidence from the US that where improved exam results have been achieved, they have not actually improved the life-chances of the pupils. This turn of events was entirely predictable. But whereas the Economist innocently suggests that the policy needs to be tweaked to address these weaknesses, the rest of us must ask whether it was ever a good idea to make the policy mainstream, rather than just applied to a few schools to ginger up innovation.

The first problem is that the policy, and the evidence used to support it, was addressing the wrong thing. Changing management arrangements does not change the way schools are actually run. You can set your school up as an academy and carry on just the same way as before. And indeed many schools in England have done just that, so it hardly surprising that their performance is unchanged. The government’s current drive to make all schools into academies falls precisely into this trap.; schools do the minimum to comply, and so change nothing important. So what was the point?

And it is no secret what really does make a difference in schools, based on countless studies, often reported by the Economist. That is the quality of school leadership and the quality of teaching. This trumps, money, quality of facilities, and even class sizes. To be fair, policymakers advocate independent management because they think it is the quickest way to fix leadership and teaching (where it challenges the stranglehold of teachers’ unions). But they won’t necessarily do anything of the kind, and it is possible to replicate their changes to leadership and teaching in state-managed schools, once politicians understand what is to be done. This is what happened London, for example, before the academies programme got going. I could show you some truly wonderfully state-run schools near where I live – and others who are on their way there. It is really hard to see how turning them into academies is going to help.

The problem is that political structures are something that  politicians and policy wonks find it easy to talk about and comfortable to fiddle with. I have seen something similar in business management – senior managers playing with organisation structures before they have really understood what the real issues are and how they are best to be fixed. So school independence has now become the chief aim of political policy in English education, and the subject of huge amounts of political effort, which will have little direct effect on the quality of education – and could even harm it.

And public policy journalists, including those at the Economist, have egged the politicians on. They often wrote approvingly of Michael Gove, the British Education Secretary (whose remit is actually just England) from 2010 to 2014, who led the recent drive to academies obsessively, in spite of plenty of evidence that he was barking up the wrong tree. Economist articles are anonymous, but I am sure that Anne McElvoy is at the root of this. She seems to care more about her public media profile than the quality of her journalism.

The second issue I pointed to was that of narrow performance measures. This is secondary in the Economist article, but it has been a huge problem in education policy, and in many other areas too. In education the issue is a focus on test and exam results. The article reports concerns that better results achieved in charter schools do not feed through into the employment market (for example in how much pupils are paid in employment). Their focus has become too narrow on improving the scores, at the expense of life-skills. It is even reported that charter school advocates do not send their own children there. The same weakness has been alleged for English academies, though I am not sure how true this is. The system of Ofsted inspections makes England less vulnerable – the inspectors look at broader issues, especially when conferring the coveted “Outstanding” label. Now a broad education, done well, is not incompatible with excellent test results – the pupils use their improved life skills to improve their learning, and in a highly sustainable way – but it takes top-quality leadership to appreciate this and weather the short-term costs.  It remains tempting to short cut this hard road by narrowing the focus.

In fact policymakers should be thinking much harder about the best way of preparing young people for later life, and of recruiting and training top quality teachers and school leaders. And not engage in silly think-tanker debates, for example as to whether schools focus too much on teaching skills rather than knowledge, as Mr Gove was prone to engage in.

And as for school management, no doubt the old ways of state direction of state-funded schools will re-emerge in a new guise. But will politicians and their advisers ever learn the lessons for policymaking, evidence-based or otherwise? Aim directly at the key drivers of success, not just the management structures. And use numerical measures with extreme caution.

 

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