All posts by Matthew

Syriza’s victory. This is going to end badly for somebody

Last weekend the anti-establishment, far-left party Syriza won the general election in Greece, and did better than most people forecast. Under Greece’s unique electoral system, which gives the largest party a bonus of 50 seats, they almost won an overall majority. Guardian journalists jumped for joy. For them it showed that their hated austerity policies can be challenged and beaten. Elsewhere there are quite a few calming voices; things can be worked out, seemed to be attitude. Both views are naïve.

First, in fairness, a couple of positive things need to be said about Syriza. The Greeks have been badly let down by their political establishment, represented in two political parties: New Democracy and Pasok. And yet it is these establishment parties that have been entrusted with sorting the mess out so far. Syriza are coming to government with fresh eyes and should be in a better position to clean things up and distribute the burden more fairly. They should certainly be given the benefit of the doubt for now.

And one of their central positions, that Greece should be forgiven much of its debt, is perfectly coherent. We need more caveat emptor from buyers of sovereign debt. Repayment of debts is not a sacred duty that comes before basic human needs. A more liberal attitude to debt is one of the ways in which progress can be made in unfamiliar economic environment we find ourselves in. There are, of course, trying consequences to such liberality: it will become more difficult to borrow.

That I think is were the more moderate commentators start. But difficulties with Syriza’s position start come thick and fast after that. This is what Syriza’s leader Alexis Tsipras said immediately after his victory:

Greece is leaving behind catastrophic austerity, it is leaving behind the fear and the autocracy, it is leaving behind five years of humiliation and pain. Your mandate is undoubtedly cancelling the bailouts of austerity and destruction. The troika for Greece is the thing of the past.

This is rage against austerity: the need to cut back government expenditure and raise taxes in response to the economic crisis. And this is what those Guardian writers like. The left wing narrative, applied to countries as diverse as Britain, France and Greece, runs something like this. In the 1980s a malign conventional wisdom infected the governments of the western world: neoliberalism. This sought to reduce the scope of government and regulation, and in its place rely on free markets.  All this did was to enrich an elite at everybody else’s expense. And it ended in banking madness that led to economic collapse in 2008. And yet these neoliberals remain in charge! They have used the crisis as a reason to pursue austerity policies. But these policies are an evident failure: everywhere they have been applied growth has been stagnant. When will the world come to its senses, reverse austerity and let growth return?

Syriza’s victory will test this narrative to destruction. The first problem is the debt renegotiation. Sovereign debt is about 175% of Greek national income. This sounds unsustainable. Surely all Syriza is doing is asking for common sense to be applied so that everybody can move on? But all is not what it seems. The size of that debt is a bit of an accounting fiction. Debtors have already conceded a lot on both interest rates and repayment schedules; the debt is not anything like as burdensome as the headline figure suggests.

And there are powerful reasons for preserving that accounting fiction. First, outright debt forgiveness is unpopular right across northern Europe – and not just Germany. Conceding ground on it will nourish the far right from France to Finland. And of course, it will undermine mainstream governments in Europe’s periphery: Portugal, Ireland, Spain and even Italy. The original Greek deal, put together with the hated Troika (the European Commission, the European Central Bank and the IMF) was an elegant compromise designed to balance these destructive forces. The best the Greek government can hope for is a bit more of the same fudge. Allowing Greece to drop out of the Euro and the EU would be very destabilising for the rest of Europe; but it is hardly clear that conceding a lot of ground to “renegotiation” (a euphemism I have always hated) is any better.

And then there are those austerity policies on which the Troika have insisted. These are often portrayed as economic nonsense by the left, because of their effect on aggregate demand, which leads to a sort of doom loop. That is indeed a problem, but their fundamental aim is to put the Greek economy on a sustainable footing. Government expenditure and taxation were way out of line with each other; Greek industry was internationally uncompetitive. Unless these problems are tackled no solution is credible, which means that nobody will lend the Greek government money. Read the more thoughtful “Keynesian” critics and you will suggest that stimulus is focused on initiatives that do not undermine sustainability – infrastructure investment is a favourite. And that, as I have pointed out before, is not as easy as it appears.

Now the Syriza leaders are not stupid, even if some of those Guardian commentators are. Elements of their programme address the issue of sustainability: improving tax collection and targeting the wealthy elite more effectively. But many of their promises seem to go in the absolute opposite direction – reinstating government jobs and raising salaries; reversing changes to employment protection.

Now it is possible to sketch out a fudged way forward; changing the balance of Greece’s reforms, allowing a little more short-term slack, and a little more debt rescheduling.  But how is this “leaving behind catastrophic austerity”? It is impossible for Syriza to meet the expectations it has raised. The Vox Pops broadcast by the BBC over the last week or so suggest that the Greek voters themselves largely understand this – which is one reason to think that maybe such an outcome is what is in store. Mr Tsipras will simply follow the trail blazed by France’s Francois Hollande. In that event it will be the far left in other countries that will be left empty handed.

But a Greek exit from the Eurozone, and the EU, is the other likely outcome. If that happens Greece will indeed have banished the Troika and liberated itself from its debt burden. But the austerity that the Greek populace have suffered to date will look tame.

There is very little middle ground. This is not going to be an easy year. Behind that we can see a flaw in the leftist narrative. The economic policies of the 1990s and 2000s did not just benefit a wealthy elite in developed countries; benefits were spread right across society, including an expansion of government programmes. But these advances were built on sand. Lacklustre growth since 2008 is shaped by fundamental economic forces. It is the new normal. We had better get used to it.

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Big ideas divide us. The path to progress lies through small ones.

For me it is the great turning point in modern thought. In the 1930s Ludwig_Wittgenstein_by_Ben_Richardsthe philosopher Ludwig Wittgenstein (pictured in a 1947 photo by Ben Richards I picked up off Wikipedia) rejected his early, grand philosophical work on the fundamental questions of logic and mathematics. Instead he developed an entirely new approach using the slogan “Don’t ask for the meaning, ask for the use”. While I am only dimly aware of Wittgenstein’s philosophy it is one my life’s chief inspirations.

Perhaps it is natural for people to search for big ideas. Systems that allow us to make sense of our world in simple terms, and which can guide us into big sweeping changes. We look for these ideas everywhere: in religion, in politics, in science, perhaps even in art. But there is only one big idea: there are no big ideas.

This is reasonably commonplace in the field of religion, amongst those of modern, western sensibilities. Many religions aspire to be big ideas, or have done so. They claim their messages are for everybody, and that the only way ahead for the world is if everybody follows them. They are based on sacred insights, often inspired by the direct word of God, which are preserved in sacred texts and traditions.  But there is no way of resolving which of these sacred ways is the right one. Their reach simply cannot be universal. So it is necessary to scale back their ambitions. What is the use of religion? It helps us make peace with the world in which we live; it inspires more ethical and socially useful behaviour; it encourages us to be kind to strangers. All the world’s major religions can do this. To the extent that they fail at these small things, religion does harm.

Another big idea should be looked at in the cold light of day: what might be called modern scientific Enlightenment thinking; it remains persistent. This was of direct concern of Wittgenstein, whose earlier thinking was taken up by logical positivists – people who seek to exclude the unverifiable from human discourse. How often do I hear pleas for things to be “evidence-based”? Or people sneer at alternative medical therapies because they are “unverified”? And yet the system of scientific verification is no absolute (what do we actually mean by “verification”), and has many weaknesses. It can only deal with relatively simple propositions, and in situations that are repeatable. But the world is complex and every situation is in some way new and unique. Our understanding of our world needs more humility. Homeopathy, for example, is nonsense as a big idea. But can it be useful? Because it is holistic in its approach, unlike conventional medicine, the surprising answer to that is: “Sometimes”.

And politics? It should be obvious that the day of big ideas is over. Communism was a big idea; Nazism was a big idea. These both led to the systematic destruction of lives for nothing. Even the more modest ambitions of social democracy and free market liberalism have been shown as flawed, offering incomplete answers at best. And they generate conflict.

And that, at bottom, is the problem with big ideas (or, perhaps, why they are not useful). We will never agree on them. Because of their scope that leads to conflict. And yet a great diversity of people can agree on little things: helping the needy; preserving the peace; civilised dialogue; and even ethical behaviour. But if we try and turn these small ideas into grander ones (for example a universal code of ethics) they will fail. It is through everyday, small-scale negotiations over practical and worthwhile things that progress will be made, where harmony will emerge from discord.

Wittgenstein’s later work focused on language (as did his earlier work, but in a different direction), and rightly so. It is here that philosophers can be of most help. Everywhere we see the abuse of language creating problems. “Islam” means different things to different people, and yet we talk across each other is if its meaning was universal. Recently I blogged about the problems that arise from the use of words like “economic growth”, “inflation” and “deflation”, that are taking even professional economists into silly places. And political activists tilt at words like “neoliberalism” or “socialism” or, even, “Europe” as if they meant something real and useful that people understood – and then wonder why nobody is listening.

So: don’t ask for meaning, ask for the use. And a small step at a time we can make this world a better place.

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The SNP are on manoeuvres. Westminster politicians should be afraid.

Scottish politics is an exercise in asymmetric warfare. The Scottish Nicola SturgeonNational Party (SNP) are steeped in the nation’s own political culture, and focus on their objective of obtaining its independence. The unionist parties are more concerned with the politics of UK as a whole, and push their policies concerning Scotland and the Union into the “too difficult” pile until too late. This has been stark in the last few years. The SNP won their referendum on independence (i.e. holding the referendum, rather than the outcome, which they lost). At first Westminster politicians did not take the campaign seriously, relying on comforting opinion polls. Then, as the No campaign went awry and they woke up to the implications, they panicked. The main party leaders made an ill-thought through pledge (referred to as “The Vow”) on devolving more powers. When the referendum was over, the main party leaders could only see the issue in terms of their own struggles for supremacy in Westminster. The Conservative sought to embarrass Labour with a call for “English votes for English laws”. Labour called for a Constitutional Convention to head this off, but offered no vision of how the thought the union should be run. The SNP are now about to make both parties pay dearly for their negligence.

The SNP lost their referendum, but far from being depressed and demoralised, they have treated the affair as a sort of reconnaissance in force preliminary to a longer campaign. They have made a sharp change in strategy. First their long-standing leader, and Scottish First Minister, Alec Salmond  stepped down, to be replaced by his very capable and popular deputy Nicola Sturgeon. Then Mr Salmond said that he would stand for the Westminster parliament in the May election, meaning that Westminster would have one of the party’s biggest hitters. Then yesterday Ms Sturgeon dropped a bombshell. She said that the SNP at Westminster would happily vote on the English NHS. Until now the SNP at Westminster have stayed clear on voting on matters, like the NHS, which have been devolved to the Scottish parliament. The reason offered is that Scotland’s funding formula (“the Barnett formula”) means that their funding might be affected by England’s health policies. There is practically no aspect of devolved policy that this argument could not be applied to. The SNP are now offering themselves as a fully fledged coalition partner to the Labour Party, should the latter fail to win an outright majority. The three main Westminster Parties hadn’t seen this coming, and they are in utter disarray.

For Labour this is unmitigated disaster. The SNP’s sudden interest in Westminster politics makes a large number of their MPs in Scottish seats vulnerable. The current polling is awful; the party could lose 30 seats. Labour has taken Scots voters for granted ever since the Conservatives’ Scottish presence collapsed under Mrs Thatcher. Their ineptitude was on full display during the No campaign. They have no idea how to construct a persuasive, coherent message and stick to it: their preferred method is just crude menace.  Their campaign message so far is to threaten Scots voters with another Tory-led government. “Don’t worry,” say the SNP “if you vote for us instead we can stop the Tories too.” Labour are left with just emptiness in return. They have no vision of Scotland’s place in the union beyond panicky responses to nationalist pressure.

Intelligent Tories (there are some) should be troubled too. The purpose behind the “English votes for English laws” idea was simply to embarrass Labour in England by pointing out how much they depended on blocks of Scots and Welsh MPs. There is no coherent, workable model of a well-functioning UK constitution behind it. But it carries the risk of destabilising the Union by stoking up English resentment without offering an answer. The SNP have just made that much worse. What about the fate of England’s NHS being dictated by SNP MPs? Conservatives (mainly) support the Union. Scottish independence would be seen as national humiliation and a bitter blow. And yet they are playing into the nationalists’ hands.

Things aren’t much better for the Liberal Democrats. Their main problem is political weakness, resulting from a backlash for going into coalition with the Conservatives. This is at least as strong in Scotland as it is elsewhere in the UK. The party has thought through its vision of the UK constitution more than the other parties, and its solutions are much more robust. But its softly-softly approach to devolution within England, and rejection of the idea of an English Parliament and government, look constructed for a gentler pace of politics than is in prospect if the SNP do well. Still there are some silver linings to the very dark clouds. Labour are retreating from seats they were hoping to take from the Lib Dems, in order to face off the SNP in their own backyard. And Christine Jardine, their feisty candidate in Gordon, the seat Mr Salmond hopes to win, will be no pushover, as she rallies the anti-SNP vote.

But each of the main unionist parties need to take a step back, and form coherent ideas on how the constitution of the Union should look. It isn’t enough to call for a Constitutional Convention; each party must spell out a clear vision that looks sustainable in the face of mischief-making by the SNP. Even if such ideas have short-term political costs. The people of this United Kingdom deserve no less.

 

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We need to talk about the NHS but our political culture prevents it.

Many Britons complain that political correctness stops important issues being talked about. By that they usually mean immigration and cultural integration. Now we talk about these things all the time, and we are coming to understand why that culture of political correctness was a good idea. Pointless, nasty behaviour to immigrants and people from ethnic minorities is on the rise, while yet more rubble is strewn in the path of necessary economic development. But there are issues that are important but where there is a conspiracy of silence. Foremost amongst these is Britain’s National Health Service (NHS). This is not a good idea.

Well it isn’t that politicians don’t talk about the NHS. It has become a central theme of Labour’s election campaign, and the Green party, in their bid to harvest left-leaning voters, have jumped in too. But these campaigns challenge the very idea that the NHS should be reformed. Any suggestion that elements of the NHS should be run by private businesses, or that a local facility should be closed, is attacked virulently. The idea behind these campaigns is that the NHS is under attack, is being “sold off”, and needs to saved by a government that will let our heroic doctors, nurses and ambulancemen get on with their jobs unmolested by rapacious hedge fund managers and bankers. The government’s response to these challenges is distinctly muted – they try to deny that much is changing at all, and point out that they are recruiting more these wonderful doctors and nurses and keeping the money flowing.

But senior NHS professionals are worried. Today it is the turn of Professor Sir Bruce Keogh, NHS England’s medical director, to speak out. He warns that without major changes to the way care is carried out the service will collapse. That means that many existing facilities will have to be cut in order to make room for more cost-effective ways of treating illness which do not involve big hospitals. You don’t have accept Sir Bruce’s prescription to understand the nature of the threat.

The first problem is demographics. The proportion of elderly people in Britain is on the rise. This is increasing the number of patients, and presenting the service with more complex cases that it is difficult to deal with adequately. It is also undermining the tax base from which the NHS is funded and the pool of workers that the NHS needs to recruit. The next problem is a change to the economics. More advanced and effective treatments cost more money. Rates of pay, especially for skilled staff, are getting higher.

These problems are well understood, even if politicians and public alike would rather talk about their implications another day. There is a third problem too. And that is management. Dealing with health issues is a very complex matter, and it is becoming clearer that the way we try to go about it isn’t really helping. Our default method is to break the task down into a series of specialisms and give each a separate autonomous organisation. Primary care is split from acute hospitals which are separate from social care, with mental health handled by yet another set of organisations. But all these things interrelate, and good patient care depends on getting the coordination right. For example the current NHS crisis in hospitals is presented as overflow in Accident & Emergency, but it has its roots in the inability to move older patients into more appropriate social care settings when the acute phase of their illness is over.

I am very familiar with this type of management problem, albeit in much simpler contexts. It was the focus in the 1990s of a management revolution that went under the name of Business Process Reengineering.  The key insight here is that one of the main obstacles is the shape of the organisation itself. Pouring more resources into it won’t help, or not help by much. If you fix a problem in one area, it simply pops up in another. That means that the shape and structure of health care has to change in order to cope with the extra pressures being thrown at it.  That in turn means politically sensitive closures and, almost certainly moves that can be described as sell-offs. It is worth pointing out, though, that simply outsourcing an element of the service without restructuring the way care is delivered is just as fallacious as pouring extra funds into existing structures. This is a point that some on the right, and in government, have not grasped.

I think this is reasonably clear; there may even be consensus about it amongst those that try to look beyond the short-term politics. But the fog then starts to descend. The problem is highly complicated, and the costs to failure very high. The way forward is not obvious. Both this government and the preceding Labour one grappled with it. Both got some things right; both have made mistakes. But it is a debate amongst a small elite of policy wonks and senior professionals, when broader engagement, to prepare  the political ground, is what is required.

Is the basic model of the NHS under threat? This is an open-ended commitment by the taxpayer to fund health care for all citizens. This has some obvious problems – there is no clear way to limit demand. Health care, it turns out, is not like the drains, where once you have fixed the basics, people forget they are there. That was what some people thought when the NHS was set up. People don’t like getting ill, so, said the optimists, that would limit demand. Alas longer life and reduced pain are consumer propositions to die for; potential demand seems endless.

This is the key to a further insight which few seem to have grasped. People often talk of high levels of health care spending being unaffordable. This is untrue. People prize healthcare above many other things, and are happy to give up these other things for less pain and a longer life. You only have to look at the enormous sums spent in the USA on health care to understand that. The problem is how, exactly, do you get the money from people’s pockets and into that of health service providers. The critical question for the future of the NHS is how much more can be raised through taxation.

Which is another area that we should all be thinking about. Could we raise a lot more through taxes if the process was more transparent and people had more confidence in it? Or should the NHS start charging for more things? Should we develop a model of “basic cover” vs “luxury cover”, and bill for the latter? And what could the latter include (anti-cancer drugs that might prolong life but aren’t deemed cost effective?). And that leads to another series of questions we would rather not ask, about the meaning of life and death.

And there’s a further problem. How much do we focus resources on where the demand is currently, or and how much to where we think the areas of greatest need are. The last government talked often of rectifying “health inequalities”, and started a process of shifting resources to poorer areas with worse health outcomes. That put facilities in areas with high current demand, but less actual poverty, under pressure. Most of the NHS’s big disasters, like the failure of Mid-Staffordshire Trust, occurred in areas that had high demand, especially from elderly residents, but which were not classed as being in poverty.

If we don’t fix the NHS, a parallel private health system will build up beside it and undermine it. Something like this has already happened with dentistry. We have little chance of a serious, mature political discussion this side of a General Election. But the sooner that the public demands their politicians address such issues the better. Rejecting the facile slogans of Labour and the Greens would be a good start.

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Inflation – deflation. More evidence that most economists have lost the plot

The economic crash of 2008 took most economists by surprise. As a result many thought tha the discipline was discredited and that it would, or should undergo a rethink. Alas though we underestimated the resilience of conventional thinking. For example, commentary about Britain’s recent low inflation figures, and about inflation in other countries, is straight out of a pre-2008 text book. That’s worrying because the world faces huge economic challenges – while professional economists are looking in the wrong direction.

This week Britain’s lowest annual inflation figures on record – though I’m not clear exactly which set of records this refers to. Overall prices were calculated to have risen by just 0.5% in 12 months of 2014. There was a lot of talk about whether this was good or bad news. On the bad news front the commentators suggested that these figures might presage deflation – negative inflation – which is a Bad Thing. Bad they explained because it undermines demand because people defer purchases, Bad because it makes debts more difficult to repay, or Bad because it makes raises the floor for real interest rates, so making money supply tighter than it should be. Japan since the 1990s is then quoted as the spectre. Some economists will point out that some deflation is not bad – if it is a sign of increased productivity making things cheaper, rather than a spiral of decreasing demand.

What’s wrong with all of that? It is based on a logical fallacy that is so commonplace that most macroeconomists don’t seem to realise they are making it. In order to understand a complex thing like  a modern economy they have developed a series of aggregated statistics, of which GDP and its cousin economic growth, is one, and inflation is another. Fair enough – but for them these aggregates take on the properties of single, uniform phenomena. They then go further by inventing theoretical concepts such as “capacity” and “the natural rate of unemployment” which are unmeasurable and unreal, and pretend that they are real physical things. They then create a world rather anecdotal stories around this fictional world of statistical measures to convince themselves and others that this world is real. This fictional world is populated by people and businesses that are all essentially the same.

But reality is meanwhile diverging ever further from the fictional world. Let’s go back to that commentary on inflation. Will people put off purchases if prices are falling? The prices in question are largely fuel and food; deferral seems unlikely. And remember when the prices of electronic goods and imported manufactures was falling in the 2000s? Where people putting off purchases? It all depends on the precise circumstances – getting underneath the detail. Debts becoming easier to pay off if there is inflation? This depends on two things. Firstly that inflation must apply to your household income, so that it rises faster than the principal of the debt. Second that interest rates are less than the rate at which your income is rising. Neither is true for most people, or even close to being true. Inflation is not making debts easier to repay; deflation should not make repaying debts more difficult. And as for the business about money supply, this opens up a whole new parallel world that economists inhabit – that of monetary policy.

To work out what is really happening in the economy, you need to get behind the aggregated figures and ask what is actually happening and why. Most macroeconomists are unwilling to do this. They play with their aggregated statistics and focus on a fairly short to medium term policy options known as “fiscal policy” and “monetary policy” as if these were the only things that really matter. They remind me of Russian Tsars sending directives to distant provinces . We’re too busy and important to bother with the details; Just do what you are told and  it will all work out on average. And the world goes somewhere else, perhaps disastrously as was the case in 2007/08.

We have another case study in this muddled thinking: Japan. Macroeconomists are quite excited about Japan at the moment, because the current government is adopting a highly aggressive economic policies, following decades of stagnation. This includes an aggressive monetary policy that is straight out of the pre-2008 textbook – increasing the money supply and raising inflation expectations. This is not going particularly well, but the macroeconomists have a ready culprit – the Japanese have wrecked things through bad fiscal policy, since they raised the rate of VAT. Actually the fundamental problem with Japanese economic policy was that while prices were rising, pay (other than a few temporary bonuses) was not. In other words inflation has not proved the uniform phenomenon that economists assume. And that simply highlights that the main issue with the Japanese economy is the functioning of its labour market, not the conduct of macroeconomic policy (see this perceptive article in the FT from Bill Emmott). That and some severe secular trends that afflict all developed economies (demographic change, the evolution of the global economy, excess debt, accumulation of stagnant wealth, and changes to technological progress).

To be fair, the Japanese government, under its Prime Minster Shinzo Abe, has always been aware of this wider and more complex picture, and has been attempting to tackle the many roadblocks to change. For that prominent economists, like Joseph Stiglitz, call them “stupid”.

The world economy, and our individual nations, face huge challenges. We need new thinking. The laissez-fair (or “neoliberal” in leftist parlance) approach adopted in the 1980s has run its course. But the aggregate demand-management polices that preceded them are not the answer (I will not call them “Keynesian” out respect for the highly intelligent and flexible mind that Maynard Keynes possessed). Politicians and central bankers are grappling a range of practical problems that most macroeconomic commentators brush aside. and yet these commentators dominate the airwaves and newspaper columns.

Some of the outlines of this new thinking are quite clear. More focus on redistribution and public investment. Moving away from an obsession with economic growth. Tackling excessive debt. But these leave huge questions. For example: how do you tackle excessive debt without economic growth? I wish economists would turn their attention to these vital questions rather than rehash yesterday’s textbooks.

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Charlie Hebdo – time for cosmopolitans to show leadership

As the dust settles from the Charlie Hebdo shootings in Paris, an ugly picture emerges. The consensus that holds society together is breaking down. We may all agree that murder is wrong, but we disagree on how to combat extremists, how to live with foreign cultures and, indeed, the scope of free speech. The cosmopolitanism that prevails amongst society’s elite is challenged. And yet the only solution is to embrace cosmopolitan ideas yet further.

On the one hand we have the Islamic extremists themselves. We haven’t learnt much new here. Their alienation is such that they feel at war with western (and not just western) states, and they have ceased to see their opponents as human beings. The Paris assailants drew a distinction between “civilians”, whom they should not attack, and others, including journalists and Jews, whom it was OK to kill. This will no doubt aid the process of self-justification in their own circles – but the contradictions are too obvious to everybody else. The extremists appear to have momentum, especially led by the success of the Islamic State in Syria and Iraq. But their attacks, and their revelling in the power of life and death, should alienate them from the rest of society, outside the failed states in the Middle East and Africa.

We could take comfort from that if it wasn’t for dark forces working within the rest of society. Foremost amongst these is the rise of nativism in Europe and America. Nativists are intensely suspicious of any foreigners in their land. As we come to the end of the era of easy economic growth, and as technology destroys swathes of stable, clerical and factory jobs, faith in the idea of progress wanes. Nativists hark back to an earlier age that seemed simpler. They blame immigration for its undermining. Islamic immigrants have become a particular focus of suspicion. Ideas of a clash of civilisations, even a war, take currency. Nativism seems particularly strong in places with small immigrant communities, such as Clacton in England or, on an altogether larger scale, Dresden in Germany. But large, unintegrated ethnic minority communities provoke similar fears in neighbouring communities too. This accounts for the rise of perhaps the most important nativist movement: the National Front in France.

In Britain the rise of nativism is led by Ukip. Originally  Ukip focused on Britain’s membership of the European Union, but it struck electoral gold when it shifted to opposition to immigration. The mainstream Conservative and Labour parties started to panic as Ukip ate into their core support, giving nativism further impetus. Tabloid newspapers stirred things up. As a result public attitudes to ethnic minorities have soured in much of the country. The idea of “freedom of speech” is now used to defend the open expression of Islamophobic views – though the idea that such freedoms should extend to the expression of Islamist or anti-Semitic views is not aired.  The outcry of the Charlie Hebdo killings has given such nativists and their prejudices a real fillip.

Which makes matters worse. The entire Islamic community finds itself under attack. People say that all Muslims are to blame for extremists, and should apologise for them. Now the Muslim communities must face up to some important questions about how they are to progress and integrate into a modern world – questions that many are reluctant to confront. But ignorant prejudice serves only to alienate them, and prolong the sense of grievance on which the extremists feed.

And so we face the prospect of an unravelling.  Globalisation is integral to the western way of life. Just think of the rise of the British Empire and the cities that have been built on the back of the African slave trade in the 18th Century if you think it is anything recent. Large immigrant communities are simply a continuation of that process, in an actually much more benign way. Denying globalisation is as futile as Britons denying that their country is European. Nativism is a road to nowhere, or rather a road to poverty and conflict.

Instead we must embrace the values of cosmopolitanism. These are articulated most clearly by the Ghanaian-born author Kwame Anthony Appiah (as in Cosmopolitanism – Ethics in a world of Strangers). We must accept that our culture is the product of many cultures melding together in a process that has being going on for millennia, and which is destined to continue. There is no such thing as cultural purity, and no point in trying to defend it. This is not the same as relativism, which backs away from defining any kind of right or wrong ethical values. It means embracing ethical values which accept that all the globe’s inhabitants are part of an “us”, even though we recognise stronger affinities with some rather than others. People of different cultures should enter conversations with each other, and accept that their outlooks may change as a result.

Cosmopolitanism has always been embraced by elites, especially in the west after the nightmare of Fascism, which showed the futility of its opposite. That accounts for the many cosmopolitan aspects of our institutions. But now it is vital that it is taken up by all of society: amongst working class communities and ethnic minorities too. Here in London, perhaps, this process is quite well advanced, though hardly complete (I’m afraid that Islamophobic attitudes remain commonplace). Different communities are forced to mingle. We go to school together; we work together; increasingly we have children together. Elsewhere, though, we have just taken a backward step.

But I remain hopeful. The young are more cosmopolitan than their elders. Our cultural and business leaders, by and large, remain firm. At a time when elites are under attack for being out of touch, it is time for them do what elites should: to show leadership.

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Cameron lets the cat out of the bag. The election isn’t a two-party contest

Last night David Cameron, Prime Minster and Conservative Party leader, announced that he would not take part in the proposed leadership debates this year’s UK General Election. Or rather, he wouldn’t unless the Green Party was also invited alongside Labour, Lib Dems and Ukip. This was after Ofcom, the media regulator, suggested that the Greens were not a major party, but that Ukip and the Lib Dems were.

In the petty tactical thinking that so dominates thinking amongst Westminster’s political elite, it is easy to understand Mr Cameron’s move. Two birds can be killed with one stone. First the Greens have emerged as a thorn in Labour’s side, as they are promoting an unambiguously leftist policy platform, and also attract Lib Dem defectors, who are central to Labour’s electoral strategy.  They do not trouble potential Tory voters though. The second aim is that Mr Cameron is not much interested in taking part in the debates anyway. These debates were an innovation in 2010, and greatly expanded political engagement, especially amongst younger voters. But the conventional Tory wisdom were that they were a mistake, assisting the Lib Dems at their expense. And this time Mr Cameron has more to lose than gain. Especially if Labour’s Ed Miliband turns out to be much less of clump than the Tories are portraying him to be.

The announcement was also an opportunity for Mr Cameron to sneer at his coalition partners, the Lib Dems. His claim for the Greens to be a major party was that the Greens beat the Lib Dems in last year’s European elections. But the Lib Dems have 57 seats and record in government to defend, compared to the Greens’ single seat. Mr Cameron’s voice dripped in sneering condescension in a way that only upper class Brits can do.

But it’s a strategic mistake, for all that. Along with the Labour party, the Tories claim that they are the only parties that matter in the election. Electors must choose between these two; everybody else is a waste of time. They dream that a few days before the election, electors will come to their senses and return to voting for the two establishment parties. But now Mr Cameron has painted a picture of a multiparty leadership debate, rather like those we saw on the Danish TV series Borgen. Yet this idea is toxic to the two-party vision. If he had said that he would only debate with Mr Miliband, it would have had strategic value.

All of which reinforces a general sense of Mr Cameron’s weakness as a prime minister. Too clever for his own good. Ever after gaining a tactical advantage, but with no idea of his, or his country’s, strategic interests.

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Are politicians as stupid as Joe Stiglitz says?

Our politicians are being stupid. Thus says the eminent US International Festival of Literature in Cologne, Germany - 13 Oct 2012economist Joseph Stiglitz in a recent article The Politics of Economic Stupidity. In spite of its title, however, the article spends most it words explaining the economics, and actually says very little about the politics, beyond saying it is stupid in pretty much all of the developed world. He is venturing similar views to fellow US academic and Nobel Laureate Paul Krugman (who is even more vocal about stupidity) and the FT’s Martin Wolf (whose comments are more closely argued and less polemical). All three are formidable intellects. Why are they saying this? And why are their views having such little impact on those responsible for economic policy?

The starting off point is the meagre rate of economic growth enjoyed by developed economies (mainly the USA, Japan, the Euro area and the UK) since the economic crash of 2007/08. The politicians cheer from the rooftops if growth occasionally reaches the rate of 3% per annum. But all economies are well below where they expected to be at this point by forecasters in 2007. Growth is meagre and living standards for the median citizen are hardly advancing at all. After a recession you should expect a rapid bounce-back, and then a resumption of steady growth of 2-3%, referred to as the “trend” rate, observed since the 1950s.

The proximate cause of this slow growth is, as these economists have it, a lack of demand. In other words our economies are producing enough goods and services, but not enough people are buying them. This shouldn’t happen. Economics is a circle: what we pay people to produce things is spent by them, creating demand. Demand and supply should balance out. But this can go wrong. If people save too much, and this isn’t balanced by investment, then there can be a downward spiral, in a process brought to popular consciousness by the economist Maynard Keynes in the 1930s. This is what seems to be happening across the various world economies now.

The traditional answer to this problem is for governments to stoke up demand artificially and thus stabilise things. In recent decades the consensus was that he best way of doing this is through monetary policy, usually low interest rates. This encourages people and businesses to spend more; once they spend more the system stops leaking, growth picks up and things settle back to a nice even flow. This should all be a nice self-adjusting process which does not lead to worse problems down the track. But, as Mr Stiglitz points out, this process does not seem to be working. I think he is right here, as I have blogged before, although most economists are in various states of denial about this state of affairs – so central has a particular idea of money and monetary policy become in conventional economics.

That leaves a second weapon in the conventional toolkit: fiscal policy. This means that the governments deliberately spend more than they raise through taxes, creating extra demand that then plugs the gap. This has been the incessant cry of “Keynesians” ever since 2008. But this isn’t as simple as it looks. It is not self-adjusting the way that monetary policy is supposed to be. The risk is that you build a pile of government debt that cannot be repaid, causing another economic disruption down the track that undoes all your good work. Or to put it another way, it often means prolonging unproductive and unsustainable activities that will drag the economy down in due course. It is meant to be a temporary corrective, not a long-term solution.

But, Mr Stiglitz and Mr Wolf say (I’m not so sure about Mr Krugman – he has become so polemical that I’ve stopped reading him), there is a way to square the circle. There is a magic bullet (they don’t actually say that). Public investment. If fiscal policy can be directed towards investment projects it will be sustainable. These projects will generate a return from which government debt can be repaid, either through direct revenues, or through higher taxes. And when government borrowing rates are as low they currently are, it doesn’t take much of a return to achieve this. And yet the developed world governments are reluctant to do this. This is what Mr Stiglitz is calling economic stupidity.

But alas life is not so easy. Public sector investment is an elephant trap. Investment projects that generate their own revenues and collateral don’t need the public sector to run them. Indeed it is almost always better to let them run in the private sector, where management and accountability is sharper. And by and large all the easy ones are being done already. It leaves some big projects that turn out to be very risky – like, for example, Britain’s HS2 fast railway. And because they are risky they are slow to get up and running, and not much use as tool for temporary fiscal policy.

But there is another set projects where the returns are indirect – they come from taxes in various guises. These include things like roads and bridges (given the difficulty of charging economic tolls), schools and hospitals, under Britain’s NHS. But the returns are difficult to judge and projects are selected not through a process of objective rating of financial return, but through political arm-twisting in a bid for short-term prestige. And the more urgent the need to create economic demand, the worse in quality these decisions are.

Examples about. After 2008 China embarked on a massive and urgent infrastructure programme. But although the country remains underdeveloped, much of this money was wasted; whole cities have been built and lie empty. The Chinese government is now grappling with a rising tide of bad debts from the state banks that backed these projects. Japan in the 1990s invested massively in infrastructure projects; the country is littered with “bridges to nowhere” and its economic problems are as intractable as ever. In Britain in the early 2000s the country invested in a whole host of Public Private Partnerships. Many of these are turning sour because it turns out the facilities (notably in the NHS) were not actually needed. Though the political opprobrium surrounds the PPP structure, and the way that there was no real risk sharing with the private sector, we mustn’t forget the problem at the heart of it all – public sector organisations are very bad at choosing investment projects. (Actually private sector organisations aren’t any better if the accountability is weak – but that’s another story). I could go on with other examples of government expenditure that were sensible in principle but badly designed in practice (Labour’s Building Schools for the Future, for example).

The upshot is that public investment is no magic bullet. It’s a good idea, and we should do more of it – but a top down blitz directed by the need to rebalance the economy in the short term is asking for trouble. Each project needs to be properly thought through and well managed. That means you can’t get them going in a hurry.

So what to do? I think we need to be more realistic about the direction our economy is going. Things are changing. The demographics are adverse. The excessive wealth of an elite is economically inefficient. Modern businesses require less physical investment. Technological innovation is more about improving the quality of life than ramping up consumption. Economist such as Mr Stiglitz and Mr Wolf are well aware of these pressures. I think their time would be better spent helping us to craft long term solutions rather than ranting on about “stupidity” that turns out to be not so stupid after all.

 

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Good and bad news about the Lib Dems NHS funding pledge

Today the Liberal Democrats announced and eye catching policy toNHS improve NHS funding by £8bn a year by 2020 (in England).  This matches the figure asked for by NHS England chief Simon Stevens – so it isn’t plucked from thin air.

How is this to be paid for? First £2bn extra is already planned and accepted by the other parties (Labour want to add another £0.5bn). A further £1bn comes from more taxes on the wealthy. The rest will be gradually added as the economy grows. The Lib Dems say that public expenditure should keep pace with national income.

There are good and bad things about this new policy. First the good thing. The £8bn funding figure is entirely credible, given the direction of demographics. Mr Stevens is no lefty. He knows that the NHS can be more efficient and has plans to make it so. But that only gets you so far. Any party that promises to keep the NHS within its current scope and free has to address this gap. This moves, or should move, the debate on the NHS out of the area of gimmicks and into serious choices.

Except that it doesn’t. They’ve made the whole thing look to easy. Tax some other people a bit more and the rest comes from growth. If it’s that easy the other parties can do it too. This is not different in substance to what Labour are offering. It is more of a challenge to the Tories who want to use the proceeds of growth to fund tax cuts.

And growth cannot be guaranteed. There are severe economic headwinds, from demographics, from changes to technology, from changes to world trade – to name but three. To say nothing of the legacy of piles of household and state debt.

To be distinctive, the Lib Dems needed to make it look harder. Which in practice means raising taxes – income tax, national insurance or VAT. Remember Paddy Ashdown’s promise of 1p income tax for education?  This would have made the promise more credible, and got a real debate going.  It would then be Labour who would be forced to mutter promises about future growth, which the public are likely to discount.

Instead this looks like another politician’s promise that is less than it seems. What a pity.

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The Lib dems – successful in government, unrewarded by the public

2015 is here at last. For British politicos this is the  endgame – the year of the General Election and the verdict on the politicking of the current parliament, elected in 2010. That election remains very open, but for the Liberal Democrats it is fair to say that things have gone disastrously off script.

The party languishes at 5-10% in the polls, compared to the over 20% it achieved in 2010. This has shown no sign of improving as the election approaches, and there have been plenty of real life elections to show that such dismal ratings are not just inaccurate polling.

This follows the party’s entry into coalition government in 2010, a ground-breaking event both for the party and for British politics. This government has been pretty successful all told. It inherited an utterly unsustainable government deficit that demanded cuts to both public services and benefits – “austerity”. It struck a fairly prudent course between extreme austerity, and using the relative ease of government borrowing to postpone the pain. For all the political sound and fury over the sense or otherwise of such austerity, there has been little difference between the main political parties on its scale.

There have been failures. Benefits had to be cut, but many of the reforms to the benefits system were misconceived.  The centrepiece reform of Universal Credit might be a nice idea in theory, but its dependence on unobtainable real-time data make its demise only a matter of time. Many attempts to sub-contract government services to the private sector have proved misconceived too. Reforms to the NHS were well-intentioned but it would surely have been more sensible to build on the previous government’s reforms incrementally. Reforms to immigration were popular but unhelpful to the nation’s economic and social health.

But there have been many sensible reforms along the way. A lot of bureaucratic over-engineering from the last government was dismantled. The management of schools is more sharply focused, with a welcome emphasis on the progress of pupils from more challenging backgrounds – and a search for performance measures that can be gamed less easily. Reforms to university finance have improved accountability and spread the financial burden more fairly. The burden of taxation has been shifted to a more progressive and redistributive pattern, not least with a spectacular crackdown on tax avoidance by the very rich. This has helped stem a rise in inequality – though I don’t think the statistics are conclusive as to whether inequality has actually been held in check. overall.

Many (or even most) of these sensible reforms have Liberal Democrat fingerprints on them. The party has proved good at the exigencies of being a governing party – including the discipline of its parliamentarians. A lot of small scale policies have been implemented that Lib Dems have spent years campaigning for (like being able to declare pubs as community assets). Previously characterised as being chaotic lightweights, Liberal Democrats have proved to be up to the job.

There have been major disappointments for Lib Dems in the area of political reform. A referendum on changing the voting system to the Alternative Vote just gave an opportunity for the rest of the political establishment to gang up on the party. Plans for an elected second chamber collapsed in the face of hostility and indifference from Conservative and Labour politicians. Ironically these disappointments may help the party’s fortunes. With the current state of public opinion AV might well have  helped the Conservatives and Labour more than the Lib Dems, allowing them to scoop up Ukip and Green votes. And the strong presence of Lib Dems in the House of Lords immeasurably adds to the party’s heft in any negotiations in a hung parliament – something the SNP, for example, cannot offer. In the PR elections the party wanted for the Lords (or rather, its replacement), it would almost certainly have been nearly wiped out, and surely behind Ukip, the SNP and perhaps even the Greens.

But Lib Dems had expected better rewards from the electorate. It is commonplace for governing parties to lose popularity in the middle of a parliament, but then they are meant to recover. The Liberal Democrats hoped to present themselves to the electorate as a credible coalition party, firmly rooted in the political centre – having put to rest any doubts that it was incapable of achieving practical political power.  Even as Labour and the Conservatives seem to be vacating the political centre, few centrist voters see the Lib Dems as a respectable alternative.

What went wrong? The first problem is that the party has disappointed many of its supporters. In 2010 (and earlier General Elections, come to that), the party set itself up as standing for a new brand of politics – and a break from the lies and cynicism of the other parties. But what the public saw was just another established party wheeler-dealing like the rest of them, and enjoying the prestige of ministerial office. Reforms to university finance may have been an elegant compromise in practice, but it involved reneging on a very categorical election pledge.

A further problem is that many of the party’s supporters were Labour defectors, who saw teaming up with the Conservatives as betrayal. The impact of austerity and reforms to the benefits system and the NHS hardly reassured these voters. That the party was in practice no worse than Labour wasn’t really the point; they hoped for better. The Tory brand remains as toxic as ever.

But all is not lost. The party has upped its game in the seats it holds, and constituency polls show that its candidates there are much more popular locally than the party itself. And their opponents are distracted by the need to keep Ukip, the SNP and the Greens at bay. The public may yet give the party more credit, especially if it gets its messaging right. The liberal centre is not close-fought territory – it is notable that activists have never found the alternative parties less appealing than now.

But a job needs to be done to define better what the party stands for, and communicate this to the public. The party is confident of its core liberal values, but these are not producing sharp, distinctive policies for the more practical issues that bother voters – the economy and the NHS in particular. That’s a shame because some interesting thinking has come up through the party’s policy making machinery – but these ideas need to be turned into something much sharper. This week has not been particularly encouraging. The party has joined in the excessively negative slagging off of other parties – as have all the other parties, mainstream and fringe. Wouldn’t it be better to set out a stall of distinctive policies, on the economy, taxation, the environment and public service – and damn the other parties with faint praise? The public get that small parties can make a difference in coalition – but they need a better idea of what that difference might be in the case of the Lib Dems.

The party has to go through the final act of its years in coalition, and endure the outcome. After that though, the party needs a period of deep reflection, whether or not it re-enters government. But the country does need a liberal party, and there are no others challenging for that space.

 

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