All posts by Matthew

The Chinese test the limits of a state managed economy

Political commentary on economic growth operates between two poles. On the one side the right argues that the state should get out of the way, and allow entrepreneurial businesses full scope to do their thing. On the other, the left says that growth is driven by investment, much of which must be directed by the state to be effective. Both are right, of course, and the balance depends on the circumstances. But China offers a fascinating case study in this discourse.

Until the rise of Deng Xiaoping in 1978, China offered a good example of a failed, state-led economy, alongside the Soviet Bloc amongst others. The economy was made up of state owned enterprises (SOEs) and state directed cooperatives, operating according to production quotas, all part of a state plan. But the economy took off as the shackles of state control were released.

This seems to follow the right’s playbook, but what happened was in fact much more subtle. The state quotas and SOEs remained in being, but a private sector economy was allowed to flourish alongside it. This contrasts with what happened in Russia after the collapse of the Soviet Union in 1990. There, following the advice of right-wing US economists, the state system was dismantled, with SOEs sold off and production quotas abolished. You can’t be half-pregnant, these advisers suggested. That was disastrous, of course. The SOEs were acquired by well connected crooks, who formed a governing oligarchy. Essential state support systems collapsed. A flourishing economy did not emerge until a natural resources boom saved things.

Meanwhile, China’s pragmatic approach delivered spectacular growth, which led to a rapid diminution of poverty. After a first phase in which private enterprise transformed agriculture, a growing private sector flourished in producing manufactured goods for export. It was one of the most brilliant acts of economic government the world has ever seen. They took no advice from westerners. But the Chinese governing elite was left with some difficult questions. Sooner or later the SOEs and political structures would present limits to growth, and would have to be reformed. Commentators, inside and outside the country, confidently predicted that the Communist Party would have to release its grip. But that is not how things have played out.  The Party did reform SOEs to make them more responsive to market economics, but they did nothing that would threaten its own monopoly of political power.

Instead, as the 21st Century has progressed, a new model of growth has emerged. Alongside a vigorously competitive private sector, a massive programme of state-directed investment has sustained growth. That meant growth rates of 10% or so, even through the world recession of 2008/09. Something like 35% of Chinese national income is directed towards investment, much of it through SOEs. This has now swung towards the left-wing model, and those suspicious of capitalism and democracy have taken inspiration. A wise government, unconstrained by the petty-corruptions of democracy, has led the way to continued spectacular advance – and throwing out all that austerity nonsense too.

But, as Martin Wolf writes in the FT this is all coming into question.  The Chinese economy is slowing down. To an outsider this might look like an orderly transition. Growth rates of 7% are still high by almost anybody’s standards; the government’s aim of moving to an economy led by consumption rather than investment looks natural enough – this will improve the wellbeing of the Chinese people. And yet deep flaws in the Chinese model are being exposed. China has rather little to show for years of massive investment – at least in terms of economic returns, rather than monuments in steel and concrete. And behind the investment lurks piles of debt – representing the savings Chinese people. Chinese productivity has been static.

And slowing the growth rate from 10% to 7% may sound easy, but it creates real strains on financial systems, with all the time lags built into it. It implies a much larger dislocation. But with a stock of useless investments, SOEs who are not used to making themselves more efficient and effective, and a financial system threatened by excessive debt, doubts are growing about how feasible even 7% is as a growth figure. And since China plays such a big part in the world economy, it is no wonder that financiers across the globe are getting jittery.

This has some resonance in domestic politics in the developed world. The left’s criticism of austerity policies since 2008 has been virulent, and joined by many respectable macro-economists. Surely, they suggest, the state should have shored up demand with a programme of investment. Labour leadership frontrunner Jeremy Corbyn’s economic proposals are thick with this sort of thinking. But this only works in two circumstances. First is that the pre-crash economy was sustainable, and can be revived quickly, so all that is needed is to cover a temporary lapse in demand. In this event it hardly matters if the investment itself is useless (digging holes and then filling them in, and so on). But in Britain at least there was good reason to question the sustainability of the pre-crash economy: a large current account deficit, a structural deficit on state finances, a bloated finance sector, a declining oil and gas sector. Besides it is all now a bit late.

The second way in which investment can shore up an economy is if that investment produces decent economic returns in due course, allowing debts to be repaid. The unfolding problems in China are showing what happens if investment is badly directed. There are plenty of other examples (Japan is another good one). The trouble is that the more you try and turn investment on and off like a tap, to regulate the macro-economy or in an explicit drive for growth, the more likely investment is to be wasted. The money is directed according to political imperatives, not economic ones. This is something that macro-economists, who don’t like to look behind their beloved aggregated and averaged statistics, often miss. In the UK the criticism that the government did not invest enough after the crisis remains a valid one – but it would not have been easy to pump in the sort of funds that the wider economy needed to keep on an even keel.

Time will tell on China. Its leaders are not to be underestimated. But they are demonstrating that you can have too much state direction for a healthy economy.

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Immigration remains the top issue in British politics

As the left chatters away about the Labour leadership contest, and the economic and diplomatic implications of a Jeremy Corbyn leadership, the real stuff of politics in Britain goes on. And there is no doubting the top issue: immigration.

Immigration has, as in many developed countries, become a lightning-rod issue for general discontent. Grumpy conservatives, especially those of lower middle class and working class standing and white origin, have decided that it is at the seat of most ills. They see a world changing around them, with middle ranking jobs disappearing, house prices and rents escalating beyond reach,  public services under stress, and strange terrorist threats at home and on holiday beaches. The racist attitudes that could be taken for granted in my youth linger too, albeit in “I’m not racist but…” form. “We’re full up” is what people tell each other, and this all seems to be plain common sense. That immigration continues is simply evidence that Britain’s ruling elite is not up to the job.

Meanwhile a refugee crisis strikes Europe. The utter collapse of once-stable Syria is the most important cause. But the dire situation in Libya, Somalia, Eritrea and even Nigeria all contribute to numbers of escapees who are prepared to risk their lives in pursuit of something better. This keeps the flow of desperate people in the news, and stokes up a sense of threat. Sadly, instead of, or perhaps alongside, compassion, many people seem to think “I don’t want these people turning up in my street”. And now net migration to the UK is at record – something that has little to do with the refugee crisis, and much more to do with the relative success of the British economy. A number of right-wing newspapers are happy to keep the pot boiling, drawing connections where there aren’t any and generally playing on a sense of crisis and discontent. It is difficult not to see this as a malign intervention by media oligarchs with an agenda of their own: but this stuff clearly sells newspapers.

Mainstream politicians know full well that how firmly held these views are amongst the public at large, and feel obliged by the process of democracy to do some something. The trouble is that doing anything substantive is likely to damage other things that the public hold dear – such as the economy or public services.

Ordinarily a bit tokenism, followed by some ducking an weaving would be all that is called for. A prosperous growing economy would help distract people, and, in the classic public way, many people don’t really want to go further than have a good whinge.

But behind all this is an issue of real importance: Britain’s membership of the European Union. And behind that lurks another issue: whether or not the United Kingdom survives, or whether the kingdoms of England and Scotland go their separate ways. The government is committed to a referendum on Britain’s membership of the EU in 2016 or 2017. Superficially things are going quite well for those that want Britain to stay in the EU. The polls that once showed solid majorities for exit have now switched the other way.

But Britain’s exit campaigners are a determined bunch. For many it is the most important issue in current politics; for them there is no ill that does not have Britain’s membership of the EU at its heart. It plays the same role as Communism did in my youth: something that provides unity and coherence to an otherwise disparate movement. Large parts of the Conservative Party think this way, perhaps most of its grassroots membership; and they are being harried by the insurgent Ukip. They know that support for the EU is lukewarm, and there is one issue that could turn it: immigration.

Free movement of people lies at the heart of the EU treaties, something that many Britons have taken advantage of with alacrity. Not that that affects the public debate: Britons abroad are benign “expats”, while those coming to this country from other places are malign “migrants”. Many other EU citizens are as sceptical about free movement as Britons are, but securing a treaty change, even if desirable, is not feasible in the next two years. Treaty changes require ratification by all member states, a process that often requires a referendum. Each treaty change has become more difficult than the last; there is now no prospect of securing this. And without treaty change the main features of free movement will remain in place – something that is thoroughly good for the EU economies, including Britain’s, but of no help to those who want to present a “reformed” EU to the electorate.

And so the antis are keeping immigration up on the agenda. The refugee crisis helps: even though this has no bearing on Britain’s membership question, it serves to raise public unease. And slowly but surely the anti-EU campaigners are drawing a connection between EU membership and high immigration. The most conspicuous recent example came from the Home Secretary, Theresa May, no less. She suggested that EU migration be limited to those already with jobs to move too. This is half-baked, but that’s not the point. It is something an EU renegotiation cannot deliver, and this will help stoke discontent.

But leaving the EU would be a disaster for Britain. It would mire the country’s political leadership in many years of painful negotiation, and would give the Scottish independence movement a sound reason to rerun the independence referendum, and an excellent reason for Scots voters to vote for independence. Regardless of whether the Britain would be better off or not outside the EU in the long run, years of negotiation and uncertainty will damage investment, and no doubt slow down other areas of economic and political reform.

So what to do? Moderate Conservatives, led by the Prime Minister David Cameron, are trying to accommodate the anti-immigration movement, both in tightening rules, and in negotiations with the EU. This simply looks ineffectual – as well as damaging as the country’s demographic crisis slowly begins to bight, as well as the need for the country’s education sector to bring in foreign, fee-paying customers.

Labour have tried to find a middle ground too; this is an issue that bothers its working class core vote, now being picked off by Ukip. It has declared that its laissez-faire approach in the 2000s was a mistake. But it wasn’t, and this is intellectually dishonest. Amid such contortions it is difficult to sound convincing.

Nick Clegg, former leader of the Liberal Democrats, also tried to stake a middle ground. He wanted to combine clear and well-enforced rules on migration with a generally liberal attitude. The public wasn’t listening, though, and it sounded too much like liberal fence-sitting.

Which leaves liberals, left and right, in a bit of a bind. For now standing up for the principles of free movement and diversity is the only honest thing to do. But alongside the fictional problems that flow from this are quite a few genuine ones, that need real solutions. And anti-immigrant feeling is a sign of a deeper discontent, which liberals must address.

I think it has a lot to do with the hollowing out of society, as big institutions, from public ones like the NHS, to national commercial chains, take control. This provides the sort of rootless milieu in which outsiders seem much more of a threat to people’s security. It allows organisations that thrive on cheap, disempowered labour, often recruited abroad, to thrive.

But reversing that trend is a huge task. it means looking again at the standard language of economic growth and productivity. It is a cause that this blogger is increasingly devoting himself to.

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Heterodox economics is thin political fare

Last week the Social Liberal Forum hosted a three part series of blogs by”heterodox” economist Simon Radford, “Shouldn’t we listen to those who predicted the crash?”. In it he excoriated orthodox economics, and urged British Liberal Democrats to engage with heterodox economics. His advice is fine as far as it goes, but Lib Dems will find heterodox economics promises much and delivers little.

Now let me make my position clear. I think that orthodox economics has gone seriously awry, and I don’t want to defend it. Also I think that economics has become so central to the political debate that all those interested in politics should engage with it if they can – and they certainly shouldn’t accept orthodox economics as gospel. So to that extent I agree with Mr Radford.

But reading his series was like listening to a shaggy dog story. I eagerly awaited the punch line, the new liberal vision he seemed to suggest at the start, but it never came. The series ended before he had managed to say anything about the practical policy implications of following heterodox economics. I shouldn’t have been surprised. “Heterodox” simply means “not orthodox”, and it doesn’t imply any kind of coherence (which “orthodox” does). What we get was quite an interesting narrative, including a historical one on the development of orthodox economics after 1945. It explains that orthodox economics is seriously wrong – and was in large part to blame for the economic crash of 2008/2009. But we get no clear ideas as to what might be put in its place. This is quite a familiar pattern, I’m afraid. Criticising orthodox economics is like shooting rats in a barrel; so many of its core concepts are clearly nonsense; and it’s old news too. And yet the orthodoxy continues for a reason – it is at least coherent, and offers a discourse for the making of predictions and taking of decisions. It will persist for as long nobody presents a serious alternative way of thinking. This is a point made very well by the one heterodox economist I have any real time for, George Cooper. He at least puts some energy into shaping alternative ways of looking at things. There is no suggestion of that from Mr Radford.

There is a further problem that his readers might not pick up on. In it he seems to suggest, without quite saying it, that orthodox economics is behind current austerity policies, so popular in developed world economies apart from Japan. And yet the most trenchant critics of austerity are as orthodox as they come: economists such as Paul Krugman, Joe Stiglitz or Danny Blanchflower. Indeed when viewing the debate about the economics of austerity in places like the FT, I am struck by the number of orthodox economists taking a critical stance, and the dearth of them defending austerity. Instead austerity is defended by politicians and people like Niall Ferguson, who is a historian rather than an economist. Austerity is not built by a group of theoretical economists forcing the world to conform to their theories. It is largely the result of pragmatic politicians and central bankers struggling to cope with the realities of the world they are faced with. Germans may be fond of their “ordoliberalism“, with its worship of rules, but this not orthodox economics.

And this draws out an interesting point. It is that Keynesians increasingly dominate orthodox economics, and yet they are being marginalised politically. Before the crash there was a stand-off between neoclassical economists (often called “fresh water” because they tend to come from US Mid West universities) and the neo-Keynesians (“salt water”, since their US bases are on the eastern and western seaboards). Neoclassicists tended to oppose all kinds of state intervention; the neo-Keynesians offered clear theories for state intervention through fiscal and monetary policy. The crash has seriously diminished the standing of the neoclassicists. This wasn’t because their policies led to the crash – they argue quite coherently that it was various forms of state intervention that were the root cause. It was because they had absolutely nothing to say when the crash happened. They had a general attitude that the recession should be allowed to plumb its depths without any intervention. Nowhere was this considered to be practical or acceptable. Neoclassicists might support the idea of austerity, but of such a severe form that it would have no serious audience beyond US Republican primary voters. Neoclassicists haven’t helped themselves by predicting that the loose monetary policies followed by central banks would lead to massive inflation – when in fact inflation has barely budged. Neoclassical economics seems to have no connection with reality. Neo-Keynesians like Mr Krugman, meanwhile, simply say that the crash left their version of orthodoxy intact, bar a few tweaks. Indeed they confidently claim the post-crash world as vindication. To them heterodox economics is an unnecessary distraction.

And it’s hard not to sympathise with that view. Mr Radford suggests following websites such as naked capitalism or Steve Keen. The former seems to be a rage of negativity based mainly on US liberal domestic concerns; and the latter doesn’t seem to say anything that hasn’t been said better by the FT’s highly orthodox Martin Wolf. Confession – these opinions are based on a quick scan of these sites and reading Mr Keen’s explanation of the current China crisis. I may be doing both an injustice – but they don’t make a good first impression.

And here’s the strange thing. I have read almost no clear critique of the neo-Keynesian orthodoxy used to criticise austerity policies. And yet if their prescriptions are so obvious, why haven’t they been followed? It is clear to me that policymakers are basing their judgements on practical and political problems, not on economic theory – problems that their neo-Keynesian critics refuse to address seriously, so bound up are they in the theory of it all. I think this is a sign that neo-Keynesianism is past its sell-by date. That it no longer reflects the actual realities lurking behind the aggregated statistics that are the lifeblood of orthodox economics.

So we now find that the political left increasingly depends on orthodox economics for its politcal critique, and yet governments and central bankers are blundering along a different path, lacking a clear theoretical framework. Unfortunately, instead of searching for an updated theoretical framework that might offer public policymakers more guidance, heterodox economists seem content to rage against authority. Perhaps it is because the development of a genuinely new economics leads to questions that not even heterodox economists are comfortable with, such as the usefulness of aggregated economic statistics, and such central concepts as economic growth. But those searching for the policies of the future have to address these profound issues.

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We need new economic thinking based on wellbeing and sustainability

If the political right and left can agree on one thing, it is the centrality of conventional economics – the quest for economic growth and rising productivity. For a few moments after the great crash of 2008/09 people suggested that conventional economics had had its day. But it just bounces back. And it fails to address the real needs of 21st Century society.

The right, the centre-right and even the centre-left remain entranced by economic liberalism, which the left refers to sneeringly as neoliberalism. This focuses on markets as the most efficient way of processing information on human wants, and that carefully designed incentives are the key to public policy in areas where markets fail. The centre-right and the centre-left are divided over the scale of government, but even the centre-left are wary about putting up tax rates, as a disincentive to work. The financial crash has not shaken their confidence, beyond showing the need to get banking right, though they are quietly putting even that thought on the back burner. If anything undermines confidence it is growing inequality. And yet while overall economic growth keeps going, at least in Britain and the US, they see no reason to question the foundations of their thinking.

That the left is as attached to the old economics as the right may seem surprising – they often claim that capitalism has failed and must be replaced. And yet their various policies need plentiful taxes, and they need a growing money economy to deliver this. They have received a boost from such conventional economic luminaries as Paul Krugman and Joe Stiglitz, who emphasise Keynesian fiscal expansion, and are critics of what the left calls “austerity”. Indeed opposition to austerity is now the rallying cry of the left. That this implies subscription to a prosperous capitalist economy is a paradox that does not seem to trouble them.

There are two basic, and linked problems with all this. Firstly that, for a variety of reasons, the potential for economic growth is sharply reduced in the developed world. Policies aimed at stoking it up are doomed to failure – usually in the form financial bubbles. Second is that it is largely addressing the wrong questions.

What are the right questions? Simple. How to promote human wellbeing. How to secure the future of the planet.

Consider human wellbeing first. Conventional economic theory puts the idea of “utility” at its heart. Utility is shorthand for the point of it all. But it doesn’t waste much time asking what this is, it just assumes that there is a hidden force behind market demand whose implications can be modelled with some relatively simple mathematics. And yet human wellbeing must surely be the point of all, and it is well worth taking a detached look at what this might be. This is, in fact, a flourishing field of study in modern economics – though it has failed to touch what I have called conventional economics.

This study highlights how important are things that are not easy to integrate into the market economy, and not related to quantity of consumption of goods and services: family life, local communities, public goods, and so on. After certain basic needs are met – sustenance, shelter, health care – higher levels of consumption do not securely lead to better wellbeing. And so an ever higher level of overall consumption – the central tenet of conventional economics – ceases to be important. This is actually quite obvious if we look around us. Public policy types might bang on about the need for ever greater economic productivity to promote our wellbeing, but this seems far from  most ordinary people’s minds. The great modern invention is the smartphone – but its big impact is on how we run our personal lives, not how we participate in the conventional economy. People seek out goods produced in environments of low productivity (organic goods, hand crafted clothing, etc.) because they confer higher status, or carry some other aura. And so on.

But there is a trap lurking in the promotion of wellbeing economics. Some want to reduce human wellbeing to numerical measures that can be used as a sort of replacement GDP. And yet the key to human wellbeing is human agency. It is something we must all learn to acheive for ourselves in our own way. The use of numerical measures implies that it becomes the responsibility of public policy makers – and that will be ultimately self-defeating. Public policy is better directed towards limiting human misery and providing basic needs – and not taking direct responsibility for human happiness. It is vital that people learn to take responsibility for their own lives, and not just blame everybody else for their problems.

And then there is environmental sustainability. The threat to the planet that we inhabit from excessive human consumption should be obvious to all. The threat to the atmosphere from an imbalance in carbon emissions is only the most immediate and serious aspect of this. And yet a public philosophy based on ever higher consumption cuts across this. Of course the unit impact of that higher consumption can be moderated. Energy efficiency is hardly incompatible with economic growth. And reduced environmental impact and economic growth are not necessarily incompatible. It is just very unhelpful to keep focusing on consumption for its own sake.

What difference does all this make? Here are thoughts, each of which needs to be explored in greater depth – something I hope to do in future blogs.

  1. The state can’t keep growing. Tax revenues are dependent on the money economy (indeed you can argue that the whole point of money is to pay tax). If that’s not going to grow, and we can’t assume it will, we must find better ways of solving our problems than expanding the state’s resources. I think that means a more joined-up and localised approach, drawing strength from local communities.
  2. We need less debt. Debt as currently conceived is a dehumanising process that increasingly leads to financial bubbles. Finance should be based much more on risk sharing instruments such as equities. We should approach this by steadily reducing creditors’ rights, as well as bearing down on the tax privileges associated with debt.
  3. We need to rethink housing tenure. Our homes are central to our feeling of wellbeing. But clearly things are wrong. Property ownership seems to be privileging a lucky few. In the rented sector too much power is put in the hands of landlords to trash the lives of their tenants. Somehow we need to improve tenants’ rights while ensuring that there is a sufficient supply of decent homes.
  4. We also need fresh thinking on employment. The employer-employee relationship is too often exploitative. And yet flexibility of employer-employee relationships often leads to a more efficient use of resources (consider Uber and its ilk).
  5. We should stop worshipping scale. Large organisations, from government agencies to big companies seem to be privileged. We lazily assume that scale leads to efficiency. It sometimes does. But too often it simply destroys local knowledge and human relationships.

I could go on. Tackling these problems will require reform of political institutions and public services, as well as the system of legal rights in which our society works. But a future where we are both happier, and reduce the strain on our environment is surely attainable. I think this is a fundamentally liberal idea – but it is possible to build broader political coalitions behind reform. But we badly need to move on from the staleness of the current political debate.

 

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A Corbyn win would pose searching questions for the Lib Dems

Clearly the prospect that Jeremy Corbyn might win the Labour leadership election is the most exciting thing in British politics right now. So I will blog about it for the third successive post. This time I want to look at what all this means for the Lib Dems.

According to the rather lazy analysis you often see out there, such a development would be a bonanza for the party. Labour grandee Jack Straw has suggested as much, in a desperate attempt to persuade Labour activists to vote for somebody else. The logic goes something like this. If Mr Corbyn wins, centrist Labour types will be without a political home. They will not be able to bear the leftward lurch implied by an influx of new activists, and, perhaps more sinisterly, the growing influence of trade unions. So, the Lib Dems, being a left of centre party under its new leader, Tim Farron, is natural place to go. It is now exorcised of coalition with the hated Tories – and even that coalition might be seen in a kinder light, now the Tories are unrestrained in government. And this will create an appealing alternative to the Conservatives that would draw floating voters in.

So what would be the political scene if Mr Corbyn won? The left would be cock-a-hoop, and they would have that much-prized thing: momentum. Many people have doubts about the current conventional wisdoms about economic policy – so they might give this new Labour a hearing. This would be bad for the Lib Dems in the short term, as the party would be overshadowed. Disillusioned Labourites are not going to flock to the Lib Dems in the short term either; they will still be in grief for their own party, and may hope that Mr Corbyn can be ousted.

But could that momentum be maintained? The British press, which still sets the media agenda, would be fiercely critical, and it would not take them long to find policy issues that put the new Labour leadership in a bad light. Mr Corbyn has spent his entire political life in the fringes of politics, where saying silly things is rewarded rather than punished. That gives the press plenty of material to work with. Furthermore, there would be a certain amount of chaos in the Labour party, as it argues over a whole range of issues. There are bound to be many disgruntled MPs. Voters may or may not disagree with the party’s new policies, but the real danger is that it starts to look incoherent and incompetent. These voters will not be part of the internet echo-chamber where left-wing activists will convince themselves that they are riding a popular wave – and they may not see the danger until too late.

The Lib Dems would be quite well placed to exploit this, in principle. The Greens’ thunder will have been stolen by Labour’s new direction; Labour will have taken over most of the Greens’ populist agenda. Ukip have lost momentum, with their rather chaotic General Election performance.

But the Lib Dems have two big problems of their own. First the party is very weak. Second it remains divided over its recent history.

The most conspicuous sign of weakness for the Lib Dems is its mere eight MPs, the lowest number for generations. This does not get better on closer examination. There were very few second places in May’s general election, and many lost deposits. The local councillor base has been hollowed out. Ruthless targeting over many years (and from well before the 2010 General Election from when the serious trouble started) has hollowed the party out in the majority of the country. This weakness makes it much harder to exploit any bounce in the party’s wider support. It also undermines the party’s basic credibility. Disillusioned Labourites may be tempted to set up their own party rather than join a weak and flailing one.

This is compounded by the party’s confusion over what it stands for. Its core values are firm enough, but the party’s interpretation of recent history is not. Was Nick Clegg’s leadership, and coalition with the Conservatives, a betrayal of the party’s values that should be expunged, with a suitable purge of those responsible? Just read a few articles in Liberator magazine, or read online comments, and you will see that this is a popular view amongst many in the party, and those who have left the party and could rejoin. Or is that coalition the proudest moment in the party’s recent history, when the party put the country before its own interests, and marred only by a few tactical errors? This view too is widespread, especially amongst those that stuck with the party, and many who have recently joined it. Some kind of reconciliation between these opposing views (that I will call the rejectionists and the coalitionists as a convenient shorthand) has to be engineered or the party will look just as fractious as its Labour competitor.

Interestingly, the outcome of the Labour leadership contest does have some bearing on this contest. However much Lib Dem activists want the party to plough its own furrow, it inevitably moves into the cracks left by the others. A victory for Mr Corbyn would be bad for the rejectionists. It would steal their thunder, and undermine their efforts to turn the Lib Dems into a party of the radical left. To be sure there are big differences between the Lib Dem rejectionists and the Corbynistas. The former are much more wary of state power, and emphasise political reform, especially electoral reform to a much greater extent, rather than the political control of the levers of power. And yet they are both competitors for those who are impatient for change. Meanwhile, of course, a Corbyn victory would give a ready new audience for the coalitionists – for people who are more patient, pragmatic and common sensical about the progress.

On the other hand a victory for for Andy Burnham or Yvette Cooper would be a boost for the rejectionist Lib Dems. They would appeal to disillusioned Labour leftists outside the hard core, while more moderate Labourites would continue to place their hopes in Labour,rather than turning to the Lib Dems. Should a Corbyn leadership collapse, and be replaced by something more mainstream (Chukka Umunna is sometimes mentioned) then this dynamic might also come forward. On the other hand a Corbyn collapse followed by a charismatic new Labour leader (whether or not Mr Umunna fits that bill is debatable) could be the worst outcome for the Lib Dems of both camps.

The Lib Dem leader is treading a careful path between the rejectionists and the coalitionists. And many Lib Dems were perhaps hoping for a period below the media radar when the party could gather itself together and consolidate its identity. In the jargon, the party would rebuild its core, rather than bid for the political centre (i.e. floating voters). Too rapid a collapse of the Labour Party could place unbearable strains on the Lib Dems, both in terms of organisation and the party’s coherence.

But a slow motion Labour collapse could be an opportunity for the Lib Dems. Even so, it will be a major challenge for this badly wounded party to do it justice.

 

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Corbynomics: hope, fantasy and shaky foundations

Jeremy Corbyn, the front runner in Labour’s leadership race, is clearly somebody that mainstream politicians and media types underestimate. The standard criticism of him is that he a blast form the past – somebody that wants to take the country back to the failed solutions of the 1970s. No doubt that’s how it looks if you just examine the various things the man has said down the years. But many of his supporters are young and are projecting something quite different onto him.  He has crafted his message to appeal to this group, to look like something much more modern. Today I want to take look at his economic ideas.

These have been set out in greatest detail in his paper The Economy in 2020, published on 22 July. It isn’t hard to see why he is enjoying so much support. He offers the hope of something fresh. He starts by attacking the government’s economic policies, which he characterises as “austerity” in the now familiar language of the left. Thankfully he has shown more sense than to use the word “neoliberal”, putting him ahead of the Green leader, Natalie Bennett, who put forward a strikingly similar prospectus in the May General Election.

“Austerity” is used as a general shorthand for economic liberalism, and in particular the attempt to keep government expenditure and taxation in check – which at present means reducing the scale of government expenditure. It also refers to attempts to reform public services through such policies as privatisation. Instead Mr Corbyn calls for investment to rebalance the economy towards higher paying jobs, though not ones in financial services. He has time for some supportive words for private industry – recognising that private enterprise will have to be part of the growth and investment process. It reads as constructive and hopeful.

This overarching narrative has some macroeconomic credibility. The current British economy is nothing like as strong as the government claims, and many of his criticisms are on the mark. Alas it falls apart on closer scrutiny. I want to quickly look at three aspects in particular: the so-called tax gap of £120bn, corporate subsidies of £93bn, and the idea of “people’s QE”.

But first I must mention a name that keeps popping up, and who ideas seem to be behind much of the document: Richard Murphy, an activist associated with the Tax Justice Movement. There are some striking parallels between Mr Murphy and me: he was born in 1958, he took an economics degree, and he is a Chartered Accountant. The main difference was that his Economics degree was joint Economics and Accountancy (at Southampton) in the 1970s, and mine was full Economics (at UCL) in the 2000s. It is one of the rare occasions when my formal qualifications in economics outrank that of a public policy wonk.

The Tax Gap estimate comes from this paper commissioned by the Public and Commercial Services Union and written by Richard Murphy in 2014. Mr Murphy (like me born in 1958 and a Chartered Accountant) is a prominent campaigner for Tax Justice. I first came across this document when it featured in a 38 Degrees campaign (“it isn’t rocket science”, which suggested that collecting more tax was basically quite easy), and I think its claims are firmly embedded in the hard left mythology. It suggests that the Revenue & Customs vastly underestimates the amount of tax lost through avoidance, evasion and the like – and that the real gap is £120bn and not £35bn (and falling). This is important because it suggests that a huge amount of extra tax could be collected if only politicians were less indulgent of wealthy taxpayers. To give some context, the Lib Dems were criticised in the General election for being speculative when they suggested that £10bn cold be gained by tackling the tax gap (more than the other parties, except the Greens, of course). Mr Corbyn has his eyes on something much grander – and thus funding extra government spending without raising taxes on ordinary working people.

The biggest part of this gap is the untaxed shadow economy, which Mr Murphy says is much bigger than official estimates. I can’t offer an opinion on whether this is true – but I can suggest that this is hardly low hanging fruit, and is by no means confined to fat cats (think small building jobs, domestic cleaners, to say nothing of drug dealers and the smuggling of booze and fags). This does explain a rather tangential reference to cracking down on small business tax evasion though in Mr Corbyn’s document.  It is hard to see how any government could do much more than make a marginal difference without a draconian clampdown on the black and grey economies which would carry a lot of uncomfortable implications right across our society.

Another number that gets an airing is the idea the government subsidises business to the tune of £93bn. The source of that seems to be the Guardian newspaper, and its correspondent Adtiya Chakrabortty (“The 93bn handshake” is their headline). This is unbelievably flaky. The biggest single item is £44bn of corporate tax benefits. This is mainly credits for investment expenditure. Calling this a subsidy is more than a stretch – it is simply putting capital expenditure on a level playing field with revenue expenditure by, in effect, making depreciation tax-deductible on some types of investment. I’m not clear whether the figure includes tax releif for research and development, but that would be entirely consistent with the logic. If Labour is serious about helping manufacturing industry, it will need more of this sort of thing, not less. Another thing thrown into the pot is export credits, which allow British exporters to compete on a level playing field. If George Osborne abolished this the noise from Labour benches would be deafening. Cleaning up old nuclear power stations is in there too. There is something not a little bizarre in on the one hand suggesting that the government should promote investment, and on the other hand attacking all attempts by government to promote private sector investment as corporate welfare that should be stopped.

Next comes the idea that the Bank of England’s Quantitative Easing (QE) programme should focus on public investment in housing and infrastructure and the like – “People’s QE” – rather than buying government and other bonds. This is promoted by Mr Murphy again (his ideas pop up several times – and not all of them are bad), in spite of his lack of economic qualifications. Quite apart form the fact that the Bank of England has ended QE because the monetary conditions no longer apply, it gets the Bank into the unenviable position of evaluating public investment projects.  Getting unelected technocrats to do this sort of thing rather than government ministers (funded by gilts subject to QE) is hardly democratic either. To be fair, Mr Corbyn just says that the idea should be looked at, not that he would do it. But it betrays a very weak understanding of economics. He seems unaware that the Keynesian critique of austerity is weakening all the time, especially now that real wage increases are growing, suggesting that economic slack has been taken up. The Keynesian critique may have had authority in 2010, but 2015 is another matter.

The truth about the modern economy is this: the world has moved on from the easy textbook world of the 1960s, and even the 1990s. Technology has made manufacturing so efficient that there are few jobs in it any more; most white collar jobs have likewise been automated away; we are left with a lot of important jobs (carers, nurses, cleaners, etc.) that cannot be made more productive (and so better paid) through investment programmes. Some things can and should be done: investing in public housing, rail infrastructure and building up renewable energy, for example. But these will not yield the hordes of well-paid jobs that politicians left and right so badly want. Productivity improvement has moved from the workplace to our private lives (think smartphones and search engines). And you can’t tax that. Meanwhile demographic change is adding a further brake to the formal economy. This is the real reason why the economy under the Conservatives is not doing well, not “austerity”. Mr Corbyn is offering 20th Century solutions to a 21st Century problem (as is George Osborne, the Conservative Chancellor, I must add).

Slower growth means that it will be a struggle to raise much more in taxes, and certainly not without increasing taxes on middle income people. That is a hard political sell that Mr Corbyn only hints at (“there will be hard choices” he manages at one point). And it means that the government can’t just keep adding things to public expenditure without public services being unable to keep up with demand. That’s why abolishing student tuition fees is such a bad idea, for example – you only have to look at Scotland, where the state pays for university education, to see that. The universities can’t keep pace with demand, and fewer people from poorer backgrounds go to university than in England as a result.

I believe that there is a way forward from here. It does not come from the current government’s economic liberalism. It comes from strengthening local communities and the small businesses that serve them. It will not necessarily produce lots of conventional economic growth, and it will not produce masses of new tax. But it might produce public services that don’t keep failing; it would stop national and multinational chains sucking the life out of local economies; it would harness the potential of the underemployed.

Some of the ideas Mr Corbyn is promoting might help; he seems to suggest devolution of power to centres away from London. But too many look like national solutions that draw power back to London; others look like a path towards mass surveillance in order to collect more tax. I cannot see that it is any better than what the Tories are doing – and frankly I fear it would be worse.

Mr Corbyn promises hope, but his ideas are built partly on fantasy and definitely on shaky foundations. And that is even before he attempts to convince the public at large.

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All the parties are abandoning the centre, but Labour is cutting itself off from it

Notwithstanding my article last week, it looks as if Jeremy Corbyn really is the front runner to win Labour’s leadership contest, after a YouGov poll published this morning.  Also this week Conservative government ministers have been ramping up intemperate rhetoric on immigration and proposing foolish policies to curb it – in what looks like a calculated attempt to hold the far-right Ukip in check. Nobody seems interested in wooing Britain’s centre ground voters.

That YouGov poll, incidentally, is a proper public one, with open methodology. It shows that Mr Corbyn has 53% of the vote, enough to win on the first round. After distributions that would rise to 60% against Andy Burnham – though interestingly it shows that Yvette Cooper would attract disproportionate support from fourth-placed Liz Kendall, and almost enough for her to overhaul Mr Burnham. And yet, as also suggested by my article, she is not as well placed to stop Mr Corbyn – against her he would get 62% after distributions. Mr Corbyn is backed by 67% of trade union sign-ups and 55% of temporary members – and this is giving him a decisive edge.

The idea that political parties should woo centrist voters is scoffed at by Mr Corbyn’s supporters.They either believe that it is possible to work around them with a rainbow coalition of the left, including many who do not vote, or that  momentum for a hard left candidate will build and sweep the pliable voters of the centre in. Evidence for both propositions comes from the SNP’s overwhelming success in Scotland, which followed a sharp tack by that party to the left, and the adoption of “anti-austerity” politics, the current touchstone of the hard left. Of course this shows a typical English failure to understand the politics of their island neighbours. The SNP’s foray to the political left was based on an iron grip on the political centre, and a narrative (all Scottish problems arise from Westminster rule) that appealed to both left and centre. Only last year the SNP were advocating cuts to corporate taxes.

Meanwhile the down-but-not-quite-out Liberal Democrats are also turning away from the centre. This month’s Liberator magazine pours scorn on the previous leadership’s attempt to woo centrist voters. The party must ignore these voters to build up a core vote much bigger than its current 8% of the electorate, the magazine suggests, echoing an attitude that is now widespread in the party. If Labour lurches to the left, Lib Dems hope that this will alienate liberal Labour supporters, allowing it to advance its base. But this is hardly attacking the centre ground.

The Greens and Ukip never were much interested in the political centre. They are attacking the main party bases, left and right (both at once in the case of Ukip).

Who, then, are the political centre? By definition they are not loyal to any particular party, or not loyal for long. They tend to dismiss ideological narratives. Instead they focus on more quotidian issues, such as the economy, public services and tax. And above all they prize competence and stability. They overwhelmingly plumped for Conservatives in England in May’s General Election. They questioned Labour’s economic competence, and especially the idea of a Labour government dependant on SNP support. They did not vote Lib Dem, since they thought this might let Labour in. Also the Lib Dems were thought to lack credibility, after their much publicised tangles over student tuition fees.

And that analysis offers us a clue about what is going on. There is little point in trying to woo these inconstant voters early in the cycle. The early years of a parliament are for shoring up your base. The Conservatives in particular are keeping their powder dry for an attack on the centre in due course. It is not as if centrist voters aren’t sceptical about immigration anyway. The party must weather a bruising EU referendum, which could undermine its reputation for competence. And the economy, upon which the party sets much store, looks a bit too similar to that of the country before the 2007 crisis for comfort. But the party’s managers must be quietly confident.

Even the Lib Dems focus on a liberal core vote does not preclude a bid for centrist voters in key seats when the time comes. They have a big job to do to convince voters that they are still in the game, but mid-term chaos in the main parties might well offer them an opening.

It is Labour that has real reason to worry. It now seems odds-on that Mr Corbyn will take the leadership. The poor political acumen of the party’s soft left has let him in. Firstly it was Ed Miliband’s changing of the rules for electing the party leader, which made it vulnerable to being taken over by the political fringe (centrist supporters are unlikely to be interested enough to take part in such an exercise). Next it was soft left MPs, in particular supporters of Mr Burnham, that let Mr Corbyn onto the ballot. And if Mr Burnham does manage to stop Mr Corbyn (alas Ms Cooper stands less chance), it will be a thoroughly compromised victory. Mr Burnham is already making concessions to the hard left.

It is very hard to see how Labour can make a rapid switch to the centre after this. The hard left narrative is not all nonsense, but idealism trumps all for them – and they are happier railing against abstract nouns rather than addressing the everyday troubles of ordinary working people. Mr Corbyn projects charisma but not competence. And even if he gets ejected from the leadership before the next election, it is hard to see how the party can present a credible face to the country as a serious alternative government.

It is hard to believe that not so long ago (even earlier this year) many thought that the Tory brand was so toxic that they would lose power, possibly for good. But Britain’s incompetent left have found a way to give the Tories new life.

 

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Wanted: a new approach to economic management. Liberals should lead the way

The 1940s fighting the 1980s. There is something desperately stale about the debates over economics in the Labour Party right now. It is a battle between two approaches that have run their course. Meanwhile, on the Conservative side, the 1980s approach is unchallenged. On the principle that these things change every forty years or so, we should be setting our sights on something fresh. What will it look like?

Followers of David Boyle will recognise this narrative. The 1940s ushered in the era of social democracy. This featured economic growth through increases in mass production and mass consumption. An aggressive private sector was balanced by a growing state sector, both in terms of state services and transfers to the less well off. National governments reigned supreme, operating within an international system of fixed exchange rates. Keynesian economic management was unchallenged. Many important national issues were settled by negotiation between government, employers and trade unions – the balance between the three varied from country to country.

In the 1950s and 1960s living standards in the developed world – mainly the USA, West Europe and Japan – advanced steadily across all levels of society. But in the 1970s things fell apart. Environmental constraints took the gloss off the idea of ever upward consumption, especially of energy – as oil prices escalated. The Bretton Woods exchange rate system collapsed, taking the lid off disciplined monetary management. State run services became monstrously inefficient. State bureaucracy was vast and notorious, with not a little taint of corruption, especially (in the UK) over public housing. Arbitrary and misconceived development projects abounded. A massively expensive foray into nuclear power was perhaps the most egregious in this country – a huge waste of public resources for which nobody has ever been held to account.

This led to an economic crisis as the government wrestled with unreconcilable demands, ushering in a period of simultaneous inflation and high unemployment, supposedly impossible under the conventional Keynesian economics of the time . In Britain a major feature of this crisis was a rampant trade union movement, which openly flouted the rule of law with its use of mass strikes and picketing to support inflationary wage increases. Government finances became unsustainable, with the IMF having to stage a rescue in the late 1970s.

The crisis of the 1970s brought about the rise new thinking. This I will call “neoliberalism”. This word has become something of an all-encompassing hate-word on the political left, which has drained it of much of its meaning – but it remains a convenient term. Neoliberalism encompassed a wide variety of perspectives from the far right to the centre-left. It was essentially a rebellion against excessive state power. The state’s attempt to manage the economy was doomed to fail, they said, because of inadequate information and distorted incentives. In its place they advocated solutions based on markets – seen as the most efficient way of to reconcile information on supply and demand – and carefully designed incentives. Taxes should be cut to improve incentives to enterprise and hard work. At its heart was a liberal idea: personal choice should be at the heart of everything.

In Britain neoliberal thinking took off with the administration of Margaret Thatcher, who came to power in 1979. It was given a new lease of life by Tony Blair and Gordon Brown’s New Labour project, as they tried to combine a large state with neoliberal principles of management. How successful , or not, all this was is a matter of deep controversy. But in the early to mid 2000s things seemed to be going well enough, with a record of continuous, steady economic growth and generally improving living standards. Then things started to fall apart with the financial crisis which started in 2007, the aftermath of which still seems to drag us down.

But the styles of economic management only tell part of the story. Behind them lie important important developments in technology and patterns of world supply and demand. In the 1950s technology delivered a host of mass-produced household products, from cars to fridges to brightly coloured fabrics, which provided the basis of both expanded production and consumption. By the 1970s the markets for these products were becoming saturated, with a greater focus on quality and status rather than quantity. From the 1990s the world saw the rise of globalised supply chains, and the explosion of information technology. While economic growth in the old developed world can be questioned (much of it went to a rich elite, or went up in smoke in the crash), there was astounding growth elsewhere, notably in South Korea, China and India. This latter growth followed the adoption of neoliberal policies (though alongside a strong state) and is better evidence of their efficacy than progress in the old developed world.

But regardless of how successful they were, many think that neoliberal ideas have run their course. They do not offer an adequate template for future economic management. Low pay or unemployment is rampant; property values disappear out of reach to most younger people, unless they are helped by parents; large swathes of the country seem stuck in permanent depression; many public services, especially health, are cracking up under increased demand with which the tax base cannot keep up. Meanwhile questions of environmental sustainability persist, especially as it is clear that current levels of global carbon emissions will eventually kill the planet. It is not clear how neoliberal policies will be able to meet these challenges. And many neoliberal ideas look like downright failures – especially financial liberalisation and the attempt to manage public services through markets and numerical incentives.

So it is not surprising that many on the left look back fondly to the heyday of social democracy, conveniently forgetting its failures and the underlying circumstances that made it feasible (expanding demographics; low manufacturing productivity; and so on). But ultimately this is even less convincing. It is quite laughable that the left refers to itself as “progressive”. So what will the shape of the new economic management be?

The first point to make is that the point of it all is improved wellbeing for the general public and especially the least fortunate. We need to completely detach this from the idea that improved wellbeing is based increased levels of consumption of physical things like food, raw materials and energy. This may be so for the poorest in society, but that is a problem of distribution. Most people have more than they need, and many grotesquely more. This is a simple observation, but given how much of the current economic debate revolves around increasing levels of consumption and raising productivity, it does point to the need for a new mindset. Incidentally, reduced consumption of physical things is not necessarily incompatible with conventional economic growth – but focus on growth is not helpful.

The second thing to observe is that improved wellbeing will come from stronger individual empowerment, and stronger local communities. This is common sense, but it is supported by plenty of academic research. It seems to me that the main barriers are unequal power relationships, and dysfunctional services. And these in turn come about through an excessive concentration on specialisation and scale. The neoliberals were right about big, boneheaded national governmental institutions – and even their imitators at more local levels. These are incapable of the effective coordination required to help most people in need. But so many of our private sector choices seem to be based on similar inhuman systems – national and international chains incapable of responding to the needs of whole people. The advance of these institutions is hollowing out local communities while failing to deliver what people really want.

This requires a new management approach that is less focused on national and international institutions, and more on the health and wellbeing of people and their communities.  I will build on this in future blogs.

But one thing is very clear. Such a new approach is fundamentally a liberal one. The conventional left, in both its “hard” (think Jeremy Corbyn) and “soft” (think Ed Miliband or Andy Burnham) forms is still to attached to national institutions to be controlled by a small, enlightened elite and serving a grateful nation. Conservatives may be suspicious of the state, but they are very attached to large commercial corporations and global financial markets, which are surely part of the problem and not the solution. There is some hope in the Green movement – though its British incarnation needs to reverse out of the hard left blind alley in which they currently find themselves. But political liberals, especially those who understand community politics, are the closest to reaching the answer. I want to help move them along that path.

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Britain’s politicos don’t get AV. Is Burnham the only person able to stop Corbyn?

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British political journalism continues to plumb the depths. The latest case in point is their reporting of the contest for the Labour leadership. This applies both to the factual coverage and analysis. Nobody seems to have thought through the implications of the party’s electoral system, know as the Alternative Vote (AV). This system was put to referendum in 2011 for parliamentary elections, but alas the argument that referendums promote education and understanding falls short here.

Last week news was made by the leaked results of a private poll. This showed that left-wing candidate Jeremy Corbyn might just squeak home to victory by 51% to 49%. after second preferences had been distributed, over Yvette Cooper. The poll was interesting, if at all representative of how the Labour selectorate is planning to vote. There is health warning here: as a leaked private poll its rigour is unknown, it is unlikely that anybody has paid a sophisticated poll. The main interest is not that Mr Corbyn is doing well, which is old news, but that Ms Cooper seems to be his challenger. Previously a third candidate, Andy Burnham had been considered the favourite.  The battle between Mr Burnham and Ms Cooper is the the most interesting thing about this contest, at least if your want to predict who is going to win in the end. It is quite possible that Mr Burnham would be able to beat Mr Corbyn in a two-way fight – but it could be that the AV system is counting against him.

Now let’s look as how some of the media reported this poll. Start with Sky News, which comes top of my Google search. This headlines “Corbyn Takes 20 Point Lead in Leadership Poll”. This reports the distribution of first preference votes in the poll, with Mr Corbyn on 42%, Ms Cooper on 23%, Mr Burnham on 20% and the fourth candidate, Liz Kendall, on 14%. The distribution of first preferences is important news, but of limited significance. What it shows is that Corbyn’s support is sufficient for him to reach the final round of the decision process, but not enough to win without second (or third) preferences distributed from other candidates. It also says that Ms Kendall is likely to be eliminated first – and that the battle to challenge Mr Corbyn is a close fight between Ms Cooper and Mr Burnham. The gap between either of these candidates and Mr Corbyn does not tell you very much at all. The brief article does not mention how the second preferences were distributed. Sky’s Chief Political Correspondent, Jon Craig, is quoted as saying that the poll is interesting because because it shows Ms Cooper ahead of Mr Burnham, which is true enough, but then he spoils by saying:

Obviously it is a battle to stop Mr Corbyn, who is ahead. But what this poll suggests is that she (Ms Cooper) – not Andy Burnham – might be the person who can stop Mr Corbyn.

The whole contest is being reported as if it was held under First Past the Post (FPTP) electoral rules, like parliamentary elections. In that event the game is to mobilise votes behind the leading challenger to whoever is in the lead. Under AV the crucial point is which of the challenging candidates has more second preference votes for Mr Corbyn – as that candidate would then be in a better position to challenge him in the final round. That could well be Mr Burnham, who has positioned himself to the left of the field, compared to Ms to Ms Cooper, who resists saying much at all apart from pointing out her sex.

Next on the search is the Telegraph, with headline “Jeremy Corbyn takes 20 point lead in Labour poll with Andy Burnham in third place”. This article again concentrates on the first preferences, but at least this article reports the distribution of second preferences, and makes it clear what the voting system is. It does not delve into the implications of all this, and the headline tells you nothing very useful, but this article is the pick of the bunch.

The next mainstream article in the search is The Independent: “Jeremy Corbyn takes a 22-point lead in Labour leadership race”. This article again focuses on the size of the gap between the first two contenders as if it actually counted for very much. Well actually it reports the gap between the first and third contender: the newspaper is clearly struggling to take Ms Cooper’s campaign seriously. The paper does report that the vote is being conducted under AV, but not what the implications of this are; it doesn’t report that final distribution, which was clearly available, and which is the most important part of the whole release.

Other examples of shoddy journalism abound. The Economist blithely states that the AV system favours the most inoffensive candidate. This is patently untrue, as has been repeatedly shown in places like Australia, which uses the system for parliamentary elections. The inoffensive candidates tend to get eliminated in the early rounds because nobody can must enough enthusiasm for them to give them first preference votes. Often voters are left choosing between two extremes. To win, candidates must achieve a critical mass of first preference votes. Being inoffensive is clearly Ms Cooper’s strategy, and she could pull it off, but it is a risky one. It is not clear how being inoffensive is any more successful strategy under AV than it is under FPTP, which is often decided by “tactical” voting.

Another paper (I can’t remember which, or even if it was a paper) reported that Mr Burnham was positioning himself to the centre-left in order to pick up Mr Corbyn’s second preference votes – long after it was clear that Mr Corbyn was going to make it into the last round, and so that his second preference votes were not in play. And another example: a BBC interviewer suggested to Ms Kendall that she withdrew to improve the chances of the other anti-Corbyn candidates. And yet this makes no sense for her as fourth-placed candidate. It would make for sense for Ms Cooper (or Mr Burnham come to that) to do so.

I suspect what is happening is this. Many Labour members are signed up to the left-wing, anti-capitalist, anti-austerity narrative. Trade unions, for slightly different reasons, tend to think in a similar way: their main concern is to extend the reach of the public sector, where they have more influence. This coalition at first backed Mr Burnham, who tried to position himself to scoop up some of these supporters, while not burning his bridges with the parliamentary party, who are more concerned to pick up floating voters leaking to Ukip or the Conservatives. Mr Burnham became the easy front-runner. But Mr Corbyn entered the race, and proved to have a certain charisma – he tried the novel technique of saying what much of the selectorate was actually thinking, and sticking very closely to the official trade union line. Mr Burnham’s vote rapidly leaked away. This now seems to have reached the point where Mr Corbyn’s campaign has achieved critical mass – about one third of the votes – which means that he gets into the final round. This means that the second preferences of his supporters don’t count.

Meanwhile it does not look as if any of the other three candidates has reached critical mass. But it does look as if Ms Kendall is lying fourth. Which means that her second preferences do matter. It is safe to assume that very few of these votes will go to Mr Corbyn. One popular idea is that most of them will go for Ms Cooper, as being both female and apparently more centrist (Ms Kendall leads the right of the field). That could be enough to ensure that Ms Cooper gets past Mr Burnham and into the final round. If so, the decisive question is how Mr Burnham’s second preferences split. If he’s held on to some of his left leaning voters, they might opt for Mr Corbyn, and allow him to win.

So if you are taking part in this election, and you want to stop Mr Corbyn from winning, it matters a great deal how you rank Ms Cooper and Mr Burnham. If you think that Ms Cooper’s supporters will have fewer second preferences for Mr Corbyn than Mr Burnham, then you should rank Mr Burnham ahead. Which is a pity, because Ms Cooper is the better candidate.

Which speculation leads to an interesting conclusion. The AV system can favour the extremes by hollowing out the centre. The system could let Mr Corbyn in by knocking out the best placed candidate to beat him. Perhaps it’s as well the public rejected AV in 2011.

 

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My hopes and fears for the Lib Dems under Tim Farron

A week ago Tim Farron became the new leader of the Liberal Tim_farron_2014Democrats, my political party here in Britain. When such important events occur I am torn between two impulses: to comment straight away, and so be topical, or to pause for reflection; I take the “thinking” bit of my blog’s title seriously after all.

The decision this time was quite easy. I was quite depressed by the news of Tim’s victory, as I had been backing the rival candidate, Norman Lamb. I needed a few days to recover from that low patch so that could be more upbeat about the whole thing. Now I am past that wobble, I feel better able to comment.

My first reflection is that I must try to be be a good loser. It’s no good my hoping that Tim will be anything other that what he promised to be. And to me that sounds like a distinct step in the “Social Liberal” direction, of supporting centralised state interventions using taxpayers’ money. Or, put slightly differently, going back to the “left of Labour” idea that gained traction under Charles Kennedy’s leadership. This will be good for hoovering up protest votes, but not so good for establishing a coherent new foundation for liberal policy – which I happen to think is the party’s most pressing task right now. I will have to bite my tongue and ride with it. I fear for the longer term consequences, but Tim faithfully reflects the way most of the party feels.

What makes this a lot easier is the knowledge that Tim understands community politics. This should make him quite sympathetic to the new thinking when it comes. More so, perhaps, than the previous leadership under Nick Clegg, or even Charles Kennedy was. And Tim is reliably liberal in his attitudes, and with that comes a healthy suspicion of an over-mighty state.

My second reflection is that Tim must play to his strengths. While not exactly having had what most people would recognise as a “real” job (he worked in higher education before becoming an MP in 2005), his career doesn’t follow the standard Westminster model. He wasn’t a researcher, PR person, charity worker or union rep (though he was part of the National Union of Students); nor was he based in the rarefied atmosphere of Westminster or Brussels – he was worked mainly in Lancashire. And neither did he engage in politcal networking at Oxford or Cambridge (he went to Newcastle University). This gives him something of the prized “authentic” flavour, which could be very useful in reaching out to the public. As somebody pointed out on the radio over the weekend, he’s a bit like Nigel Farage, the leader of Ukip.  Mr Farage was for a long time England’s most successful retail politician, as he traded on his “authenticity” – though his career as a financial trader and European MP was hardly “real world” either. Tim’s rather raw quality will allow him to get away with the odd gaffe, as was the case with Mr Farage – indeed that will all be part of his “authenticity”. And Tim has an engaging turn of phrase.

A second strength is that Tim is able to preserve a degree of distance from the Lib Dems period of coalition. He did not serve in the government; he did not even breach the pledge on tuition fees. This will help the party rebrand. He needs to use this distance to his advantage.

All this will help him get noticed. As will his promise to support “spiky” policies – ones that aren’t necessarily popular, but which illustrate liberal values. If he’s brave these will include support for immigration and scepticism over nuclear weapons, especially Trident submarines. There really isn’t much to lose. The Lib Dems must become an insurgent party, making mischief while the Labour Party tries to carve out more conventional positions. This will draw attention to the party. But what will people find when they start to pay it more attention?

Tim needs to rally the party around coherent values and policies and attract the support of the many people who have liberal attitudes but who do not support the party. There is some baggage here that needs to be dealt with. Many in the party sat tight under Nick Clegg’s leadership, and coalition with the Conservatives, and now want to get revenge. However many people also joined the party because they liked and respected Nick’s leadership. Tim understands the nature of the balance that must be struck here, but the party must resist the temptation to tear itself apart, as its predecessor the SDP did in 1987/88, the party’s previous low point.

But this week’s political antics on the Conservative government’s proposed welfare changes shows just how difficult all this will be. Labour struggle to take a nuanced position, opposing some reforms but  accepting others. The Tim’s Lib Dems went for outright opposition. This is a role reversal from the last parliament, where the Lib Dems often defended Conservative changes that they had moderated, while Labour condemned the party as being complicit to an ideological attack on the poor. This reversal makes me feel queasy – though as it happens I think the Lib Dem stand is right one on this occasion. The public may just see rampant opportunism on both sides. Or a  cat fight amongst parties that aren’t serious about the responsibilities of government. But many Lib Dem activists will just love getting back into the politics of protest and paying back the insults that for years they endured from Labour- even if it plays into Conservative hands. They will enjoy this so much that they won’t notice where it is all leading.

What the Lib Dems need is an alternative critique of the government’s economic liberalism, that doesn’t take its inspiration from the way things were before Mrs Thatcher. The last leader to try this was Paddy Ashdown, who stepped down in 1998. Charles Kennedy went for a lazy oppositional-ism. Nick Clegg went for an economic-liberalism-lite. It does not particularly worry me that party turns away from Nick’s path, though I have supported much of it. It does worry me that Tim’s party will take after Kennedy’s rather than Paddy’s.

But the jury is out. Tim has the benefit of the doubt for now. And me? I want to put my main political energy into developing new ideas for the economy, public services and the way politics is conducted. What I won’t do is rallying the troops and knocking on doors for a new protest politics. Somebody else can do that.

 

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