All posts by Matthew

The slow suicide of Britain’s two party system. Only AV might have saved it

Two-party politics used to be the norm for developed democracies. Most countries’ politics were divided between tribal blocks based on the urban working class and on the aspirant middle classes. But the dominance of these two blocks has faded in most countries. There are two interesting exceptions: the USA and Australia. Here in Britain two-party politics looked as if it would triumph with the demise of the Liberal Democrat,s and the No vote in the referendum on the Alternative Vote (AV) in 2011. But now the system is its death throes.

It is worth considering the architecture of two party politics for a moment. Electoral politics is dominated by two political parties, each of which may govern on its own, without the need for support from smaller parties in coalitions or pacts. Each of these parties has a tribal character, defining themselves as much in opposition to the other as by their own core values. But there is an undeniable class base two. This divides the country into heartlands, where one or other of the parties dominates to the exclusion of all others, and marginal territory, contested by both parties, where elections are won and loss. Many, if not most, politicians build their own careers in the heartlands, where advancement depends on internal party politics, rather than winning over marginal voters. This leads to the system’s major flaw – the political classes are more worried about their own backyard and internal politics than in appealing to the electorate at large. Or they worry about marginal voters to the exclusion of the heartlands. Distance between voters and politicians grows.

The breakdown of this system follows the weakening of class loyalties from the 1960s onwards. New parties have emerged, from the liberal centre, from populist anti-political movements, from environmentalists, and from parties based on regional identity. In much of Europe coalitions became commonplace. Electoral systems played an important role. Those with proportional representation (PR) were the first to find that one party could not govern on its own. But in countries with single member constituencies one party could still aspire to win on its own. France’s two-round system promoted pacts and alliances between parties, and the major blocks split into separate parties – before the whole system started to be challenged by the populist Front National. Countries with First Past the Post (FPTP) systems have placed a greater role on party solidarity. But in New Zealand disillusion with two-party politics led to the introduction of PR; in Canada each of the two party blocks suffered existential crises that allowed more modern alternatives to replace them, at least in part. Australia’s AV system seems to have entrenched the two party system there, however. I will come back to that.

In the biggest and oldest developed-world democracy of them all, however, the two party system remains completely dominant. In the USA there is no alternative to the Republicans or Democrats, although the occasional challenge comes and goes – even as more and more voters self-describe as Independent. But the US system of democracy is unique. Apart from the widespread use of FPTP (some states use a two round system – which is why the Louisiana Senate race is not yet over after this month’s nationwide election), I think there are three, inter-related factors: primary elections, decentralised  power, and direct executive elections. Each party’s candidates are selected using primary elections which include much more than official party members. Such elections are part of the formal, state electoral process. Voters may register as Democrat or Republican. This allows them to take part in publicly-run primaries; in some states primaries are open – any voter can take part. That makes heartland elections competitive – and not a matter of manipulating small groups of insiders to secure your party’s nomination. It helps that each party’s national leadership is weak – so wheeler-dealing in Washington will not help a political career by much. This is a function of a system where much of the power is wielded at state level. One of the factors that keeps party functionaries weak is the prominence of direct executive elections, notably for President and state governors. In these cases personality often matters more than tribal allegiance.

It is an interesting paradox – for the two party system to be robust, the party leaderships must not be too strong. This allows the primary system to flourish, and gives outsiders a chance to break into politics. But party solidarity is important enough for those in power to rig the system to provide incumbent politicians with electorally safe seats through the gerrymandering of boundaries. A diminishing proportion of seats in the House of Representatives are competitive between the two blocks. A large proportion of the important politics is now in the tribal heartlands, and not in marginal territory. As a result of this, it would not be right to describe the state of politics in the USA as healthy. There is increasing polarisation, which is causing deadlock and the prospect of extremist policies. Most Americans seem fed up with the state of politics in their country, though not necessarily with the system itself.

Another case study in the survival of two-party politics is Australia. Politics is divided between two long-standing political blocks: Labor and the Liberal party, though the latter is a coalition of state parties (some of which refer to themselves as National or Country). There have been challenges to this duopoly over the years, but these have not made headway. No doubt there a number of factors that have contributed to this – but I think one factor is critical. And this is the AV electoral system. The legislature comprises single-member constituencies, and there is a single election day. Voters are asked to rank candidates in order of preference. If one candidate does not achieve more than 50% of the votes casts, the lower ranking candidates are eliminated and their votes redistributed. This is a bit like the French two round run-off system, except that with a single election day there is little scope for political deal making over second preferences. It is so important for candidates to maximise first preferences that it best not to talk too much about second preferences.

This makes it very hard for challengers to win seats. First their first preferences have to overhaul one or other of the two main parties. But to do so they cannot say “vote for me to keep the other guy out”, because that is an argument for second preference votes, not first. Second preference votes are useless without sufficient first preferences. And then, of course, you must have sufficient first and second preference votes to get a majority. In marginal seats challengers will be beaten by the lack of first preferences; in heartland seats there will be lack of second preference votes. As a result almost all seats go to one or other of the blocks. In 2013 in order to turn out a lacklustre Labor government, voters opted for a Liberal one that is now pushing forward a series of extremist policies on the environment and immigration.

So what of Britain? For a long time the main challenge to the two party system came from the Liberal Democrats, based in the liberal centre. It was skilful in winning seats under FPTP by establishing a local base, and then winning tactical votes from the weaker of the two blocks. This allowed it to win a substantial block of parliamentary seats in 1997, but not the balance of power until 2010. It then entered coalition with the Conservatives. And then disaster struck – the transition from a protest party to one of government was too much for the voters, and its poll ratings collapsed. Labour and Tory politicians breathed a sigh of relief – normal two-party politics could be resumed.

Ironically, in view of the Australian experience, the Lib Dems placed some hope by proposing to change Britain’s FPTP system to AV. This would have helped the party in the short term, where it had built up a sufficient local base to win second place in first preference votes. Both major parties agreed with the Lib Dem analysis, and for that reason opposed the change (Labour through faint praise rather than explicit opposition). In a referendum on the change in 2011 an overwhelming majority opposed AV. This seemed to secure the future of two-party politics.

But unlike the US, Britain’s politics is highly centralised. Party managers in Westminster like to keep a tight grip on their parties. And, again unlike the US, executives are elected indirectly, and candidates must master the internal politics of their own party in order to progress to high office. The idea of primary elections has not been allowed to gain traction. The Tories have moved small steps towards it, but without being able to harness state resources. The public has no way to channel its disillusion with politics than to vote for insurgent parties – since they are denied a role in the main party elections. And this they have been doing by supporting the populist Ukip in England and the SNP in Scotland.

Unlike the Lib Dem challenge, these insurgencies have affected the main parties’ heartland voters. They are creating unbearable pressures with both party blocks. The Conservative and Labour leaders try both to fend off the insurgent challenge, and to retain the political centre – and as a result both appear weak, driven by events rather than leading them. This is creating unbearable strains and it seems likely both will fracture, especially if they have to endure the pressures of being in government. Labour face calamity in Scotland, as the SNP overturn their heartlands. In England Labour are a fragile coalition of public sector unions, liberal centrists and heartland machine politicians; each’s expectations of the party seems completely incompatible. The Tories look likely to fracture over Europe.

Ironically, if both parties had embraced AV, they would have been in a stronger position to fend off the insurgents and maintain party solidarity. And yet this is just another face of a bigger problem that both party’s face. their obsession with winning the next election has meant a loss of strategic focus. The demise of the two party system looks alarming, as fringe parties gain prominence. But in the long term it is to be welcomed. As the USA and Australia shows, a two-party system is too easily captured by political extremes.

 

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The Emily Thornberry resignation is political correctness gone mad

Last night the Labour MP Emily Thornberry was forced to resign Strood 2from her role as a front-bench spokesman for her party. It is difficult to have any sympathy for her as a person – leading Labour politicians are utterly ruthless with their political rivals. But I still find the episode shocking.

Her offence was to send out the tweet illustrated here. It was a picture from the streets of Rochester and Strood (Strood, in fact), where there was a by-election yesterday – won for Ukip by Conservative defector Mark Reckless. There was no comment – but because it combined two icons of white working class chauvinism – the St George Cross flag and a white van – it was judged to be snobbish – a chuckle at the expense of Britain’s white working class voters. Britain’s “raucous”  (as its sinister political motivation is euphemised) press was certainly taking that view, as it suits their agenda to make trouble for the Labour party. Rather than contest this, Ms Thornberry  resigned, apparently at the instigation of the Labour Leader Ed Miliband who was supposed to be “angry”.  Sadly, this was almost certainly a wise decision. It was the quickest way of killing a story that could have gone on for weeks with the same end result and much more damage to the party. And this meek surrender can even be portrayed as firm leadership by Mr Miliband – as one Labour MP was claiming on the radio this morning. A more abject demonstration of his weakness cannot be imagined.

There’s an irony here. One of the main complaints of tabloid commentators and  the Ukip insurgency is that “political correctness” has crimped freedom of expression. By this they mean the expression of views that might be construed as racist, misogynist or offensive to people with disabilities. But what is this episode if it is is an acute outbreak of political correctness? Pity Labour campaigners! The old norms of political correctness remain as firm as ever, but the list of people they are not supposed to offend, even tangentially, grows ever longer.

This presents a dark picture of our society indeed. People are quick to claim offence, and we are not supposed to have a quiet chuckle at any of our fellow citizens, unless they are rich, aristocratic, a politician or a “celebrity” – in which case we can be as offensive as we like, regardless of any sense of fairness. A society at ease with itself can laugh at itself. What we have is a society of victims and wonton verbal cruelty.

It also shows how Britain’s tabloid press remain in control of the news agenda. Readership may be falling, and people may rely on other media for information, but they still set the tone. Television and radio, including the BBC, meekly follow where they lead. Social media simply promote instant outrage rather than any sense of proportion or justice. A depressing picture indeed.

 

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Why liberals should not vote Labour

Labour’s Ed Miliband is under fire. This is not surprising, given his miserabilist message and the incompetence with which the party has handled Scottish politics. But not all criticism of Mr Miliband is fair. He has held firm on core liberal policy areas, such as Europe, immigration and human rights. Given that the Conservatives are abandoning liberal values in their pursuit of Ukip voters, shouldn’t liberals reward this grit under pressure, and vote for the party that Mr Miliband leads? But that would be as grave a mistake as liberals and greens would have made if they had voted for David Cameron’s party in 2010.

Ed Miliband’s Labour party has not lurched to the left, contrary to many claims in the press. It is in firm grasp of the political centre. His criticism of capitalism is aimed at is directed at rigged markets, as in energy. He does not plan to be reckless with the state’s finances – though he is guilty of not explaining this very clearly to more left-wing supporters. Many of his more radical policies, like devolution within England, look very similar to policies promoted by the Liberal Democrats. This liberalism and centrism has brought rewards. In a recent survey commissioned by the Fabian Society, pollsters showed that voters who had switched to the party from the Liberal Democrats remain loyal to Labour, even as it leaks support from people who had voted for it in 2010, a supposed rock bottom. The Liberal Democrats are not being offered any chink of light to aim at, with only six months to go before the election – except in a few geographically limited strongholds. The signs are that Labour intends to maintain this grip. Even as Ukip nibbles away at its traditional supporters, the Labour leadership shows no sign of panicking.

And most liberals seem to be sick of the Conservative-Liberal Democrat coalition. The Conservatives are back to banging on about Europe, and Mr Cameron is happy to gamble the country’s future membership of the European Union in order to deliver some sound-bites to voters worried about excessive immigration. The Tory commitment on environmental issues, especially the reduction of carbon emissions, has been shown to be skin deep. In education they have set ideology ahead of effectiveness. Their promise of future tax cuts will have devastating implications for public services. The future of the NHS is of particular worry to voters – though it is far from clear that any other party has a better answer to the challenges it faces. The Lib Dems have limited the damage the Tories would otherwise have inflicted. They can claim more tax on the rich, and less on those with lower incomes, advances on renewable energy, forestalling the reintroduction of grammar schools, among many other achievements – but for each liberal win there seems to be more than one in the opposite direction. The tone of the government is Tory and liberals are fed up with it.

But does Labour deserve to win the liberal vote? We might remember David Cameron’s efforts to de-toxify the Conservatives before the 2010 election – which culminated in the slogan: “Vote Blue, Get Green”. But it was quickly clear that his party hadn’t changed for the better; even if Mr Cameron was a moderate liberal himself, he was not carrying his party with him. I think the same is true of Mr Miliband’s liberalism.

The Labour and Conservative parties are very similar in many ways. They are founded on the idea that they are monopolistic parties of government. In many ways they resemble old east European Communist parties (or the modern Chinese one, come to that). They concede grudgingly that the other party has to exist, and that government between the two will alternate – but on the other hand they see each other as tribal enemies. All other political parties, and people without a party allegiance, just don’t count in their world view. This is best seen in local government. There is nothing these parties like better than a Council in which only their own party is represented – which can happen with our current electoral system (except in Scotland and Northern Ireland). They run these fiefdoms through their own, opaque party machinery, so that they can display unity in public, and suppress awkward debate. Conservative Wandsworth (where I live) works in much the same way as Labour Grimsby (which I visited last week). Corruption, especially around property development, is hard to prove. But it is sort of governance where corruption can thrive – and the public suspects it, be it high-rise developments in north Wandsworth, or wind farms in Grimsby’s rural hinterland.

So when Labour talks of devolving power, it is to these opaque structures. If you want a say in how the extra powers and money are used, join the local Labour Party. And if you join the local Labour Party keep your dissent private. Most Labourites, like Chinese Communists, are so inured to this way of doing things that they can’t see a problem. To them, this is what democracy looks like.

But it is has left a rotten mess in far too many places. In Rotherham local council officials preferred to leave their opaque dealings with local ethnic community leaders intact, rather than confront allegations of sexual grooming by Kashmiri men on vulnerable young girls. Doncaster’s social services department collapsed.  And these are the tip of an iceberg. Labour hangs on to power by promoting social and ethnic tribalism. The Lib Dems had been their only challengers in their northern English heartlands – but they have now been crushed following their coalition with the hated Tories. The Lib Dems have passed the mantle to Ukip – who, for all their many faults, stand for much more open and transparent ways of government – or anyway that’s what their grassroots think their party stands for.

If this sounds a little like paranoia, just listen to how Labour activists refer to those Lib Dems. They aren’t regarded as a valid political party who are mistaken – they are traitors and vermin who must be despised and extinguished. Many Labour activists were prepared tolerate the Lib Dems where they looked better able to unseat Tories than Labour. But any such tolerance is now long gone. Some Labour activists are telling the others: “told you so” – any party that is not part of the Labour movement is not to be trusted. Consider this article by Luke Akehurst in Labour List: We must not make the same mistake with the Greens that we did with the Lib Dems.

Such tribal, monopolistic political parties are inimical to modern democracy. Not all Labour party members and activists support such attitudes – but they predominate the closer they get to political power. They are increasingly at odds with they way people want to exercise political power. Such parties are not interested in democratic engagement: they want their tribal loyalists to turn up to vote, and would rather everybody else stayed at home.

Labour and the Tories do not threaten each other in their respective heartlands – but they are subject to insurgent challenges. I have already mentioned challenges formerly from the Lib Dems and now Ukip, which apply to Tories as well as Labour.  But the immediate threat to Labour is in Scotland and from the SNP. Labour, as by far the largest unionist party north of the border, naturally  led the campaign for a No vote in the independence referendum. They did so with staggering ineptitude. They had no idea how run a political campaign based on persuasion rather than crude intimidation. They lost their critical stronghold of Glasgow to the Yes campaign. And following the referendum they rapidly tried to change the subject as if nothing had happened. Now recent polling has shown their vote to be in a state of collapse. They could lose more than 20 seats to the SNP in the General Election, dishing their chances of an overall majority in the UK as a whole.

It is too much to hope that the party will reform itself without suffering electoral disaster first. Voting for them will mean perpetuating a duopolistic system of government that will not make the country a more liberal, better governed place. For liberals it would be better to hold your nose if you have to, and to vote for the Lib Dems.

 

 

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Can the Republican tide in the US be reversed? Maybe not.

I hate to comment on the politics of other countries. I know more than most British about the US political scene, but I’m no expert. Still, wider lessons about the process of politics can be seen from the US. And they are rather worrying.

As a liberal I root for the Democrats in the US elections – though their record on some issues, such as business regulation and education is not good. So the scale of their defeat in this year’s mid-terms was a shock: not just in the Senate, but in state gubernatorial contests too. I had subscribed to a rather optimistic theory: that where California goes, so the rest of the US follows. In California the Republicans did very well, until, one day they didn’t. And then it was all over. They were overwhelmed by demographic trends – especially the rise of the Hispanic population. They had so misused their period in power that they had damaged their brand beyond repair to those outside their diminishing band of natural supporters.

So perhaps 2014 is their high water mark, as was the Pete Wilson governorship in California , which ended in 1999? Alas I fear not: Republican strategy and tactics seem far to solid for that. These elections were revealing. Republican success was largely driven by low turnout. Younger voters, and those from minority groups, failed to turn up to vote. That seems to be the cornerstone of the Republican strategy. This is achieved through relentless negative campaigning that has poisoned the political process. Their opponents go in for negative campaigns too, but they lose more from the diminishing reputation of politicians as a whole. Republican politicians are not well regarded by the US public. They just keep winning.

The insidious thing is that the Republicans are using their short-term successes to rig the democratic process in their favour. This is conspicuous in three ways. First, Republican governors have gerrymandered Congressional districts so that they can win comfortably in the House of Representatives even if they lose the popular vote – as happened in 2012. Second, Republican sympathising justices in the Supreme Court have destroyed attempts to regulate campaign finance – in the guise of supporting free speech. This includes the ludicrous proposition that corporations have the same free speech rights as individuals. This unlocks the door to vast quantities of money from billionaires, like the Koch brothers, who want to impose their rather bizarre world view on voters, and to fund all that negative campaigning. There is already well-funded right wing news media. Third, they are trying to make it more difficult for people to vote, in the guise of limiting electoral fraud. This is aimed especially at blacks. These ratchet up a series of advantages for the right. There is no sign that they might be reversed.

Of course, the success of the right is not just because of the malign influence of shadowy billionaires corrupting the political process. They have a well-motivated core group of supporters, who hold to a strong series of myths about the American way. This core, with strong conservative religious attitudes, a hatred of central government and taxes, and a belief in American exceptionalism, make American politics a very strange place to Europeans, including us British. This core support can’t be taken for granted by political leaders, as the “Tea Party” rebellion has shown – but there is no equivalent on the left or liberal wing of US politics.

So it does not take a huge amount of paranoia to picture a Republican strategy. The rising anti-Republican demographic groups find it more difficult to vote, or find that their vote affects the outcome little. They grow frustrated, but generalise their frustration to the entire political process and political class, and this leads to political apathy. Meanwhile the right consolidates its control over the whole process.

What can go wrong? Over-reach by the right can lead to a backlash, which in turn leads to electoral upsets in areas that are less easy to rig – such as the Presidency and the Senate. This happened under the Presidency of George Bush Junior – when many Republicans thought that they had won for good, and the feeding frenzy of their corporate friends became so conspicuous that the public were motivated to vote against it. Republicans may lack the discipline to avoid that mistake again. In due course the left might reform itself into a more coherent and robust political movement that will overcome the increasingly rigged electoral system and media.

Does it matter? The irony is that the conventional wisdom on the political economy is shifting steadily leftwards. The ideology of laissez-faire and small government that took off in the 1980s has run its course. Increasingly it seems that a healthy economy needs more taxes and a bigger role for government. Republicans want to take their country in the opposite direction. This will simply feed the crisis of capitalism, not resolve it. The American economy will start to fall apart. Also the tendency of Americans to use world politics as an extension of domestic politics will only get worse. American bullying plays well at home, but is counterproductive in its actual effects. A properly engaged, constructive role for the world’s only superpower is less likely. And climate-change denial seems to be one of the core beliefs of the right – this will make global progress harder – though a failing US economy will offset this somewhat. Ultimately, this attempt by the right to reverse the tide of history is the most likely cause of its failure in the long term – but it could take a decade or more.

Are their further political lessons? The American political system is unique. Two party politics is deeply entrenched, and the electoral system promotes it. But it can lead to what amounts to minority government, and it can be captured by extremes. In Australia we have seen this too: disappointment with a lacklustre left of centre administration has led to the capture of the government by the wayward right.

Britain may escape this fate. The wayward right is progressively taking over the Conservative Party. But many of the wayward millionaires that are behind this trend have lost patience, and are supporting the Ukip insurgency instead. This is ruining the chances of a takeover of the right – though a weak Labour leadership means that we can’t rule this out. Ironically the rejection by the right of electoral reform in the shape of the Alternative Vote (the system in Australia) is probably a shot in the foot. This naturally tends to push politics into a duopoly, as the Australian experience shows. Now electoral chaos is likely to discredit First Past the Post, and any reform is likely to towards proportional representation.

The multi-party, proportional model of politics has its faults. But increasingly it seems to be a better direction to take – it is less open to capture by the extremes. I hope that Britain will follow that path.

 

 

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Sliced bread, beer and politics. We must embrace pluralism

mothers prideSometimes I still hear the expression “the best thing since sliced bread”. This refers to the 1960s revolution in bread production, whose leading brand was Mothers Pride (missing apostrophes were another aspect of 1960s modernity). This was not just a matter of slicing the bread, but the invention of new baking processes that made the bread last longer. What was not to like about the new, modern stuff? It lasted longer and you did not have the hassle of cutting it. Sandwiches and toast became a doddle; the daily trip to the baker was no longer needed. And it was much cheaper, being mass produced in big factories. The new bread swept all before it, and traditional high street bakers disappeared.

But my mother hated the stuff, which she referred to as “cotton wool”. Mothers Pride was banned from the Green household. Eventually we resorted to baking our own bread. But in this, as in so many other things, hers was a lonely voice, to be sniggered at behind her back. But she was right. Bread consumption started to fall, and then to collapse. The new invention had solved many problems, but it had compromised its core values – taste and texture. Bread became pointless. Eventually craft bakeries sprang up as the middle classes, at least, were prepared to pay extra for something like the old product.

This is a pattern that repeats in the modern world. Another exampleHeineken is beer. Traditional beer is tricky to produce. But our industrial behemoths succeeded in creating bland, gassy and cheaper products. And then they set their marketers and advertisers onto the task of selling the stuff (a process that also happened to bread). There was more resistance at first. But the advertisers won through with lager. Clever, funny advertisements, like those for Heineken (“refreshes the parts other beers cannot reach”) hit the zeitgeist, and traditionally made beers fell into rapid decline. Advertisers loved lager. They regarded it is a pure marketing product. It sold only through the strength of marketing, which had nothing to do with how it tasted. Indeed, researchers found that the blander it tasted, the faster, and more, people drank. The brewers adjusted their products accordingly.

And now the brewers are in crisis, in developed markets anyway. Beer drinking is in decline. All the momentum is with craft brewers, who produce small quantities of the stuff using more traditional methods – and which taste of something.

And so to politics. Politics used to be a labour intensive business. Political party membership would run to millions, and it was an essential part of social fabric. You won elections by knocking on doors, putting on public meetings and other events. Election literature was mainly a local affair. But the professionals got hold of this. They wanted something much more productive, with a wider impact. They pulled apart campaign messages and reconstructed something better crafted to the process of winning elections, using mass media to promote it (mainly a politically aligned press in Britain). This strategy, in essence, was to demonise the opposition with negative campaigning, while toning down your own offer to cause minimum offence. And persuasive effort was focused on a minority of swing voters. The message to more reliable supporters was was simply: I know you aren’t keen on a lot of what we are saying, but please come out and vote to stop the other lot. This required lots of money, but fewer people. These modern techniques worked. No modern mainstream political party would be without its professional advisers, armed with polling, focus groups, target voter analysis, and an array of modern marketing techniques.

And sure enough, public engagement in politics has declined. Voter turnout has steadily fallen. This bothered the professionals little, apart from some token public handwringing. What mattered was winning elections, after all. But now the political equivalent of craft breweries are on the rise. Smaller, tightly focused but distinctly unprofessional political parties. In Britain the winning political party would usually get over 40% of the votes cast (and in the 1950s about 50%). Now polling shows both main parties bobbing along at about 30%, even as the third mainstream party, the Liberal Democrats, languishes at about 7% when it used to reach two to three times that level at this point in the cycle. At the European elections earlier this year, the only national elections held under proportional representation, voters were confronted with a bewildering array of political parties, many brand-new. Few of these make much headway, but three “craft brewer” parties are making seeing success: Ukip, who won that election,  the Greens, who won more seats than the Lib Dems, and the SNP are sweeping all before them in Scotland (and who I would not accuse of being “distinctly unprofessional”).

This phenomenon is not unique to Britain. In America there are few in the way of craft parties – but there are distinct craft elements within the main parties, especially the Republican Tea Party groups. In Europe an array of fringe parties are doing well, as establishment parties take a diminishing share of the vote.

Can this decline of mainstream parties be reversed? Occasionally a charismatic leader can reverse the fortunes of mainstream parties. Junichiro Koizumi and Shinzo Abe in Japan; Tony Blair in Britain; Matteo Renzi, perhaps, in Italy. There is an interesting common feature in with all these politicians. They set themselves up as taking on their own party’s establishment, and picked fights with the conservatives on their own side. But the instincts of Britain’s current main party leaders, David Cameron and Ed Miliband, are to paper over the cracks in their parties and not to pick fights. Perhaps, unlike Japan and Italy, there is not enough wrong in the British establishment to make such a battle credible. Tony Blair’s fight with the Labour left was spectacular, but his electoral platform reached new heights in blandness.

What to do? Personally I think that the fragmentation of British politics is a good thing, and that our electoral systems should be changed to facilitate it. This would turn politics into a squabble between smaller parties. In due course something more coherent would emerge. The idea that a single political party can encompass enough of a national consensus to have a mandate to govern belongs to the past. The choice of bread and beer in Britain is steadily improving now that the big businesses have been pushed back. It is perhaps the best it has ever been. Pluralism is not failure.

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Slow growth is not bad. If that means debt default, so be it. The world must change

Inflation expecationsThe state of the world economy is worrying economists. GDP growth is lacklustre in the developed world, which in turn poses problems for the developing world. That’s bad enough, but the economist’s nightmare of deflation – prices dropping rather than rising – now beckons around the world. And yet the prescriptions of most economists are shaped by a way of looking at the economy that belongs to the past. A paradigm shift is needed. Debt is at the heart of it, not GDP growth.

For a clear, conventional analysis of the issue read this week’s Economist.  Here’s a brief summary. The developed world economies are suffering from deficient demand. In other words, the economies could easily churn out more goods and services, using existing capital and labour, but don’t because people aren’t asking for the stuff or can’t pay for it. Another way of putting this is that the amount of investment (people spending money on building capital rather than the immediate consumption of goods and services) is less than the amount of saving (the amount by which people’s income exceeds the goods and services they consume). This leads to low growth rates. Now inflation is falling and deflation threatens. Deflation is bad, at least when low demand is its cause, because it makes debts more difficult to repay, and this gunges up the financial system, which makes matters worse.

The conventional answer to this problem, which also goes under the name of “secular stagnation”, is to reduce the prevailing rate of interest. This will encourage people to invest more since the returns to investment, compared to simply sitting on piles of money, would then be higher. But deflation, or low inflation, makes this impossible, because it raises the floor – the lowest real (after inflation) interest rate it is possible to charge. Answer: you raise the level of inflation. The method of doing this is to increase the money supply, since inflation is a monetary phenomenon. All sorts of ingenious ways are then dreamt up of how to do this. But this is all the product of a conventional way of thinking based on aggregate economic statistics, rather than what is really happening in developed societies.

There a number of challenges to make:

  1. Stagnation, in and of itself, is not necessarily a bad thing in the developed world. Surely the current level of consumption of goods and services is sufficient, in aggregate, to secure perfectly decent wellbeing for everybody – and economic growth is not the most efficient way to securing improvement to that wellbeing. And as we judge the potentially catastrophic impact of man’s demands on the planet it is clear that a system based on ever increasing consumption cannot end well. We need to make better choices about what we consume, and distribute the consumption more evenly. But economists seem to worry about the speed of the train, rather than where it is going, or even whether it has arrived at where the passengers want it to go.
  2. Inflation in the modern, developed world does not work in the way the economic textbooks suggest. In particular the rate at which monetary wages rise has become detached from the rate of increase of consumer prices. Macro-economic policies, like monetary policy, aimed at increasing inflation may feed through to consumer prices without doing much for wages. This completely undermines the supposed benefits of a little bit of inflation.
  3. Things are no better in capital markets. Reducing interest rates seems to have little effect on levels of genuine, productive investment. Such investment is driven much more by zeitgeist than interest rates. Excess money either chases a relatively fixed pool of existing assets (land and buildings and shares), or it simply piles up in bank accounts. This makes conventional monetary policy very hard.

We can look beyond these challenges to recognise some issues that might be behind these challenges. Interestingly, these are, for the most part, not particularly controversial amongst modern economists – it is just that they seem unable to accept the implications:

  • Distribution of wealth and income matters more than aggregates. This is the complete opposite of  late-20th century conventional economic wisdom. The problem is that wealthy people have too much income to meat their needs, and that there are inadequate channels to invest the surplus productively (as opposed to bidding up property values, etc.). To try and balance out the deadening impact of this, the answer has been to get poorer people to consume more by piling up debt. That would be fine if those poorer people turned into rich people later in their lives – but that is not what is happening. This is unsustainable – and yet most conventional economic advice boils down to cranking this system around one more time.
  • Modern businesses require much less capital investment than previously. The modern business giants of Microsoft, Apple and Google never needed much debt and did not need much capital to get going. This is simply the way that technology has evolved. There remains demand for public infrastructure: railways, hospitals, power stations and so on, but the risks and returns, and their often monopolistic nature, makes this a difficult area for private businesses, as opposed to governments, to lead. This is one aspect of what economists refer to as “Baumol’s disease” – the paradox that the more productive the efficient areas of an economy become, the more the lower-productivity areas predominate in the economy as a whole.
  • Globalisation has changed economic dynamics profoundly. Amongst other things it has weakened the bargaining power of workers – one reason that prices and wages are becoming more detached from each other. Also,  less talked about and perhaps controversially, I believe that globalised finance means that developed world governments have less control over their currencies and monetary policies. This is one reason why it is more difficult to use monetary policy to manage inflation. It is also the reason that Europe’s currency union makes much more sense than conventional economists allow – but I digress.
  • Technology is changing the way the jobs market is working. Many middle-range jobs, in both manufacturing and services, are disappearing. This week Britain’s Lloyds Bank announced the loss of 9,000 such jobs in its branches and back office. This, and not the flow of immigrant labour, is the reason why the labour market has turned against so many.
  • And finally, I think that many consumers appreciate that additional consumption, and the income to support it, are not the answer to improved wellbeing. It is better to stop earning and pursue low-cost leisure activities. I notice this most in middle-aged middle-class types like me – who are retiring early. It is perfectly rational. And yet economists can’t seem to understand why reduced consumption and income might be a rational choice for an individual. There is a tendency to tell us to go out and spend more for the good of the economy. This is a perfectly liberal and rational downward pressure on national income – which surely should be encouraged for the sake of the planet.

Some of the consequences of these trends are straightforward. Redistribution of income and wealth are now at the heart of political and economic policy, rather something that can be ignored. A much greater proportion of economic investment must be government-led, which imposes a massive challenge for political management. Governments and central banks trying to tweak the inflation rate by a few percentage points is a fool’s errand. Also trying to revive the economy by getting the banks to lend more money to poorer people is unsustainable, even if the lending is collateralised on residential property. The appeal by many economists, such as the FT’s Martin Wolf, that developed country governments should borrow more to invest in infrastructure makes a lot of sense. Using monetary policy to help finance such investment makes sense too. Making sure this investment is directed sensibly is a bigger problem than most allow, though.

And the conventional economists are right to worry. A world of stagnant growth and low to negative inflation creates major problems. In particular many debts, in both private and public sector, will not be repayable. At some point there will be default, since the other options, inflation and growth, are off the table. Or to put it another way, much of the financial wealth that many people currently think is quite secure is anything but, in the longer term. This may a problem for many pension and insurance schemes, as well as wealthy individuals and corporations.

The consequences of this are quite profound. Our society must break its addiction to debt. The banks and the financial sector must shrink. “Leverage” should be a rude word in finance. If low growth is the result, or if a new financial crisis is hastened, then so be it. Let us learn to manage the consequences better. Borrowing to support genuine productive investment (not excluding the building of new houses where they are needed) is to be encouraged, including government borrowing to finance public infrastructure. But other borrowing must be discouraged. Taxation should increased, especially on the wealthy. If that causes a loss of productivity, then so be it – this should be compensated by more efficient financial flows from rich to poor. Political reform must run in parallel to ensure that public investment is conducted efficiently, rather than just disappearing into the pockets of the well-connected.

This is a daunting programme. Stagnating national income and deflation are not inevitable consequences – since these policies do address some of the causes of deficient demand. But we must not think that these statistics are the lodestars of public policy. We need a much more nuanced appreciation of the wellbeing of our planet and the people that live on its surface, and put it at the heart of economics.

Such sound eco

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As the Tories implode, will Ed Miliband sieze the moment? Or will Labour follow Hollande not Renzi?

The two-party architecture of Britain’s political system is disintegrating, as both Labour and the Conservatives struggle with the Ukip insurgency and an energised SNP in Scotland. The Conservatives were the first to lose their nerve and are on the verge of implosion. There is now an opportunity for Labour and its leader, Ed Miliband, to seize the initiative and secure a decisive advantage at next year’s election. But that would mean turning against the sort of small-minded, tactical political leadership that got both parties into this mess in the first place. So I will be surprised if it happens.

Last week I posted on how David Cameron’s Conservatives are moving beyond respectable politics in a bid to buy off defections to Ukip. They are making the fatal mistake of addressing the symptoms of their weakness, not its causes. This is as much because the leadership has lost control of the party as any misjudgement from the top. Not a day goes by without a Tory popping up on Radio 4 (my main source of daily news) proposing something that goes well beyond the boundaries of sensible political discourse. They are playing up ill-informed public opinions on immigration, the European Union, human rights and climate change. They advocate policies that will address these fears directly (controlling EU freedom of movement; repatriating powers from the EU or leaving it all together, and so on), but which are incapable of addressing the root causes of public anxiety. These are not sensible, workable policies, and this is becoming more and more obvious. The leadership is being dragged along in order to prevent a fatal break-up. The rise of Ukip is the proximate cause of this trouble – and yet its popularity simply rises as the Tories appease it, while Tory poll ratings languish. At some point the party’s more sensible components, which give the party the respectability it needs for credibility, will start to desert it. When that happens it is Game Over for the Conservatives as a serious contender for government.

Labour are better disciplined and its leader has held his nerve, if that is what to call it, for longer. Ed Miliband has made some rather silly left-wing noises – the craziest being to propose a freeze of energy prices that will interrupt, at best, badly needed investment in the country’s energy infrastructure. But this is far from the lurch to the left that some commentators portray. He does not launch into diatribes against failed “neoliberalism” or promise to reverse government’s austerity policies, except in a few token places. Extra taxes on the rich would once have been regarded as loony left, but they are now part of the sensible centre. The untapped wealth of the wealthy is draining the life out of developed world economies.

So far, so good. But this is not leadership; it is the party keeping its mouth shut. It has not properly engaged with the surge of populist discontent, that also includes support for Scottish independence. This lack of leadership has had its benefits. Many Labour politicians praise Mr Miliband for holding the party together at a time of challenge. But there are cracks. The party’s leader in Scotland, Johann Lamont, resigned last week, complaining that the party’s Westminster leadership had failed to understand the implications of Scotland’s referendum vote. This seems well-grounded. The political mood and landscape has changed decisively north of the border, following unprecedented political engagement in the referendum. And yet Mr Miliband’s response has been token at best; he simply resumed his underwhelming attack on the national coalition  government as if nothing had changed. His only concession was to call for a constitutional convention – but in the manner of one who wants to bat such issues into the long grass, so that serious change can be sabotaged in the way Labour already has the reform of the electoral system, campaign finance and the House of Lords in this parliament.

But what the country now cries out for is proper leadership. This means tackling the populism and ignorance head on. Pointing out that public fears on immigration, the EU and human rights are misplaced, and that the obvious countermeasures will make things worse, not better. Instead the British government should press ahead with a programme of serious political reform (devolution and electoral reform) and economic investment (education and infrastructure), that will draw more people back into political engagement, and prepare the country better for the future. The Conservatives have irretrievably cut themselves off from leading such a programme. Labour has not.

Such a course would be brave. It would mean taking on the tabloid press, and the many conservatives in Labour’s own ranks, who oppose political reform, or serious reform of any sort. But the public can surely spot leadership when the see it. Labour should be inspired by Italy’s Matteo Renzi. He has adopted a bold programme of political and economic reform, upsetting many of his party’s traditional supporters, and he has reversed the anti-politician tide in Italy as a result.

Alas, instead Labour seems to be following France’s Francois Hollande. Mr Hollande secured a massive electoral victory in 2012. Labour’s strategists seem to want to follow the strategy that secured that victory – by playing on his opponents’ weakness. The centre-right was being fatally undermined by the populist right of Marine Le Pen. It was a victory by default. Mr Hollande offered various bones to his left-wing supporters, but no convincing programme to address France’s pressing problems.

Such a strategy might yet succeed for Labour. But it is a recipe for implosion once the party assumes government, as has indeed happened to Mr Hollande in France. Or it could fail, as the populist right eats into Labour’s own core vote.

It’s better to be brave. And it’s not too late for Mr Miliband to surprise us all.

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Immigration and Britain: there is not one problem and there is not one solution

Immigration is now the top issue in British politics, though laughably some nativists still claim that politicians refuse to talk about it. Polls show that it has been one of the biggest issues of public concern for many years – indeed, some suggest that the level of concern is independent of actual levels of immigration. Now that the economy is dropping as a political issue, in spite of Labour’s attempt to stoke up anxiety, immigration is challenged only by the NHS in public concern. But to what extent is the public worry about immigration a fantasy, a displacement of anxiety about other changes in our society, and how much does it reflect real stress?

The answer to that matters, or it should. Let us put to one side the Conservative Prime Minister David Cameron’s reason for wanting to limit freedom of movement in the EU: that the British people are his boss. In other words he doesn’t care whether the fear is based on substance, he just listens to what people tell him. We can imagine Winston Churchill in 1940 consulting opinion polls as to whether to sue for peace with Hitler or fight on alone. Leaders should lead, not follow. If the anxiety over immigration is fantasy, our politicians should publicly challenge it; if it is based on real stress, steps should be taken to manage that stress.

Unfortunately the quality of debate is very poor. The anti camp are more interested in fanning the flames than examining the real issues, for example by stoking fears that the country will be “swamped”. And yet the migration liberals seem to talk past them and stick to generalities: that migration is generally a good thing in a modern society. And even some who attempt to see both sides, like this article from John Harris in the Guardian, are often unsatisfactory. In spite of the article’s encouraging title “Don’t dismiss public fears about migration as mere bigotry” it turns out that it is largely based on the author’s experience in the East Anglian town of Wisbech, which does little to explain feelings elsewhere in the country. And he swallows at face value Labour’s apology over letting in EU migrants from new members in the early 2000s: this is far from a self-evident policy mistake, even in hindsight.

A welcome breath of fresh air is this article from this week’s Economist. This comes from an unmistakably liberal standpoint, but in the best traditions of that newspaper, it is a balanced survey of the evidence – so much better than that paper’s overage of British educational policy. This brings out how much anti-immigration feeling is a sort of displacement of other anxieties, personal and societal, stoked up by the country’s “raucous” press. A telling fact is that anti-immigrant feeling is often highest in communities relatively unaffected by immigration, such as the site of Ukip’s recent landslide by election victory, Clacton.

But there are real pressures too. The starkest are in East Anglian and Lincolnshire agricultural communities (like Wisbech). Here unscrupulous gangmasters ship in thousands of workers form abroad to work in the fields for a pittance. They destroy job prospects for the less-skilled locals; crammed into to houses in ordinary residential areas they overload local services and undermine neighbourliness. They are a lawless other, a truly ugly phenomenon, with the workers themselves as much victims as the blighted communities. Then there are northern and midland towns where Pakistani and other Asian communities have not integrated. In Birmingham conservative Muslims have tried to take over state schools to run them on a decidedly illiberal principles. Confused youngsters may be radicalised and converted to terrorist activities. Such British icons as poppy day, to commemorate the sacrifices of the armed forces, may be viewed with hostility. And there are many other such problems: Somali children failing to take to British education; Albanian and Kosovar crime syndicates; rich foreigners buying up London luxury flats; and so on.

But what is so striking is how diverse these problems are. Each of the solutions advocated by anti-immigrants would only deal with a small part of the problem. Leave the EU? Well that might help with the EU agricultural workers in East Anglia – but there would also be collateral damage to the farming industry. It wouldn’t help with second and third generation Pakistani residents. A points system for immigrants so that only those with needed skills or money can come in? We already have this for non-EU migrants, and it is far from clear that the collateral damage to businesses and universities is worth any benefits. And it doesn’t help with those London flats.

Surely what is needed is not so much these drastic, strategic national solutions, but a number tactical, local solutions – and some international ones too. We need to crack down on the gangmasters and the sort of exploitation that they perpetrate; that does not require EU treaty changes. We need better engagement with and among longer-standing immigrant communities – including better teaching about Islam in our schools. This may mean bypassing the paternalistic “community leaders” in many cases. Serious action is needed to root out prejudice in our police forces. The paternalistic Labour one-party states that predominate in so many of the country’s urban local authorities needs to be replaced by something more pluralist and democratic. And so it goes on.

But liberals must also confront two strategic problems: housing and the welfare state. A common complaint is that the number of immigrants is putting pressure on limited housing resources, which is depriving poorer people (of all races, it might be added) of access to decent housing. Immigration is by no means the only reason why housing is under pressure – but there must be some substance to this. An obvious answer is to build more houses – but that will often mean blotting out nice bits of green countryside, especially in urban greenbelts. My personal view is that the rising population is driven by demographics – younger immigrants are being sucked in as older people leave the workforce to retire. As such limiting numbers of immigrants will create worse pressures elsewhere. So we badly need a decent housing strategy. But I also think that a lot of the pressure on green land comes from our dysfunctional private sector developers, exploiting English fantasies of the sort of home they want to make quick profits. In fact dense, urban housing is much more sustainable in the long-term, even if it is expensive in the short term. Also it would be good to revive local economies that are currently weak, for example in many northern cities, and where housing pressure is much lower. But some loss of greenbelt is inevitable. This isn’t easy, but we need to put more of the political class’s creative energies into this, learning from past failures.

Welfare is more awkward. Unlike most of our European neighbours, Britain does not operate insurance-based welfare. We run according a more socialist ideal based on need. This is exemplified best by the NHS – but similar thinking runs through the whole system. With an insurance system, even if state-run, it is much easier to control access, and reduce access to recent immigrants. We don’t really know how much our open access to welfare encourages poorer migrants. But it is the poorer migrants that create most of the difficult issues. There may be much mythology in the idea of welfare tourism – but there is also plenty of anecdotal evidence that our welfare system attracts migrants to Britain rather than France, say. Should we start to move towards the insurance model? This is what Labour are suggesting by re-establishing a “contributory principle”. I have to say that I worry about this. It’s a neat way to keep new, unskilled migrants away without burdensome immigration systems – but I suspect there would be a lot of collateral damage to longer-term residents. We have taken our welfare state in that direction for a reason – and it is an attractive idea. There may be other reasons to move towards and insurance model (which, after all was the idea of the original Beveridge system) in times when tax revenues do not flow so freely. I don’t have a view on this – but like housing it needs to be a central area of political discourse.

And my conclusion? High levels of immigration are a fact of life for Britain. Crude regulation, or drastic measures like leaving the EU, will create more problems than they solve. But there are some real pressures that our political class should address. And there are many problems, not one.

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David Cameron is winning the race to the bottom. Is he the Michael Foot of the right?

The British electorate is being offered a choice between bad leadership and weak leadership, if they choose between the two biggest parties at the General Election in May 2015.  This is a turn-up for Labour’s Ed Miliband. While he still appears weak, the Conservative Prime Minister, David Cameron, had been seen as a sensible and competent leader. But Mr Cameron is now putting that at risk.

Mr Cameron, over the last month or so has put his name to a series highly unstatesmanlike moves. Let’s list them:

  1. He offered the public about £8bn of tax cuts in the next parliament, while at the same time closing the budget deficit. The only way this works is through savage cuts to benefits and public services. Most observers think it is completely infeasible. He has also through in the prospect of cutting Inheritance Tax, a tax which must be one of the most economically efficient.
  2. He, or rather his party, launched an attack on the Human Rights Act, which amongst other things, makes decisions by British courts and Parliament open to challenge by the European Court on Human Rights. This is more headline grabbing, and an attack on a perfectly sensible piece of legislation. This was supported by a suggestion that the basic human rights set out in the European Declaration were subject to some unspecified “responsibilities” – which shows a complete failure to understand what this declaration is trying to do.  Many Conservatives were horrified.
  3. As soon as the referendum on Scottish independence was declared, he launch a bid for “English Votes for English Laws”, a suggestion that there was some sort of quick fix that would prevent Scottish MPs from voting on matters that affected just England. This was another stunt, designed to deflect calls for a more considered approach to UK’s fraying constitution, through a constitutional convention. Many serious commentators feel that this direction of travel could only lead to the breakup of the UK.
  4. More recently Mr Cameron has suggested that he can renegotiate the country’s membership of the European Union so as to limit the level of immigration from EU countries into the UK. This means unpicking the core treaties that form the EU, and implementation would surely mean referendums in other EU countries and opening a Pandora’s Box. It is far from clear that excessive immigration from other EU countries is a serious problem for the UK – though there are abuses, which are open to less drastic solutions. This looks like another undeliverable promise, which takes the country one step closer to leaving the EU.

What do these ideas have in common, apart from being reckless political stunts? They play well to the agenda promoted by right-wing tabloid newspapers, like the working-class Sun and the middle-class Daily Mail. And they also play well amongst voters who are tempted to vote for Ukip, the insurgent populist party that is polling so well currently. Ukip have taken one seat off the Tories, Clacton, in a by-election following a defection, with an overwhelming margin. The Tories face a much tighter contest from another defector in Rochester and Strood – where polls still put Ukip in the lead.

So Mr Cameron is facing up to the clear threat from Ukip by appeasing their sympathisers. This stands in clear contrast to Mr Miliband and Labour. Labour have their own problems from Ukip, who are popular amongst white blue-collar voters, that used be part of Labour’s bedrock. Indeed the party came within a whisker of losing their own by-election to Ukip in Heywood & Middleton, in Greater Manchester. Their response to each of the four challenges by Mr Cameron has been muted. But they have stood firm – and not followed Mr Cameron’s race to the bottom. Labour politicians even offered some robust defence of the Human Rights Act. Perhaps they sense an opportunity. Labour are not exactly squaring up to Ukip, but they aren’t appeasing them either, apart from offering an  apology for allowing Polish migrants in in the early , which is at best insincere and at worst economically illiterate.

Over the past couple of years Ukip have hijacked the political agenda, with a constant focus on immigration and the EU in the news media. They have had a good run, topping the poll in May’s elections to the European Parliament, held under proportional representation. But this may be provoking a backlash. Polls tracking whether Britons would vote to leave the EU in a referendum have showing a growing proportion of people preferring to stay in, and they are now a comfortable majority. Perhaps people will tire too of the arguments over immigration, as they start to appreciate its complexities. The Economist published an interesting article suggesting that Ukip’s credibility is weak. Amongst other evidence it published a poll showing that more than 50% of people agreeing with the statement that “Ukip are a protest party with no realistic policies”, while 20% disagreed. Mr Cameron is fishing in a smaller pool than many in the press suppose.

If Labour spy an opportunity, it is that the public remains concerned about the standard of public services, and especially about the NHS. It could be that the Conservative promise of tax cuts will come back to haunt them. Today Simon Stevens, the new chief executive of NHS England, said that the NHS needed an extra £8bn of funding on top of inflation. Now Mr Stevens is no trade-union appointee, and is promoting radical reform of the NHS, including the openness to private and third sector providers that is being viciously attacked by the left. His plea for more funding is surely incompatible with the Tory promise on tax cuts. And yet it looks like the sensible centre, not the usual left wing ranting.

And here is the Conservative weakness. They are abandoning the political centre for a strain of populism that does not stand up to close scrutiny. Protest politics is not a viable route to power. As sensible, politically uncommitted commentators point out the flaws in Conservative plans, opinion-formers will turn against the party. And then some of its own members will voice doubts. Those of us with long memories remember something like this happening to the Labour Party in 1983. Its then leader, Michael Foot, pandered to a surge of left-wing populism in his party. Its manifesto in the election of that year was dubbed “the longest suicide note in history”, and resulted in the party’s worst election performance in living memory. Are the Conservatives going down the same path?

This seems fanciful. After all politics is much more professional these days, based on extensive polling, and carefully chosen “wedge” issues. And Mr Cameron’s core stance on Europe remains a popular one – those polls showing increased support for the EU do not undermine what he is trying to do there. But the real reason that Mr Cameron is veering off to the populist right is because that is what most of his own party wants. It isn’t a careful piece of political triangulation, it is force of political circumstance. To do anything else would cause a fatal backlash in his own ranks. That is a predicament he shares with Michael Foot in 1983.

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Why has the public bought the Tory narrative on the economy? Labour hubris

Opinion polls show that the Conservatives are the most trusted party on the economy. This gives them a big advantage over the Labour opposition, which they are trying to exploit by promising reckless tax cuts. The Tories say that the crisis was caused by the recklessness of the previous Labour government, which necessitated firm austerity policies, which in turn have led to a strong recovery. Labour supporters are sore about this, but their party leaders seem forced to meekly accept the Conservative economic narrative – and promise strict fiscal discipline. And yet economics writer Ha-Joon Chang writes in the Guardian that the Tory narrative is a fairy tale. Why aren’t the political class trying to challenge the narrative?

I am tempted to pick apart Mr Chang’s own narrative. He denies that the record of the previous Labour government was irresponsible, with the crisis in public finances simply inflicted by changes to the world economy. He further suggests that the coalition’s austerity policies to meet the crisis were misguided, and that the current recovery is not as good as it is made out to be. A lot of his claims are tendentious, and there is some sleight of hand with the numbers. But it is perfectly literate in an economic sense, and there is deal of truth in his claims, alongside the disingenuousness. This sort of argument tends to a turn-off for many of my readers. I would like to address the question he raises more directly: “Why did Britain’s political class buy the Tories’ economic fairytale?”

The first point is that we should remember the sense of shock that both the public and the political class felt as the scale of the economic crisis became plain in 2008 and 2009. This followed nearly 15 years of continuous growth in Britain. The political class felt that the economic problem had been cracked by Labour’s policymakers (though the first part of the growth period was under the Tory John Major). Gordon Brown, the Labour Chancellor in their part of the growth period, declared “no more boom and bust”. That caught the zeitgeist. Political thinktankers argued over how to distribute the proceeds of growth, which was assumed to be in the region of 2-3% for the foreseeable future. Mr Brown believed his claim; he was inclined to lecture political leaders from other countries (especially other European countries) on how wonderful his economic leadership was. And so when the economic performance proved to be so vulnerable, even if we accept that the shocks came from outside Britain, it was more than shocking. Our whole outlook on the British economy collapsed. And it must be pointed out that the scale of the economic crash in Britain was worse than in any other major developed economy. Labour’s claims were based on hubris. Any narrative that does not acknowledge this hubris (and Mr Chang’s does not, in this article at least) will not be politically credible. This trumps the fact that Tory claims about Labour’s recklessness are overdone or misplaced (e.g. because they criticise welfare policy rather than cutting income tax rates).

And that leads to a critical question. Why was the British economy so vulnerable? Was is really just a slightly bigger blip on a standard economic cycle, or were there elements to the pre-crash economy that were unsustainable? There are plenty of reasons to think it might be the latter. Inflation had been kept in check by cheap imports and a high pound, and yet there was a large trade deficit. The tax system had been tilted towards property transactions and capital gains, and away from ordinary income tax – which meant that the bust hit revenues very hard, and were difficult to revive in the recession that followed. The economy as a whole depended heavily on bubbly international finance and oil (whose price had just rocketed); amongst other things this gave a false perspective on productivity. Productivity based on fake profits in finance is not the same as the majority of workers steadily increasing their output. If you believe that there were substantial unsustainable elements to the economy, then you also believe that simple Keynesian stimulus would not be a path out of the crisis – this would be flogging a dead horse. That still leaves room for a respectable Keynesian critique of coalition government policy (especially if stimulus is concentrated on investments), but it also points to austerity policies being inevitable at some point.

And then there are the secular trends. There are the technology changes that, for now at least, seem to push economic rewards into minorities who either have the right skills or who own capital. That is a global trend. There are demographic changes; it is a boon that people are living longer – but that does imply structural changes to the way society works, and especially the tax and benefits system. And there is the growing up of the developing world economies, especially in China, which are no longer a source of ever cheaper imports. With such trends – and I could go on – is it any wonder that economic performance has been weak?

And so it should become clear why the Tory narrative is left to hold the field. An alternative narrative is very difficult to construct. To be credible such an alternative must contain challenging elements – that we can’t just bounce back to 2% growth by reversing cuts to public expenditure, as some on the left appear to believe. It has to acknowledge failings in the pre-crash British economy, and that strong well-distributed growth will be difficult to obtain in the future. Labour do not want to develop such a clear narrative, because they are reluctant to face up to their own hubris. In fact, as I have argued, Labour’s need to hold together its fragile coalition means that it does not want to develop a clear economic narrative at all.

And if Labour won’t produce the alternative narrative, who will? The Lib Dems are part of the coalition, and as such are happy to go along with most of the Tory version. They would emphasise that the austerity policies were not as austere as billed, and that borrowing for investment would be a good idea – but they do not challenge the main thrust. Ukip have decided to base their narrative on opposition to the EU and immigration – and as a result their economic policies have no coherence – they do not want to upset their own coalition of the angry. The Greens have decided to be the “Ukip of the left”, and blame all our troubles on failed neo-liberalism. They are against austerity policies, and yet want to rebalance the economy towards green growth, which surely implies a leaner public sector. This is a have-your-cake-and-eat-it stance, which will not stand up to close public scrutiny.

A credible alternative to the Tory narrative is hard to construct, and no political party wants to take the job on, because it would undermine their own wider political strategy. Mr Chang himself seems to acknowledge the problem in his rousing penultimate paragraph:

The country is in desperate need of a counter narrative that shifts the terms of debate. A government budget should be understood not just in terms of bookkeeping but also of demand management, national cohesion and productivity growth. Jobs and wages should not be seen simply as a matter of people being “worth” (or not) what they get, but of better utilising human potential and of providing decent and dignified livelihoods. Ways have to be found to generate economic growth based on rising productivity rather than the continuous blowing of asset bubbles.

Amen to that. But what chance do our humble politicians have of constructing such a wonderful narrative, when this poses so many unanswered questions? Might I suggest that Mr Chang spend more time suggesting “ways… to generate growth based on rising productivity” and not just joining the whinge-fest about our inadequate politicians?

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