Are there Australian lessons for Brexit?

I have now just a week to go in my long trip to Australia. I’m not all that surprised that I haven’t managed to update this blog regularly on my travels. It turns out that it is quite hard to fit into my holiday routine. But witnessing the mounting political tension on Brexit in the UK from afar, I will manage one more post. Does an Australian perspective have anything important to say on Brexit? Well, yes and no.

Australia is beloved of Brexiteers, partly because it is part of an “Anglosphere” which they hope can substitute for Britain’s European identity. But there are two more substantive reasons. One is that Australia shows that a medium-sized nation can be economically successful as a fully sovereign state. The second is that a country that attaches itself to the booming Asian, and especially Chinese, economy will prosper.

Let’s start with the first proposition. Australia is undeniably successful without being part of a wider formal economic block like the EU. Indeed most Australians would probably be horrified at the loss of sovereignty that such an arrangement involves. They are fiercely self-reliant and independentlyminded. Most of the Australian6s I have had proper conversations with have been internationally aware and sympathetic to Britain’s membership of the EU. That makes them unrepresentative. It is very hard to get any kind of international news on television or radio out here. The bulletins are consumed by stories on the latest bushfires, weather events, local political spats and sport. Only the Royal Family can intrude. I suspect that most Australians are pretty sympathetic to Brexit. The country has half or less of the population of the UK, and still makes a very good go of things. Indeed it is prosperous. One shouldn’t make too much of this, though. Australia’s dependence on the US for security has meant that it had to send its boys to be killed in Vietnam. And Australians worry about Chinese intrusion into their state currently.

Australia’s success has a lot to do with the second proposition – that its economy is tied to the fast-growing Asian economy, rather than the lacklustre European one. Australia exports substantial amounts of minerals and agricultural produce to China, in particular, and attracts lots of Asian tourists and students. There is a lot of Chinese investment. That keeps its exchange rate high, so that Australians can afford lots of exotic imports. A popular theme of the Brexit case was that Britain should unshackle itself from the European corpse, and trade more with Asia. Although the example usually given is Singapore, Australia seems to make the case even more convincingly.

But, of course, we have to think of the differences between Britain and Australia. The first is Australia’s relative isolation. The country has little choice but to go it alone, as it is not geographically close to any other large nation – if you exclude Indonesia, which is not close to any of Australia’s major economic hubs, quite apart from a cultural gulf that makes the divide between Britain and its European neighbours look trivial. Indeed the internal distances within the Australian continent are often more daunting than those between Britain and even its more distant European neighbours. Australians are self-reliant because they have to be.

But they are still a success. That is surely down to the next big difference: it is a vast continent with huge exportable assets. These include massive mineral wealth and agricultural land. The Australian economy has a highly extractive character. That even applies to its agriculture, where few farmers give serious consideration to the long-term sustainability of their methods. While on our trip we experienced dust storms in New South Wales. Dust of that sort doesn’t come from deserts (where such fine particles would have been blown out long, long ago) nor form vegetated land; it is agricultural top soil being left exposed by exploitative farming methods. Even without leaving vast areas of topsoil exposed, agriculture depends heavily on artificial fertilisers, which can only do so much. All this means high agricultural productivity and competitiveness of exports for the time being. Britain does not have the option of exploiting its natural resources in a similar way, even if it wanted to – which it very clearly doesn’t. Nobody suggests that despoiling hundreds of square miles of British countryside is what the country must to to escape economic dependence on Europe.

So what could Britain do instead to ride the Asian wave? Asia has strong demand for capital goods. But Britain has hollowed out its manufacturing industry (unlike Germany which is riding the Asian wave successfully from within the EU). There is hi-tech expertise and products. Britain could do better here, but China is investing hugely so that it becomes less dependent on foreigners. Tourism? Professional services? Universities and schools? There are possibilities in all of these, though Britain tends to shoot itself in the foot, especially with over enthusiastic anti-immigration policies. But it would be a hard road. Anyway it is far from clear that Britain is better off being outside Europe and free of its regulations and trade restrictions, or within it and so having a wider semi-domestic market in which to scale up its products and services. Britain’s proximity to the rest of Europe is one of its comparative advantages over Australia – it seems silly to get in the way of that.

Another point is worth making. Some Brexit supporters suggest that Australia could be part of a wider international support network, economic and political, rather as the Commonwealth was before Britain joined the European Community. From here that looks naïve. Australia has long outgrown its old links to Britain. We used to be a significant source of agricultural outputs – but now Britain cannot compete with the closer and larger China. On other matters, education or business services, Australia looks more like a competitor than a partner. Distance prevents the intimate supply chain links that are a feature of Britain’s economic relationship with its neighbours.

While the Empire 2.0 and linking up to Asia’s dynamism look like fatuous arguments for Brexit, Australia still shows that smaller countries can plough there own furrow if they want to. Outside the EU Britain would still keep its strong links to the continent, and the laws of comparative advantage suggest that the economy would in due course rebalance to a new reality. The only question is how much poorer (or, for the Brexit optimists, richer) that new reality would be. Lacking Australia’s natural assets, it seems likely that it would be quite a bit poorer.

Economics for the Many – voices from the echo chamber

I promised you I would read and review Economics for the Many, a collection of essays edited by John McDonnell, Labour's Shadow Chancellor. The purpose of the book is to show that Labour is not trying to reheat failed ideas from the past - but it is brimming with new ideas fit for the 21st Century. It doesn't really succeed in that aim, but it does contain some interesting pointers.

My first idea was to review each article in about 200-300 words and produce a series of posts. That was how I started. But I quickly realised that this wasn't going to work. Most of the 16 essays are pretty poor, and readers would have been subject to long tracts of rather sarky criticism. And not much of a thread would have emerged. As I waded through essay after essay, I was gaining more idea about Labour's mythology, but little clarity on what they might do. Even when I could wholeheartedly agree with an essay, such as one supporting political devolution, something seemed missing. It was all too abstract; there should be a passion in ideas. And then, in Chapter 9, the book burst into life, with Democratic Ownership in the New Economy. I could even forgive the cringe-making comments about Jeremy Corbyn and Mr McDonnell, and claims of a  public uprising in the 2017 general election. It had passion, and pointed to practical examples of its ideas working. The central idea was local, grassroots-led action to develop local businesses based on local networks, using cooperatives, anchor institutions (like hospitals) and so on. The following essay, A New Urban Economic System: The UK and the US followed the same ideas and was less gushing but more convincing, again pointing to examples, including Preston in Lancashire. Both had a common thread: based on a think tank called the Democracy Collaborative that gets involved in real world projects, and which co-authored both articles. The book got a bit better after this, but the only essay to match this highlight was the last one: Rentier Capitalism and the Precariat: The Case for A commons Fund by Guy Standing.

This article had much the best overall narrative - developing the idea that capitalism had gone wrong, hoarding monopoly profits and creating a whole class ("the precariat") of insecure jobs. This made a nice change from banging on about austerity (a Tory word, somebody has pointed out to me, suggesting frugality and discipline). It reads like a Marxist tract, but a good one, and much of it could in fact have been written by The Economist. Even if it was fact free and exaggerated it created a strong narrative based on things that are clearly actually happening. Mr  Standing recognises that Labour is not doing a good job of appealing to the precariat, which is either politically apathetic, or taken in by socially conservative populists. Then he develops the case for building a "Commons Fund", which would pay a dividend, which would then develop into a universal basic income (UBI). This is the best constructed case I have read for this idea. It is interesting that it is the only place in the book where UBI, such a darling idea on the left, gets traction, and it is a very mild version of it. No hint here of it replacing welfare benefits.

Two other themes are worth mentioning. First is "financialisation", which was the topic of two essays (by Costas Lapavitsas and Johnna Montgomerie). This awkward abstract noun is taking its place in the left's lexicon. It covers a disparate variety of things, of which the most important is the expansion private debt. This is all part of the neoliberal villainy. The argument is that a lot of growth in the UK is built on private debt, and an influx of financial investment from abroad (typically in London property). This latter has created a high exchange rate which has helped hollow out productive business. There is clearly something in this. Where the essays break down is trying to work out what to do about it. If the process is to be reversed, and levels of private debt cut, then this will conversely be a drag on the economy. Unless it is simply replaced by public debt - but neither essay makes the case for that. The first essay gets the closest by advocating the creation of public sector institutions to take over lending. There may be something in this, but public sector banks have led to some of the biggest wastes of public resources around the world: the operating models are critical, and the essay says nothing about this. It just falls in with a general prejudice through the book that nationalised institutions are good.

Another theme is the development of online platforms, from Google and Amazon to Uber. This is clearly a worrying development,and it is very well described by Nick Srnicek, including the political difficulties of doing anything about it. A badly-written and excessively abstract article by Francesca Bria, who works for the city of Barcelona, takes this forward with the advocacy of more active management of data networks by city governments. This is something policymakers should talk more about. Some networks, such as Uber or Airbnb, could be replaced by locally managed cooperatives that retain profits locally without being less efficient - this dovetails with the Democracy Collaborative's ideas. Others are global issues, but here initiatives like the EU's GDPR can have an important impact.

What of the rest? Prem Sikka puts forwards ideas for improving the tax system. These aren't particularly new, and I don't actually think there is much low hanging fruit for extra tax revenues - but some of the perverse incentives of the system could be fixed. He advocates a version of unitary tax for multinationals, which I have favoured for a long time, but which the British political class has always shied a way from.  Ann Pettifor produced a disjointed essay with quite a lot of lazy rhetoric in it. Her main idea of a "Green Deal" might have a worthy objective but looks like an invitation to mismanagement. Barry Gardiner (Labour's trade spokesman) advocates a middle way on trade policy between protectionism and a free for all, which promotes human rights and helps "vulnerable" economies. Good luck with that. Rob Calvert Jump delivers a flat essay on models of business ownership that people who remember the nationalised industry disasters of the 1970s and the successes of privatisations in the 1980s will be more than a little surprised at. He offers no thoughts on why privately owned companies might be a good ownership model in many contexts. Christopher Proctor has an essay on rethinking economics, with a clear explanation and critique of classical economics (puzzlingly referred to as "neoclassical"), but then fails to develop any ideas about how it is to be replaced, beyond a collection of unexplained initiatives which he says need more work. Ozlem Onaran expands on one these: feminist economics. Actually I don't disagree with her idea that there should be more public spending on what she calls "social infrastructure", but a lot her logic was unpersuasive - one suspects a lack of challenge in the development of her ideas.

So what to make of it? Labour's critics will find their prejudices reinforced. There is no admission that Keynesian stimulus might not be appropriate in many contexts. Low productivity is always down to poor motivation, pay and social conditions, while process design and effective management don't get mentioned. The concept of creative destruction is alien. Most of the ideas are about the state doing things from the centre, rather than empowering individuals and communities. There is little thought on how effective management can be encouraged and the abuse of power curtailed. Facts are few and far between, and silly factoids make their appearance (the £93bn of "corporate welfare" for example in Guy Standing's). And all that rage against austerity and neoliberalism, when the politically uncommitted can see that there are some good aspects to both policies. The overwhelming impression is of ideas being developed in a leftist echo chamber without proper external challenge, for circualtion within that echo chamber. Still there is plenty of scope for liberals to share parts of the analysis and many of the solutions. Lib Dems passed something that looked very like Mr Standing's Commons Fund at its last conference.

For me though, the most important and exciting essays were the Democracy Collaborative's on building local networks to revive local and regional economies that have been hollowed out by modern economic policies. This involves a radical decentralisation of power and properly faces up to the challenge that modern economies face. If Labour's leadership really do pick these ideas up and run with them, I'll be impressed. There is clear scope for a coalition between socialists, greens and liberals here.

But I remain sceptical. Mr McDonnell's big idea at the last conference was the expropriation of shares in public companies to put in employee trusts to pay dividends to workers up to a point. This has little to do with any of the ideas in this book and looks like a gimmick. But we should welcome much of the new thinking nevertheless. These ideas need to be brought out of the left's echo chamber for the discipline of wider public debate.

Was austerity a horrible mistake? Three challenges to the left’s narrative

The Prime Minister Theresa May recently suggested that "austerity" was coming to an end. That word is one of the political left's most successful abstract nouns; that Mrs May is now using it shows just how successful it is. Alongside the word comes an austerity narrative that is nowadays largely unchallenged. This is that the programme of public expenditure cuts started by the coalition government in 2010 was economically unwarranted, and therefore "ideological", and that this foolish policy is responsible for the UK's weak economic performance in the years since.

Conservatives are unbothered by this austerity narrative. They peddle their own rival one: that the preceding Labour regime was profligate with other people's money and that the cuts were needed to stop public waste. They further, and tendentiously,  suggest that this profligacy is what led to the financial crash in 2007-2009. They feel no need to challenge the left's austerity narrative; they just ignore it. For Liberal Democrats, as part of the coalition, the austerity narrative is much more painful. They neither challenge the left's version, nor come up with one of their own. That war is over and the Lib Dems lost, but for the small number of people who care about what happened and why, should we meekly accept the left's version of events, and acknowledge that it was a horrible mistake?

The economic logic of the left's case is based on the idea of Keynesianism. In 2010 Britain was suffering a recession, with a collapse in output in 2008 to 2009 following the financial crash. A recession is a temporary dip in aggregate demand which can become a doom loop: lower demand cause job losses, which in turn reduces demand further. The quickest way to counter this is to stoke up government spending: this keeps demand going, stopping the job losses until confidence returns, the economy starts growing and the excess government spending is then cut back to restore balance (funnily enough left-wing economic commentators rarely talk about that second phase). This is what Labour did to a modest extent in 2009. But the coalition embarked on a massive programme of cuts in 2010, sucking demand out of the economy when demand was already weak. Instead of bouncing back from recession, as you would expect, the economy stayed at its low level with little or no growth for years, until weak growth eventually returned - the worst performance of any major economy.  America, the argument goes, was not as severe in its cuts, and bounced back much more quickly. Some commentators go as far as to project how much the economy would have grown at the average rate before the crash, to show a massive gap between now and where the economy could have been.

One of the reasons why this narrative is largely unchallenged is that the picture is actually very complicated, so that it is not particularly easy to pursue a considered argument. The winner is goes to the person that shouts the loudest in a dialogue of the deaf. I will sketch out three challenges, however, but I will inevitably oversimplify things to keep this post a manageable size.

Challenge 1: the size of the government debt was becoming unsustainable. The budget deficit in 2010 was in the region of 10% of GDP (with estimates at the time being even higher). This is truly scary, and promised a massive rise in the size of government debt: could the financial markets absorb it? And if they couldn't, there might be a financial crisis that would create an even deeper recession. The Greek crisis, which was emerging at the same time, was used an example. But Greece doesn't have its own currency any more. In Britain we can simply create the extra currency when push comes to shove: the government doesn't run out. This is what Japan has been doing for decades with little ill-effect. But Japan has a current account surplus, meaning that the Japanese spend less than they produce, and do not need foreign money to keep the system going. Britain had (and still has) a large current account deficit, which means the opposite: we are dependent on foreign money. So, the argument runs, if these foreigners lost confidence in the British economy because of an ongoing 10% budget deficit, with the free creation of money (and hence a higher risk of currency depreciation and inflation), then there would be a crunch. At best, the government, or private sector, would be forced to borrow in foreign currency, destabilising the economy. At worst imports would rapidly become unaffordable, leading to severe inflation. This is a very hard argument to get to the bottom of on either side. There was no stress in the market for government borrowing as things turned out. But was that because of austerity? Or  sign that austerity was unnecessary? There is a very good case that the government could easily have borrowed more for investment (in council housing, say), a more difficult case for simply open-ended funding of bureaucrats and benefits.

Challenge 2: the government actually moderated austerity to reflect economic conditions. The government's plans to cut spending announced in 2010 were never adhered to; what actually happened followed the trajectory proposed by the Labour Chancellor in 2010 to tackle the deficit and included in the party's election manifesto. Unemployment never got out of control, and overall employment recovered much more quickly than the overall income figures. A lot of the comments from left-wing writers on the scale of the recession and austerity does not follow the facts. Some even suggest that because austerity was slower than planned "it was a failure in its own terms". This really is disappearing up your own backside. The scale of the cuts to public services simply shows how far public spending had got out of step with tax revenues. The more serious left-wing counter to this is that though employment held up, its quality did not. Pay was squeezed, and a lot of the new employment was insecure. There was scope for more demand in the economy, they say.

Challenge 3: the economy before the crash was unsustainable. To me this is the lynch pin argument, and I'm disappointed that it is so rarely made. This runs in a narrow form and a broader form. The narrow form is that government spending was at unsustainable levels, both because it was running a deficit at the top of the economic cycle, and, more seriously, because so much spending was funded by bubble taxes like capital gains taxes and stamp duty, while more reliable taxes, like income tax, were actually cut. That left a massive gap when the bubble burst, which meant that spending cuts or tax rises were inevitable even taking the Keynesian argument into account. There was never going to be a good moment to make the adjustment.

But the broader argument is more important. There was something fundamentally unsound about the pre-crash economy. It depended too much on the financial sector, drawing in foreign money to invest in British property and other assets. This drove the pound up, strangling export industries and giving us that large current account deficit. Growth in the economy depended on two very dubious sectors: finance and "business services" - the supply to services to other businesses, often in the finance sector. A lot of the reported income turned out to be fictitious, generating huge losses in the banks which the government then had to bail out. This was the culmination of two or three decades of poor economic management, when instead of modernising the economy, Britain went on an orgy of financialisation - not only pumping up a socially useless finance sector and its hangers on, but persuading people to increase consumption by borrowing more. In this light, projecting growth rates from before the crash to after it, to show how far it should have grown, is nonsense. The sustainable growth rate has been near zero for some years. And this puts a severe limit on Keynesian policies: the economy simply couldn't bounce back to where it was before without creating another bubble. In fact with the finance sector flat on its back, such policies would most likely have done little to raise domestic incomes, but simply sucked in more imports and foreign money invested in British property. The rebalancing of the economy, advocated by politicians of the right, left and centre, is a much slower and more painful process. We simply do not have the skills that a rebalanced economy will need.

This is not to say that the coalition government did not make serious mistakes. The more subtle critique made by prominent economists is that the government should have borrowed to invest. In other words the austerity was necessary, but that it should have been balanced by building more infrastructure and (perhaps) developing schools and colleges (the universities did fine). The left-wing commentators who cite these economists (the likes of Joe Stiglitz for example) overlook this.

The problem is that the British economy is in a deep mess, and it will not be easy to break out of it. We cannot do so by trying to go back to the economies of the 2000s, still less the 1970s. We cannot even go back to how the 2000s might have been if we had been wiser (looking more like Germany for example). Trying to work out what this new economy looks like and how to get there is the big challenge facing all politicians. Meanwhile we should regard any arguments about the easy restoration of growth with suspicion.

There are alternatives. Theresa May is in deep trouble

Featured on Liberal Democrat Voice

Beware the superficial when assessing Theresa May, Britain's Prime Minister. Most of the time she seems very weak, but somehow she survives as her position is much stronger than it looks. Conversely this is punctuated by moments of triumph, when she seems to sweep all before her. This always precedes a major reverse. Yesterday as she closed the Conservative conference with a confident speech she looked strong, though perhaps short of triumphant. In reality she has never looked more vulnerable.

Of course the central issue is Brexit. I have generally given this an optimistic gloss, being one of the few people to say that it is going reasonably well for Mrs May. But there is now serious reason to question her judgement. Her claim that there is no alternative is now in question.

Mrs May has taken up a very risky negotiating strategy. She is sticking to her proposal, usually referred to as "Chequers", though it looks as it the government has stopped using that word to refer to it. This is a very complex fudge by which Britain accepts EU Single Market product regulation for goods, but not for labour and environmental standards, nor for the movement of workers, and a customs arrangement whereby Britain can collect both its own and EU tariffs at its borders, allowing the easy movement of goods to the EU. The idea is to have an open border between Northern Ireland and the Irish Republic, and allow the intricate supply chains that have built up between the UK and EU countries to continue. But the problem is that EU leaders are really not happy with this. It looks too much like "have your cake and eat it", where Britain can undercut EU labour and environmental regulations and compete unfairly. Not to mention getting all the benefits of a customs union while freely negotiating alternative tariffs with non-European partners. Smarting from what they see as the growing nightmare of the pick 'n mix relationship they have with Switzerland, and worried about signals they might give both to other countries in the union and those just outside, they are anxious to guide the UK down one of the clear institutional models that they have already developed.

That leaves a very dangerous stand-off. If neither side gives way there could be a potentially disastrous "no deal" on 29 March 2019. Some Brexit supporters are quite relaxed about that idea. They assume that a number of side-deals can be done to mitigate the worst impacts, like grounded aircraft, halted medical supplies, non recognition of driving licences and so on. That is much too complacent. Though many of the scare stories spread by Remainers can be dealt with like this, the relationship is much too complex for such deals to go far enough, and it looks a bit like the hated Swiss model anyway. And there is no side deal possible that will prevent huge difficulties for goods crossing borders. The prospect of no-deal is so daunting that it might persuade parliament to go for a further referendum allowing Brexit to be reversed, something that has started to worry Conservatives, to judge how keen they are to rubbish the idea.

The EU is in fact offering two alternative ways forward for Britain after the transition period ends on 31 December 2020 (or perhaps later...). The first is full membership of the Single Market as a member of the European Economic Area (EEA). This has supporters in Britain. It might be bent to accommodate Labour's "tests" and so allow a parliamentary coalition that excludes most Conservative MPs. But it means that Britain will be a rule-taker from the EU, and continue to allow EU workers in freely. Most of those who voted for Brexit, and even some who didn't, would surely not support it. The second way forward is to do a free trade deal along the lines of the one done with Canada (referred to as "Canada" or "Canada plus"). This is the real threat to Mrs May, because Tory hardline Brexiteers support it. Much worse, so do many others, as it looks much better than no-deal, as at least there is nearly two years of transition and quite likely more. It is possible that there will be  cabinet rebellion - or even a revolt amongst Conservative MPs that turns Mrs May out of the leadership.

Mrs May's objection to Canada is that it creates a problem with Northern Ireland, as the EU currently insists that there would need to be a boundary of some sort between it and the rest of the UK. The rebels' calculation is the the EU will give ground on this, not least because a no-deal would have a very hard impact on the Irish Republic. They have even come up with various fudges and fig leaves that might make it viable.

So there is a clear and coherent alternative strategy for Brexit to Mrs May's. But her position is  made weaker by something else. Her remarkable longevity as leader since the fiasco of the 2017 General Election was not just because there was no alternative Brexit strategy,  but because there was no alternative leader. Or rather, that the main alternative looked to be Boris Johnson, the former Mayor of London and Foreign Secretary. He was on manoeuvres this week, giving a speech outside the main conference that apparently went down a storm. I have accused Labour's John McDonnell of advocating candyfloss policies, but Mr Johnson makes him look like a serious civil servant. Now two serious alternatives as leader have now emerged: the Home Secretary Sajid Javid, and the new Foreign Secretary Jeremy Hunt, who is conspicuously more competent in that role than Mr Johnson ever was. Mr Johnson's position, meanwhile, is weakening. In a leadership election Tory members make the final choice between the last two candidates selected by MPs. Mr Johnson can't guarantee being in that top two (a bit like the similarly charismatic, but more competent, Michael Portillo when the system was used the first time). And even if he does make it, the members may well lose their nerve and vote for the alternative. Tory MPs may be prepared to risk starting the selection process.

Such a rebellion is still unlikely before March next year, though, since it is too close to Brexit day. Afterwards it could happen very quickly. They will need to get a move on. The next general election is very winnable for the Conservatives. Brexit will stay in the news for years after next March, but the political sting will be much less, especially if Mrs May can be scapegoated for the worst aspects. Remainers may be energised now, but they will run out of steam once the country has formally left. They are not at all clear on what they want after that - they have barely started to think about it. Labour are vulnerable. They have a leader who is regarded as nice, sincere but ineffective by most people, and as an evil villain by many others. They have some interesting policies but a lot of these haven't been thought through, and they will wilt under sustained attack. The group of advisers that surround their leader, Jeremy Corbyn, remind me of the tight coterie that surrounded Mrs May before her disastrous election of June 2017: clever but inward looking.

But the Conservatives have weaknesses of their own. Their membership is low and ageing. The Brexit brand, which they have taken ownership of, is toxic to many. A new, younger leader will help with this. But they also need time to prepare for their campaign. The party owed its unexpected victory in 2015 to years of careful preparation; they did so badly in 2017 because they went into it with no preparation at all. So Tory MPs need to get Mrs May out of the way as soon as they can. And then there is all to play for.

As alternatives start to look more viable, Mrs May's days are surely numbered.

Economics for the Many: Labour’s challenge to the orthodoxy part 1

In my last post I referred to a new book, Economics for the Many, a collection of essays edited by Labour's Shadow Chancellor John McDonnell. I am very interested in any new thinking coming from the left because I spy the possibility of a coalition between liberals and socialists - whether inside Labour or between Labour and another party or parties - since the right  seem to have run out of ideas and started allying themselves with toxic nostalgists. So I bought the book. My first idea was to read it all and produce a single review article. No doubt I would have come up with something along the lines of this rather dismissive review by the FT's Chris Giles. But the interest is likely to come from some of the details rather than the general thrust, so my plan is write a series of articles as I read it, a few chapters at a time. This is the first.

Introduction - John McDonnell

In my last post I was somewhat dismissive of Mr McDonnell as a Leninist more interested in candyfloss policies than promoting serious policy debate. Be that as it may, Mr McDonnell is keen to portray a picture of a ferment of new thinking on the left, which will produce a radical new orthodoxy, much as Margaret Thatcher ushered in 40 years ago. This collection of essays is part of the evidence, and his introduction sets out an overview..

As such it doesn't tell us very much. Some of the familiar left wing narrative pops up. Those two abstract nouns, neoliberalism and austerity, play star roles as the villains. The first as a process of alienation of economic management from human values, the second being ideologically motivated cuts that have left tragic consequences. These let to the “social murder” of Grenfell Tower, for example.

But is it candyfloss? Is it designed to give the impression of intellectual movement just to provide cover for a power grab? I have two concerns. Are they coherent? And in particular, do they point to a radical decentralisation of power, or in fact the a Chinese style centralisation, guided by a political commissariat? And secondly, are they actually workable? Do they form a credible basis for reforms in our economic management?

1.    Democratising Economics in a Post-truth World – Antonia Jennings

This isn’t a promising start. The basic thesis is sound enough. There is widespread ignorance about economics, and bafflement at the way it is talked about. I think it is a bit worse than Antonia Jennings, a member of the political think tank/charity ecosystem, suggests. Many of that minority who think they have a strong grasp of the subject actually don’t. This allows politicians to build up myths not based on sound economics. The austerity policies of the 2010 government is, of course, used as the primary example. The Brexit campaign of 2016 is used as another.

Her solutions, though, don’t measure up to the task. She suggests a number of nice ideas: improve education at schools and universities, bring more women into the profession, change the way economics is presented. But these feel hopelessly inadequate.

The first problem is that economics rests on a number of insights that are profoundly counter-intuitive. One is that an economy as a whole has to be managed quite differently from a household budget – the idea of living within your means works out in a very different way. Another is the idea of comparative advantage – which means that trade should benefit everybody. Alas these ideas are not only counter-intuitive, they have layers of understanding, which even trained economists argue over. Many, for example, have not got beyond the basic idea of "trade is good" to understand how a changing world might affect the benefits of trade. This will take much more than a bit extra schooling and more user-friendly language to fix, surely?

The second is the sheer political imperative to frame an easily digestible narrative. Austerity illustrates this. There is a perfectly economically literate case to be made for this policy – many economically literate politicians and civil servants, amongst others, supported it. The government did not attempt to make that case in public because the level of political debate did not permit it. The counter-narrative from the left that austerity was unnecessary and therefore an ideological attack on public servants and poor people is just as illiterate, and framed from the same political necessity. In fact there is a very challenging debate to be had on the subject with well-made arguments on both sides. What is rather depressing about the whole episode is that so few people are or were interested in having that argument out. It is too politically important for that.

Political polarisation is no doubt a strong factor here. It is much more effective to shout down and demonise your opponent than start a reasoned debate. Labour is part of the problem, or, more generously, a victim. What is the answer? I am tempted to say that it is greater political pluralism based on electoral reform – though that has brought its own problems elsewhere in the world.

So yes to reforming the economics discipline. But expectations on the political impact of this need to be moderated. The problem is more deep-seated.

In fact I suspect this chapter is more about maintaining that sense of outrage at neoliberalism and austerity, with the suggestion that both are founded on economic ignorance. A rather bitter piece of candyfloss.

2.    Labour’s Fiscal Credibility Rule in Context – Simon Wren-Lewis

Simon Wren-Lewis is an academic macroeconomist, who has advised the Labour leadership on its economic policies. He writes lucidly and is perhaps an example of what Ms Jennings is looking for in clearer economic discourse. His topic is the Fiscal Credibility Rule (FCR), an operating principle for tax and spending policy that was adopted by the Labour leadership before the 2017 general election to show that it could be trusted with the government finances.

He starts with an elegant description of macroeconomic policy before the crash. He then moves into criticism of the 2010 coalition government’s austerity policy, which he says strangled economic growth. This story is central to Labour’s narrative, and you cannot expect a balanced discussion of this in a book like this, published on the party’s behalf. Mr Wren-Lewis, anyway, has taken sides, in an example of something that Ms Jennings might have commented on but didn’t: academic economists take sides in policy debates rather than trying to tease out the disputed issues and resolve them. I’m not sure how much this tendency is due to the politically charged nature of the discipline, and how much this goes on generally in academia. It is tempting to rise to the challenge, but this is the wrong place to do it. His is a perfectly respectable academic argument that I happen to disagree with. But it matters more in understanding the past than in working out what to do in the future.

The feature of the FCR that Mr Wren-Lewis thinks is most innovative is the idea that when interest rates are near zero, the government should use fiscal policy to help restore aggregate demand back to the point when interest rates start to rise again. The article then takes a rather puzzling turn. He talks about Modern Monetary Theory (MMT – SW-L shows a real weakness for TLAs). This is an idea that has growing currency on the left, which suggests that the regulation of demand should principally carried out by fiscal policy, and not the manipulation of interest rates by a central bank. If that is the case then the FCR is a bit of a miserable compromise. He leaves it unclear as what he really thinks.

Another interesting point is thrown in as an aside: Labour’s fiscal rule does not include borrowing for investment. This would be a radical departure for the British Treasury, who like to manage government borrowing as a whole, whether it is driven by investment or not. Many academic economists, such as Joe Stiglitz, a Nobel Laureate often quoted by writers on the left, think that this is critical. If you read their critique of the 2010 coalition government closely, you will see that they don’t particularly criticise the aspects of austerity that made Labour supporters most angry – benefit cuts and reductions to the government payroll – but focus on the slashing of investment. An interesting debate is glossed over here: if fiscal policy is to be the main instrument for managing the business cycle, what balance should be taken by capital spending, and what by revenue deficits? I can see arguments on both sides, but it isn’t talked about enough.

For what it is worth, I agree with the central premise of MMT (which Mr Wren-Lewis points out is old-fashioned Keynesianism) – which is that fiscal policy should take up a full role in managing the business cycle, relegating central banks to support. But that invites a whole series of difficult questions, of which the role of capital spending is just one. A more important one is how do you tell when the economy is overheating, and so fiscal policy should be tightened? Mr Wren-Lewis simply suggests inflation – but in the modern economy inflation is no longer a reliable signal: dangerous imbalances in the financial system can build up instead. And there is an even bigger question: MMT in its simplest form implies a massive concentration of political power at the centre. For Leninists that is a good thing; liberals worry that this simply leads to incompetence and corruption.

But Labour aren’t going there yet. The FCR is actually rather a modest proposal, and sensible enough as far as it goes. But there is a much bigger debate to be had about how to manage the macroeconomy.

 

So a rather disappointing start, but many of the more interesting chapters were always going to be later on.

 

 

 

Will Labour’s Leninists thwart its liberals? Electoral reform is the test

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The leader of the British Labour Party, Jeremy Corbyn, closed a successful party conference last Wednesday. The reshaping of the party in the last three years under his leadership is second only to Brexit in transforming the British political landscape, and may even come to overshadow it. This achievement stands in stark contrast to the fate of mainstream socialist and social democratic parties elsewhere in Europe. Mr Corbyn has repeatedly been underestimated by his critics, including me. And the conference seemed to put behind the party the bitter conflicts that arose during this transformation, in order to take on tired neoliberal orthodoxy that still dominates British government. Will it work?

The first challenge to this is whether the party can break through scepticism among the public at large, fuelled by unsympathetic coverage in the media, and stoked up by their Conservative opponents. A lot of wealthy people are worried by the thought of a Labour government, and so there will be plenty of money behind such schemes to derail the party. As the Brexit referendum campaign (to say nothing of Donald Trump in the US) shows, political campaigning is not restrained by thoughts of truth or fairness. But I want to consider a second challenge: which is whether Labour will actually come up with a convincing package of policies that will transform the country for the better, or whether hopeful signs will be stymied by Labour's internal politics.

I was put in mind of this by an article in the Guardian by John Harris. He welcomes the radicalism of ideas coming out of the Labour movement, which include such liberal ideas as the decentralisation of power, including local government and worker cooperatives. I have ordered a recently published book, Economics for the Many, a series of essays edited by Labour shadow chancellor John McDonnell, to get a better understanding of this new thinking, and I will report back on that when I have read it. But Mr Harris is worried that this radicalism will by stymied by nostalgic conservatives that want to turn the clock back to the 1970s. There are plenty of these in the Labour movement (such as former deputy Prime Minister John Prescott), but I don't think these are much of an organised threat. And neither are the centrists associated with the now dated New Labour project of the 1990s, still strong in the parliamentary party. Instead I see the key battle as being between two groups that I will call "liberals" and "Leninists". These groups don't self-identify as such; instead I am using my own labels, much as the left uses the term "neoliberal" for critics on the right, though I aim for more precision.

Firstly, it is worth remembering what unites these groups. They both want to make society economically fairer, with a better distribution of wealth and the eradication of poverty. There is no reason to doubt their honesty about this, but there is a fundamental divide as to how to go about it. The liberals have a deep-seated belief in democracy and persuasion, and a distrust of dictatorship; they also think that centralisation of power is part of the problem. They think that the party should develop a policy programme based on radical devolution through a process of internal consultation within the party, and then persuading the electorate as a whole. The detail and content of the policies are everything, and they want to engage as many people as possible in the debate.

For Leninists it is the seizure of power itself that is the key thing, first within the party, and then in the country. And once that power has been seized, they want as few restraints on executive power as possible, so that radical policies can be enacted from the top down. Centralised power is the solution, stupid, not the problem. Leninists don't care much for the content of particular policies, beyond as a means to rally supporters. They are supremely pragmatic in their bid for power, forming alliances with liberals and others on the journey, only to ditch them when not required. The model, of course, is Vladimir Lenin in revolutionary Russia a century ago. His ruthless focus on power meant that he easily outlasted more romantic socialists, who expected power to emanate from the workers upwards. A more modern hero is Hugo Chavez of Venezuela, who accepted a democratic veneer only so far as necessary to keep his Bolivarian socialist project on the rails. Labour's Leninists are not openly undemocratic, but they have some worrying heroes.

An example of what I mean is Mr McDonnell, the leading Leninist, and his suggestion that large companies put aside 10% of their shares for the benefit of workers. This sounds all very good and liberal, until you look at it a little more closely. In fact control of the shares would rest with central government; after that the details melt away. The party's shadow business secretary, Rebecca Long Bailey, sometimes talked of as a future leader, was easily skewered by a BBC journalist when pressed to explain the policy on Radio 4 the morning after. The policy is candy floss: designed to give a sweet sensation on contact, but which quickly melts to nothing.

In this picture the Leninists are slowly consolidating their control over the party machinery. Mr Corbyn, while lacking the ruthless streak that characterises Leninists, seems happy to go along with this. By instinct, however, most Labour members are liberals. The Leninists need the liberals as allies, but they also want to stymie any policies that might dilute their hold on power. Am I imagining all this? Well it is a huge over-simplification, but it may have some value in predicting what happens next. Let's consider how this dynamic might play out on a couple of defining issues.

The first is Brexit. The liberals hate Brexit and want to mobilise the party to stop it. They therefore threw their weight behind the idea of a new referendum, with the possibility of stopping the process. The Leninists don't like this idea. They don't care that much about the issue itself, though they instinctively bridle against the restraints that the EU places on member states, for example over state aid to businesses. But they worry that taking such a clear stand against Brexit will cut them off from a working class vote that would otherwise be quite easy to mobilise against the Conservatives. I personally have a great deal of sympathy with this position. Brexit exposed a fault line in British society and real political leadership will be needed to heal it. The Leninists successfully stopped a motion going to conference that explicitly commits Labour to a further referendum. But enough movement was made in that direction, especially with statements from the (liberal) Keir Starmer, for liberals to declare victory (take this remarkable piece from the Guardian's Zoe Williams). That seems very naive, though Theresa May's government may yet give them an opening if she persists in pushing her Chequers or bust strategy. The Leninists must find a working alternative to no-deal to fall back on, at least in principle - even if they think that no-deal would give them a political opportunity - or they are in danger of presenting the public with a choice between no-deal and no-Brexit, which is the liberal game plan.

The second issue is electoral reform: and in particular the greater use of proportional representation. This is popular with liberals, and stands well with their ideal of a pluralistic democracy - in place of the take-it-or-leave it politics of the current system, where political elites have too much say. But it is anathema to Leninists. Their political ideal is a one-party state (preferably because electors persistently back the party in a free choice, rather than actually banning the opposition). They like the idea of large, broad church political parties, united by a tribal hatred of each other. It offers them the best chance of seizing power. And they love control by elites, as long they are the elite. It's not that Leninists are anti-democratic: they crave the affirmation that winning elections gives them: but they are inclined to see opponents as cheats, class enemies and fundamentally illegitimate. They will not be encouraged by the fate of traditional socialist parties in proportional systems elsewhere in Europe. If the Leninists hold sway, Labour will make no serious commitment to electoral reform. Somehow it will never work its way up the priority list.

In my view the Leninists hold the upper hand. And I think that is bad because their solutions, involving highly concentrated political power, are doomed to failure. They are trying to take a short cut to solve problems that can only be solved through a tough democratic process, with the substantial devolution of political power. Perhaps I will be proved wrong, and the Leninists will find the party turning against them, and the Labour Party adopting genuinely liberal policies. I will know that day has arrived when party adopts serious electoral reform, at least to local government, in their party platform. Don't bet on it.

The dust starts to settle from Salzburg: the tension over Brexit mounts

After the spectacular breakdown between Britain and the remaining EU countries at the summit in Salzburg last week, what is the state of Brexit? The chatter in the media, mainstream or otherwise, is either hopelessly partisan, or hopelessly superficial (the BBC is taking mediocrity in political analysis to new heights). Before taking the plunge on this I wanted some of the dust to settle, and also to see what the more reliable commentators had to say.

For me, these commentators write for the Financial Times. Easily the best on Brexit is legal correspondent David Allen Green. His take on the summit is that the British Prime Minister Theresa May badly misjudged the mood on the EU side, leading to the breakdown. But he still expects the all-important exit deal to be done allowing the transitional deal to come into play on 30 March 2019, while the details of the longer term relationship are hammered out in time for the transitional period's end on 31 December 2020. For an alternative view I went to Wolfgang Munchau. I don't particularly like him as he is prone to getting a bit worked up, but at least he is free of that awful British superficiality of understanding when it comes to the EU. He suggests that it is the EU side that has misjudged things: they think that a no-deal situation would be so painful for Britain that it will buckle before it is too late - underestimating the political difficulties for Mrs May, even if that is what she really thinks. So he thinks that the no-deal situation on 29 March 2019 is all too likely.

Before trying to make sense of this, it is worth highlighting a couple of other things that are emerging from the wreckage. The first is the idea that Brexit can be halted and made to go away. So far talk of this has been confined to ardent Remainers on the margins of British politics. But for the first time at Salzburg some European leaders spoke publicly about the possibility. Idle talk, perhaps - it is nowhere near the official EU position. But perhaps it explains why some EU leaders are unsympathetic to Mrs May's compromise idea. Meanwhile British commentators are in two camps. One side says that there is growing momentum for a further referendum with reversing Brexit as an option. The other says that not only would this be a logistical nightmare, but there isn't the political will to do it where it matters: in the House of Commons. Labour's fudged conference motion to be debated today gives succour to both lines of argument.

Another thing worth mentioning is rising talk of the "Canada option" in British political circles. This refers to the comprehensive trade deal the EU has struck with Canada, which some think is a model that the UK should follow. The idea is not that this would be in place for 30 March 2019, but that it could be negotiated in time for 2021, when the transition period ends. This has the advantage of being completely consistent with the EU negotiating position, and being acceptable to the troublemakers in Britain's Conservative Party (and the hard Brexiteers in Labour too). It has one overwhelming snag, beyond requiring the dismantling of many manufacturing supply chains and the clogging of ports, which hard Brexiteers have never much worried about. It is inconsistent with the stated aim of an open border between Northern Ireland and the Irish Republic. Which means, under the current EU offer, a sort of customs border between Northern Ireland and the rest of the UK. Most Britons couldn't care less about this - but it is an existential issue for the Democratic Unionist Party (DUP), on which Mrs May's government depends, as well as old-fashioned Conservatives, of which there may be a few left.

So it keeps coming back to Ireland. Here I think there are a couple of issues that don't get talked about enough. The first is that Brexit, especially a hard one, could lead to moves to unify Ireland. This possibility was left in the Good Friday Agreement, but only if most Northern Irish people agreed. Within the EU there was little prospect of that, even as the relative proportion of Catholics is rising (it is said that the UK's more generous welfare state is at the heart of this). But at least one poll showed that this changes in the event of Brexit. Idle speculation? Perhaps: the DUP don't seem to be overly worried about it. But serious political miscalculations happen. A messy Brexit might be resolved by Irish unity - do the DUP really want to risk this?

The other issue is the impact that a hard Brexit, and worse still a no-deal, would have on the Irish Republic: it could be catastrophic, as so much of its trade is either with Britain or through it. Mr Munchau admits that the impact of a no-deal would affect Britain more than its EU partners, but says that the latter's pain theshold is lower. So he advises the British government to hold firm. I'm not so sure about this as a generality (to judge from the way Russian sanctions have been applied, in spite how much they hurt some EU members), but Ireland is surely a weak link. And since Ireland is at the heart of the most awkward negotiating issue, this matters a lot, and gives strength to Mr Munchau's analysis.

And then into this brew we must add the state of British politics. If the EU does bend, and Mrs May is able to put something like her current proposals (referred to as "Chequers" after the place where it was forged with her cabinet) to parliament. Will she have a majority and what happens if she doesn't? The current suggestion is that there will be a sizeable Tory rebellion amongst Brexit hardliners, and Labour will vote it down, which makes Mrs May position look hopeless. But what then? Labour hopes for a General Election: but Mrs May is unlikely to concede it with her party in such disarray. She may then try to resolve the impasse with some form of referendum. If she is cunning, this will simply be between her deal and a no-deal, with no option to remain. Labour is badly split on the latter. Whether there is a Commons majority for an option to remain is questionable.

But the possibility may be enough to make hard Brexiteers, both Tory and Labour, think twice. The cleverer amongst them have already realised that Mrs May's compromise is a sensible staging post to where the want to go. Once the country gets past 29 March, the Remain coalition will start to wilt as there would be no easy way back in. And there is enough ambiguity in the SNP position for them to be persuaded to sit on their hands. A majority for the compromise position may yet be conjured up. If Mrs May was a more skilful politician I would say that with more confidence.

So my prediction is this: Mrs May will stand firm and the EU will start to bend, though it may take until December. Some kind of deal will be negotiated, which still leaves many issues about 2021 unresolved, but which will be enough to get to avoid the cliff edge on 29 March 2019. She will then succeed in getting this through parliament. Ultimately Britain will get a camouflaged Turkey-style deal, with a customs union of sorts in goods and no freedom of movement. So much the same as I was predicting before.

What could change it? If EU governments start to club together to offer the UK a way out of Brexit, that could just change the political dynamics in Britain. Or if a political miscalculation leads to a new General Election, and hence a two month stasis in the negotiating process, then that do raises the odds of a no-deal, whoever wins. So the tension mounts.

Lib Dem economic policy takes a step leftwards

Last Monday the Liberal Democrats passed a policy paper on economic reforms, Good Jobs, Better Businesses, Stronger Communities. This covers economic policy outside fiscal and tax reform, and fits in with the party leadership's wish to address the challenges of what is often called the fourth industrial revolution. Does it measure up to the challenge?

Sometimes it is hard not to agree with fellow Lib Dem blogger David Boyle that liberals don't take economic policy seriously enough. There was little excitement about this motion, or another two which tackled taxation. I only attended two of the three debates myself and spoke in neither. But the party leader Vince Cable takes economics seriously (he was a professional economist after all), and the party does find itself well-provided with official policy, even if most of its members might struggle to know what it is. The party should be doing more to promote internal debate.

The Good Jobs motion, and the paper behind it, demonstrate one of the problems. They are very densely packed with ideas and policies. So much so that they are hard to read and harder to condense into something clear and ringing. There seem to be two problems here. First the scope was probably too large. You could easily produce a worthwhile motion on workplace rights, for example, rather than tucking it away in this much bigger motion. And then there is the desire to establish consensus. This boils down to including something for everybody: I'll let your hobbyhorse through if you'll do the same for mine. How much this dynamic came from the policy working group itself, and how much from outsiders I don't know. It must be admitted that there are some advantages to this approach. The Labour manifesto last year seems to have been produced by a similar process, and it collected together enough hobbyhorses to make it a good tool for roping in disparate groups of special interests. I remember one online commenter disparaging the Lib Dem manifesto because, unlike Labour's, it had no policy on puppy farms. It was an electoral success, notwithstanding major holes in, for example, university finance. Secondly, if your party actually does get into government, it helps to have a bank of small-ish policy ideas ready. This gives ministers something to do, and helps them set their own agenda, rather than being swept along by their departments and issues of the moment. So the policy paper should do valuable work, even if it failed to the party at large on fire.

My main beef is that it pays homage to the idea that the country has a serious productivity problem, and that this is something politicians should worry about. But this is such a consensus view that I guess they had little choice. I don't particularly object to the polices that this gives rise to. Indeed many of its ideas would no doubt dent measured productivity in the short term (more regulation, tougher environmental focus, and so on), so it is probably politically wise to have some policies specifically focused on raising productivity. Labour does something similar.

So what, for me, are the key issues? The first is that too much money in the economy is being either retained by businesses, or distributed to shareholders, or paid to senior employees. Quite apart from the corrosive effect this has on people's sense of fairness, too much of this money is idle, causing a phenomenon called secular stagnation. One of the symptoms is low interest rates and too much private debt. This tendency started in the 1980s and  technological changes aren't making it any easier. In order to address this, broadly two sorts of reform are suggested. First there is attacking monopoly capitalism. This is David Boyle's big theme: he wants to rescue the old liberal concept of free trade as a liberator, after it has been hijacked by neoliberals to mean staying out big business's way. The second is to redress the balance of power between workers and bosses. I think this latter is probably more important - I am less convinced than David that modern monopoly capitalism is quite as harmful as it was in old economy days of oil, phones and steel - though I do think he is onto something over excessive protections for intellectual property. The Lib Dem paper embraces both approaches, though not intellectual property, which requires a policy paper all to itself. It opens the door to supporting unions. Having heard a very sensible presentation by a representative of the union Prospect at the party conference, I am changing my mind about the role of trade unions. One of my formative political beliefs (from the 1970s) was that unions were a baleful influence on the economy. But empowering unions sounds much more likely to redress the palpable power imbalabce than more shared ownership of businesses, a typical Lib Dem suggestion (though not advocated as radically as the left are starting to).

The second issue is that the economy needs to be pushed towards environmental sustainability. Not only does this mean unlocking renewable energy and leaving coal and oil buried in the ground, but it also means producing and consuming less stuff. The sustainable economy will be based on services, not manufacturing. This needs a change of mindset, and the policy paper does give it a big shove in the right direction.

A third issue is getting a more even geographical spread of economic success. It is a pity that economists are not giving this more thought. Certain economic processes seem to benefit from accelerating returns - returns that rise with concentration. The idea of accelerating returns sounds good, but it isn't, because it leads to success being concentrated, and increases inequality (unlike the alternative concept of diminishing returns, the more conventional assumption in economic modelling). This seems to be because of network effects among personal relationships, that work better in geographical proximity. This is not particularly well understood, but needs to be. I am convinced that government structure is part of the story. More devolved political power helps - but exactly how and why is less clear. The policy paper duly pushes for this, both in government and in the purchasing of public agencies. That is helpful. But whether more devolved government will help Boston, Margate or Merthyr Tydfil enough is doubtless open to scepticism. The centralised political culture runs deep in Britain.

And a fourth issue is human fulfilment. We have reached the point in our economic evolution when economists need to consider this explicitly, rather than simply trying to give people more money to spend. This fits in with worker empowerment, but there needs to be more. The paper's advocacy of lifelong education and individual learning accounts is helpful here. But I want to see the greater availability of counselling for people between jobs, or unsatisfied with their jobs, as a part of this. Simply giving people spending power is not enough, and can be dehumanising - one of the reasons that I am suspicious of universal basic income, a very fashionable idea on the left that the Lib Dems are sensibly steering clear of.

So, overall, this policy paper fits well enough with the economic agenda that I support. But standing back it leads me to a striking thought. There is a growing overlap between current liberal thinking and new socialist thinking (which isn't just a throwback to the 1970s as its opponents claim), and a step away from the neoliberal thinking that still dominates the centre-right. Perhaps there will be enough common ground for a future coalition, once Labour sees beyond its internal struggles and overcomes its more extreme tribalism. Alas that day is some way off. But a coalition with Conservatives once the Brexit hoo ha has settled looks even less wise than it was in 2010.

 

Vince Cable sets a bold course for the Liberal Democrats

In one episode of the masterly political comedy Yes Minister, the knowing civil servant advised his naive minster on the art of public presentation. It depends on how radical you are. The more radical that you want to be, the more sober the presentation needed to be, to reassure the wary. A contentless speech, on the other hand, needed to as glitzy as possible. On that basis the British Liberal Democrats' leader Vince Cable's speech yesterday to his party must have been radical indeed. Its presentation was as dull as ditch water, fluffing its one joke (something about erotic spasms). Its content was another matter.

Most commentators, inside and outside the party, have been unable to see past the superficial. They complained that it was dull, and lacked radical new ideas. They assumed that his appeal to reasonable, moderate voters, put off by the extremism of other parties, meant that his ideas were would be wishy-washy, and duly saw that both in what he said, and in the series of policy resolutions passed by the conference. But I have been listening to leader's speeches for nearly 30 years. I'm tired of the presentational tricks, the crowd-pleasing jokes, the radical-sounding policy ideas that lead nowhere, and the personal stories injected by professional speechwriters to establish "authenticity". What I actually heard was a series of direct answers to the hard political questions that the party faces; he never lost my attention. My first thought, as we got up to applaud it, was that it was the best leaders' speech I had ever heard.

So what are these hard questions? The first was what actually do we say if the party succeeds in its quest to secure a referendum on the Brexit proposal, with an option to stay in the EU. This is something that most advocates of a referendum say little about. Vince recognises that most people that support Brexit have a real grievance, having been left out of whatever economic advance the country has made over the last generation. That needed to be addressed through public investment, and for public resources to reflect population increases more readily. He also recognised that the party needed to push for reform of the European Union itself. This is something most Remainers are silent about.

But this only poses deeper questions about what is wrong with Britain, that go far beyond Brexit. Vince took this on too. Part of his answer was a familiar liberal one: better education services, with a lifelong remit; he mentioned further education colleges in particular as a neglected sector that needed attention. He also supported Education spokesperson Layla Moran's ideas for changes to schools. These are a little too crowd-pleasing for me (replacing Ofsted and reducing primary testing) but are generally going in the right direction. But he also had ideas, indeed firm policies, on the economy, often a Lib Dem weakness. He recognised the biggest problem: that too much money is being hoarded by the well-off. He wants to tackle this by taxing it harder. This is quite brave, since there is likely to be collateral damage amongst a swathe of older people (like me) who have made money from owning homes, and who (unlike me) want to pass on much of this wealth to their children (I don't have any). This is surely part of the answer, but also I think it means being braver on government debt. But he hinted at this too - by loosening government rules on borrowing to invest, locally and nationally. My criticism in my previous post that the Lib Dems are weak on economic policy is being addressed.

He also wants to start thinking about how the impact of increased automation will affect our lives, and how public policy needs to change to reflect it. This will doubtless lead to a focus on empowering workers, as well as re-focusing regulation of digital platforms. Deputy Leader, and likely successor to Vince, Jo Swinson also talked about this.

But, of course, developing a policy platform that is relevant and radical is only part of the problem. The are small signs that the party's fortunes are improving at the expense of Britain's big parties, but far short of what is needed to turn the party into a major political force. The party isn't speaking to the vast majority of the public, and media gives it little attention, almost none of it sympathetic. Amongst those who have some awareness of the party, it is considered to be well-meaning but ineffectual. It is unfashionable to support the party, and many people who might be supporters resort to sneering at it. There needs some kind of seismic shift, both in gathering supporters and, critically, money. Vince has launched a series of ideas for party reform in an attempt to do just that. I did not attend any of the consultations on these reforms, but I understand that attendees were giving them a sympathetic hearing, but were worried about some aspects, notably that the free supporters' scheme might be subject to entryism. Many of the older hands are very sceptical, though. They way in which the leadership is trying to push the reforms through has ruffled quite a few feathers.

But the party doesn't belong to these old hands, who include long time members like me, and more recent ones who joined in the 2000s, who consider themselves to be radical liberals. The party's membership has exploded since 2015. The recent publicity of Vince's reforms have drawn in thousands more. Nearly every other speaker claimed that it was their first time speaking at conference. By and large these were persuaded by the leadership line. A strong move by the old lags to derail a motion on immigration, recommending substantial reforms to Britain's current system, but falling far short of making the country truly open, was easily defeated. The complainers were passionate, angry and numerous, but oddly unspecific. Against this most people were persuaded that the policy was a step in the right direction.

But the opportunity is palpable. The Conservatives are skewered by Brexit, as well tied to an outdated economic orthodoxy. Labour is riven by internecine struggles that are relegating many of its ablest people to the sidelines. Too many of its supporters indulge in tribal abuse as an alternative to building broad support for a radical policy programme. Its leader is failing to convince much of the public. A bit like the Lib Dems, he is seen as well-intentioned but ineffectual.

And meanwhile Brexit is hurtling towards us. Personally I still think that the Prime Minister Theresa May will succeed in getting a compromise deal with the EU through, allowing an exit from the union in March next year. The Lib Dems owe it to their supporters to try their damnedest to stop her. But its leader is looking at what the party has to do beyond that. That encourages me.

Is Vince Cable’s plan for the Lib Dems a gamble too far?

Last Friday the leader of the British Liberal Democrats, Vince Cable, launched his plan for remaking his party into a broader liberal movement. Having been away, my reaction to this event has been slow. But before we launch into the party conference next weekend, here are my first thoughts.

Vince's main idea is to create a supporters' scheme which costs nothing to join. To give people extra incentive to sign up to this (and be bombarded with requests for help and donations, etc.) he suggests that these registered supporters have a vote to help choose party leaders - and a suggestion that non-MPs may be allowed to stand for the leadership. He also wants to make it easier for new members to become candidates for parliament - currently they must have a full year of membership. Vince said that the party needed to open itself up to become a movement for political moderation.

First reactions in my Facebook feed were very negative. If there's one thing that annoys the more vocal people in this community it is referring to Lib Dems as "moderates", or worse, aiming at the political centre. The party has being going through difficult times after its support collapsed in 2010 when it joined the Conservatives in coalition government. What has kept those of us who remain going, and motivated those who have joined since, is passion for its liberal and internationalist values, not moderation, and not being Mr In-Between. But political leaders know that they must do more than merely represent their supporters; they must broaden their movement's appeal to people who do not currently support it actively. There are many people out there who are appalled by the idealistic extremism that is infecting both Labour and the Conservatives. Doubtless the use of the word "moderate" was based on at least some market research, though the party cannot afford much.

Apart from suspicion of the word "moderate", members are wary of involving large numbers of newcomers with little experience or stake in the party. The Labour Party were the first down this route, when they opened up their leadership contest in 2015 to the public for just a £3 fee. In one sense this was enormously successful: hundreds of thousands were drawn in, and many became full-fledged members. The party how has about 600,000 members when the next three in size (the Conservatives, the Scottish Nationalists and the Lib Dems) have not much more than 100,000 each. But this influx of members helped a manifestly unsuitable candidate (Jeremy Corbyn) become elected to the leadership, and has been exploited to drive the party to left. I need to be careful here. Mr Corbyn has been badly underestimated by mainstream politicians and media, and the lurch to the left has involved some welcome fresh thinking. It may not turn out as bad as many outsiders, including me, are predicting. But what is unquestionable is that the process has been very uncomfortable for many of the people who had devoted their lives to the party before the influx changed things. And that's what many Lib Dems fear will happen to their party if these changes actually succeed in drawing lots of new new people in. It's all very well saying that these new supporters should share the party's current values, but how do you ensure that this is the case?

What gives weight to this is the thought that the party might be able to draw in defectors from other parties, including MPs and big-hitters. Unhelpfully, former Labour Prime Minister Tony Blair piped up on Friday too, expressing his fears over the turn that politics in Britain has taken. People won't be slow to make the connection that "moderates" and "centre ground" include people like him. And to many of us, it is people like him who got the country into this mess in the first place, by pushing a series of ideas (often referred to as "neoliberalism") that have created a whole class of left-behind people that are stoking up the anger.

But the party's position is quite desperate, if it wants to live up to its ambitions to make it to the political big time (i.e. achieve power), rather than being an ideological fringe, like the Green Party. It is stuck at between 5-10% in national opinion polls (though at the upper end of the range at the moment) and has too few MPs (at 12) to have serious political clout. Andrew Rawnsley sums this up very well. And yet, as Mr Rawnsley also points out, the opportunity is palpable. The ideological fringes in both the major parties are making the running. And there are examples of successful mass movements led from the centre (he points to Barack Obama, Emmanuel Macron and Justin Trudeau in Canada, whose party has been advising Mr Cable). If the Lib Dems can't do this all by themselves, it is hard to see it working without them. The party has nearly as many members as the Conservatives, and the organisational nous and cooperative culture that a brand new party would lack (one reason that the party has seen off Britain's most successful new party of recent times: Ukip).

There are moments in life when you have to be courageous, and take big risks in order to get what you want. This is one such moment for the Lib Dems. All the risks pointed out by the plan's critics have a basis in fact - but they can all be managed. The plan is not nearly enough by itself, but the point is to capitalise on opportunities as they arise. As such I am giving my support to it, though I have reservations about some of the plan. The secret weapon of liberalism is that it can be ideological and moderate at the same time, because it celebrates inclusion. Inclusion is what political moderation is all about.

To me, though, there remains a hole at the heart of this exercise, which will also afflict any new parties created out of fragments of Labour and the Conservatives. We know what they stand against, but what's the plan? How do they propose to help the left-behind, and start to heal the rifts that are all too apparent in our not-so United Kingdom? At the heart of this has to be a new approach to economics. At the moment Labour understands this better than the Lib Dems, but they are ruining their good ideas by proposing to over-centralise power and supporting the deep conservatism of trade unions. But at least they realise that the cosy consensus that dominates the centre of British political establishment has to be challenged. And that is radical rather than moderate. Once liberals start to champion an agenda for radical economic reform, everything is possible.