Politics UK – Page 32 – thinking liberal

Corbynomics: hope, fantasy and shaky foundations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

My hopes and fears for the Lib Dems under Tim Farron

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

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

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

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

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

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

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

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

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

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

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

The Labour leadership race becomes a lot more interesting – but exposes the party’s hollow heart

Apart from one piece shortly after the election I have resisted blogging about Britain’s Labour Party after Ed Miliband’s departure as leader. It felt too much like displacement activity from confronting the predicament of the Liberal Democrats, to say nothing of a depressing turn of world events. I am glad I did so. Because I had not foreseen the turn that the leadership election has just taken.

To start with there seemed be just three serious contenders: Andy Burnham, Yvette Cooper and Liz Kendall. They all stuck to a standard Westminster narrative that Labour needs to move to right to draw back voters that they had lost to Ukip and the Conservatives. These, it was thought, were put off by Labour’s perceived softness on austerity policies. Ms Kendall attracted real momentum amongst the small circle of media commentators because she proposed a sharper move rightwards than the other two. And she was a fresh face, untainted by the the years of Brown and Blair. But neither of the other candidates was exactly left-wing, though Mr Burnham tried to nuance is message a bit to the left to draw in leftist support.

But as nominations closed a fourth candidate was let in: Jeremy Corbyn, a paid up metropolitan leftist who used to be a trade union organiser, before starting a long parliamentary career in 1983 representing Islington North – and whose views have no moved on since. Some Labour MPs nominated him apparently to liven things up a bit rather than because they actually wanted him as leader. There was a precedent for this. Another left-winger, Diane Abbott, was “lent” nominations by other candidates, embarrassed that the field otherwise consisted of white male ex-ministers. Ms Abbott lived up to her token status and did not get very far. No doubt MPs thought the same would happen to Mr Corbyn.

This has turned out not to be the case. Mr Corbyn quickly attracted nominations from many constituency parties, as well as the support of the vast Unite union. A private poll has reportedly shown him actually leading first preference votes at 33%; the same poll showed Ms Kendal nowhere at 4%. Quite why Mr Corbyn proved a more effective candidate than Ms Abbott I cannot say. Ms Abbott is an engaging, intelligent and colourful individual. It may simply reflect the mediocrity of the other candidates. Perhaps it’s good old fashion sex and race bias (the male candidates were well ahead). Maybe Labour grassroots supporters have moved to the left. No matter, Mr Corbyn is free from the conventions and coded messaging of normal Westminster politics, and speaks his mind more clearly than the other candidates, giving him the prize of “authenticity”. And he is unambiguously of the left – attacking austerity, promoting free university tuition, and so on. His appeal to Labour activists and trade unionists is not hard to see. At last somebody is articulating what they are thinking.

Labour’s opponents amongst the Westminster elite can hardly contain their glee at this turn of events. Mr Corbyn is regarded by them as unelectable. Some are urging Tory supporters to join Labour temporarily to vote for him. They may be right about his electability, but that would be to underestimate the significance of this turn of events. The Labour leadership contest has been turned into a real battle of ideas.

This is unusual in such contests. Usually contenders are mindful of the need to unite the party after their election, and so they tend to deal in coded messages. The recent Lib Dem leadership contest was like that. And that was the case with the contest before Mr Corbyn entered it, apart from Ms Kendall, perhaps. This poses a challenge for the middle of the road candidates, Mr Burnham and Ms Cooper. Do they sharpen up their act and challenge the fantasies upon which Mr Corbyn’s campaign is based? Or do they give Labour members another helping of fudge, hoping to pick up second preference votes of left-leaning members?

If it is the former, it could be good for the party. Unity is prized too much by party leaders; sometimes it is important to have big row and trample over people’s sensitivities. Otherwise conflict is not properly resolved and breaks out at a much less convenient point. This is something that Tony Blair understood very well in the 1990s. He had an easy victory in the leadership contest, but he then took the trouble of rubbing the leftists’ noses in it by changing Clause 4 of the party constitution. Mr Miliband’s focus on party unity simply left lack of clarity and muddle. The Labour leadership contest has a while to run yet. This gives party members plenty of time for the cold hard logic of a move to the political centre to sink in and elect Mr Burnham (still considered the front-runner) or Ms Cooper (for my money a much better choice); but the leftists will at least have had their moment of glory and been beaten in a fair fight.

But there are risks. If Mr Burnham or Ms Cooper wins by means of artful fudging, rather than challenging the left, they will be stuck in the same mire than Mr Miliband left the party in. They will then need to take on the left in some symbolic fight on a policy issue; they may well not have the courage to do so. And it might risk a fatal split.

Or Mr Corbyn might actually win. With a tiny power base in the parliamentary party, and no experience as a front line politician, this is not likely to go well. He might well turn out to be an Iain Duncan Smith or a Ming Campbell, leaders (Conservative and Lib Dem respectively) who were forced out because they couldn’t take the pace. Or else there might be a split in the party and the more “moderate” elements form their own centre party, seeking an alliance with the Lib Dems.

All this looks very good for the Conservatives. There seems to be a hollowness at the heart of Labour, which makes it very hard to bind together the pragmatic wing of the party with the left wing ideologues who provide the footsoldiers, and, through the trade unions, much of its funding. This is leaving the current Tory creed of economic liberalism without any serious opposition, unless you count the vacuous anger of the left. A landslide win in 2020 beckons.

Of course I believe that there is an alternative political and economic narrative that can offer a credible challenge to this conventional wisdom. The Liberal Democrats are closest to understanding it. The Greens are likely to take it up once somebody else starts to promote it. But almost nobody in the Labour Party is looking for it, as they furiously debate a false choice between economic liberalism and death by tax and bureaucracy.

The political isolation of Britain’s working class: liberals should reach out

Conservative Chancellor George Osborne’s Budget last week, his first without the need to negotiate with the Liberal Democrats, was widely hailed as a feat of political brilliance. It has put the opposition Labour Party into disarray. At its centre was a direct attack on Britain’s working poor. Nothing could demonstrate that group’s political weakness better.

Part of the political acuity was the spread of confusion over where the budget pain was to be felt. Mr Osborne, and the Prime Minister, David Cameron, had earlier set out their intention of wooing working class voters to their party. Huge cuts to tax credits, the Budget’s centrepiece, were camouflaged by rises to the minimum wage, to be renamed “living wage”, by more than even Labour had been proposing before the election.

Britain’s tax credit system was implemented by Labour Chancellor Gordon Brown. It is designed to top up the wages of those not earning enough to meet basic needs, in particular the costs of bringing up children. Various arguments were used to justify this. It was said that companies were paying workers less because they were anticipating the effect of tax credits. The system was created by Labour so as to create a bank of dependent voters. Aspersions were cast on claimants as being shirkers, or feckless, especially poorer people who dare to have larger families (one proposal is to stop support for children after the second). It would be better to pay people more, and to tax them less, than to hand out state aid.

None of this really bears up to scrutiny. The minimum wage and higher tax thresholds are pinpricks on the wider problem for low pay. There was no sign that the public sector, for example, was going to be any more generous in its treatment of lower paid workers, many of which it pays for, directly or indirectly (through outsourcing contracts). Academic research does not support the idea that tax credits lead to lower pay – or at least, not by much. Claimants for tax credits are already working; they are very clearly not part of the army of shirkers, who, so far as they actually exist, claim direct state benefits. With an ageing population it is far from clear that the country needs fewer children with working parents – and poverty can adversely affect the progress of those children, reducing their chances of playing a full and active part in the economy.

This was nicely illustrated the Economist’s Bagehot column this week. He (Jeremy Cliffe) visited a local estate in south London (not all that far from where I live, as it happens), and talked to some of Mr Osborne’s proposed victims. He found a number of working women, with a diverse range of heritages, facing up to a difficult predicament with dignity. At the school where I am governor, such families demand increasing levels of support if their children are to keep pace with those from more fortunate families. We are lucky that the proportion of such families is manageable: but their needs will grow; our funding will not.

What our society is confronting is one of the most important issues it faces. It is the disappearance of mid-level blue and white collar jobs, and their replacement by less secure and less well-paid ones. These new jobs are overwhelmingly in service industries – carers, cleaners, call centre operatives, security guards, and so on. This change is overwhelmingly due to new technology – but it has been helped along the way by globalisation. These new jobs often do not pay enough to allow their workers to fully participate in society – especially if they have children.

But it is not at all clear what the solution is. Two traditional answers do not look promising. The first is to improve productivity. And yet in these jobs it hard to see how this can be done without increasing general alienation. In any economy some jobs lend themselves to advances in productivity (think factories) and other don’t (think hairdressers). As the former become more productive, the proportion of workers in the second group increases. This is a phenomenon known as “Baumol’s disease” by economists – and it is a large part of what is going on here. The economy is stratifying between a small number of highly productive jobs, and a large number of relatively unproductive ones. The former can lift up general levels of pay for everybody – but only so far. Improving productivity may simply help an elite of better off workers, without doing much for everybody else.

The second traditional answer is to increase job protection to improve the bargaining power of those in poorly paid jobs. This is the route favoured in such countries as France. It tends to lead to either or both of two things: higher unemployment or a growing army of temporary workers with fewer rights.

We are left with three routes that look inadequate, but must still be pursued. The first is redistribution through tax, benefits and freely available public services. Our tax credit system is a key element of this. The fact that its cost has escalated well beyond the scale originally envisaged simply shows that the problem it is trying to fix has grown. The answer is as surely to be higher taxes and not reduced benefits. The second route is universal education, and initiatives to ensure that children from poorer backgrounds get more support. This gives more people access to better paid jobs, and makes the job market less easy to stratify. Progress has been made on this, but it remains under pressure from lack of finance. The reduction of tax credits associated with children will be a step in the wrong direction.

And third is the strengthening of local communities and local economies. This may not make the economy much more productive in the traditional economic sense of creating more goods and services to consume, but it serves to humanise society and to tackle the exclusion that is the biggest cost of poverty. Tax credits have no role to play in this. They are a giant, soulless centralised system controlled by rules made by bureaucrats and politicians far, far away. They only help by improving incentives to work, and participate in communities that way, rather than dependency on straight benefits – which is corrosive of communities. But nothing the current government is doing, or the political elite is thinking about, is advancing this third, important approach. It does not follow from grand initiatives that make big political careers.

And the sad thing is to see how politically marginalised the modern working class has become. Our old picture is of white men, working in factories and belonging to unions. But this strata of working class is disappearing. Instead we have a growing army of male and female workers from diverse ethnic and cultural backgrounds. They are not unionised, and split into multiple communities. They often do not vote. The Labour Party, the traditional sponsors of the working classes, is now more interested in chasing their more engaged and better off cousins in what is left of the traditional working classes and in the middle classes (“Middle England” as I have called it). Middle England is not very sympathetic to the plight of the new working class. This has weakened the party’s opposition to Mr Osborne’s budget – though thankfully three of the four prospective leaders see that their stop-gap leader Harriet Harman has gone too far in suggesting that Labour will not oppose the cuts to tax credits.

Liberals, I believe, must stand firm behind tax credits, accepting tax rises to support them if need be. We should also support education policies to ensure the full participation of children from poorer families. But the real hope lies in reinvigorating local communities. We should remember that this is not just a middle class thing. The Liberal Democrats in particular have been forced back into a middle class ghetto, and I suspect that many find this a comfortable, if small, place to be. But the real need for liberal solutions is amongst the country’s new working class, and that is an important area for outreach, based on community politics.

To build a core vote the Lib Dems will need to change culture.

After a series of catastrophic election results, the Liberal Democrats
are indulging in some deep thinking about the party’s future. The one silver lining from the party’s disasters is that it is left with the nearest it will ever get to a blank slate on which to rewrite what the party is.

Into this debate comes an important pamphlet. The 20% strategy: building a core vote for the Liberal Democrats by former Cambridge MP David Howarth, and inveterate blogger Mark Pack. I would urge anybody interested in the party’s future direction to read it. The jumping-off point is familiar to anybody that has followed the party’s internal debates. Critics of the party’s leadership (especially under Nick Clegg) suggest that the party neglected the build-up of a core of loyal supporters who would vote for the party come what may. This core now stands at something like 5%, and is much lower than that enjoyed by the Conservatives and Labour, or the SNP in Scotland, and is being challenged by the Greens. Instead the party chased the floating voters of the “centre ground”. But instead of articles sounding off in Liberator magazine, this pamphlet is altogether more serious. It starts with a real attempt to look at evidence, and moves on to a concrete set of proposals.

The authors believe that the party is held together by shared values, rather than class identity or nationalism. These values are shared by about 35% of the country – those who display openness, tolerance and internationalism. That 35% figure comes from a polling answer to a question about immigration. From this the authors reckon that a 20% core vote is feasible. There is some interesting analysis of that 35%. It leans left, tends to be female and is ethnically diverse. It isn’t hard to see how the party’s appearance of being white, male and in coalition with the Conservatives got in the way of building that vote.

So what to do? I would urge readers to read the paper – there are many facets to their action plan. They want the party to formally adopt a core-vote strategy, and to establish a national campaigning infrastructure to focus on this, to complement efforts to build the local government base, and winning parliamentary seats. This national level of campaigning, led by an elected Deputy Leader, would build up the party’s vote for proportional voting elections, of increasing importance to the party, and provide a home for supporters not lucky enough to live in one of the areas where the party is active locally. This national campaigning would focus on issues that demonstrate the party’s values – go to places that other parties cannot. Paddy Ashdown’s stand on Hong Kong and Yugoslavia are quoted as past examples of such campaigning.

I can see this paper and its proposals being very popular in the party. They make a lot of sense. There is something for everybody. I particularly like its realistic assessment of local parties in areas where the party is weak. So often the party’s campaigners have glib answers to the challenges. “Just set up a target ward and grow from there,” they say. I am happy to support the paper myself.

But it is all too easy. The authors point out that a core vote strategy is hard, and that the party has failed in its many past attempts. That tells me that something big has to change; a lot of received wisdom has to be put on the scrapheap, and a lot people in the party are not going to like it. It is not just a matter of adding another strand of campaigning, and then tweaking the party’s internal processes here and there. The danger is that everybody will assume that all the changes in behaviour apply to other people, and they will continue to do what they have always done, with a bit of judicious relabelling.

But succeed in cultural change such a big change you need to have a flaming row, and annoy some people a lot. If need be such a row has to be provoked artificially. The one successful political transformation achieved in recent times in Britain was by Tony Blair, Gordon Brown and Peter Mandelson to the Labour Party in the 1990s. They theatrically replaced Clause 4 of the Party’s constitution to show they were serious – rather than just ignoring it. Contrast this with David Cameron’s attempt to transform the Conservatives, where he was careful to avoid such rows – with the result that the party never really changed (or not not in the direction he favoured). Only now are there signs that he and George Osborne are ready to make genuine cultural change for the party, towards economic liberalism, with EU referendum being the chosen field of conflict. Even worse was Ed Miliband’s attempt to move the Labour Party to the left while maintaining party unity, which left the party in a terminal muddle. So if a cultural change requires a degree of conflict, where will conflict need to be invited if the Lib Dems are to make a success of a core vote strategy?

The first place is in what the pamphlet calls the three pillars of campaigning: local, parliamentary and national-core vote. In their vision these three happily coexist. But they also compete. In the Kennedy years the party brilliantly built up its parliamentary base – but at the expense of brave national campaigns to demonstrate core values. The exception was the the party’s stand on the Iraq War; but Charles Kennedy had to push for that in teeth of advice that rocking the boat would not be good for the party. Parliamentary and local government campaigns depend on winning over floating and tactical voters (“It’s a two horse race” and a bar chart are almost compulsory in Lib Dem election literature). Strong national campaigning is likely to upset those voters and the activists trying to woo them. The party is obsessed with winning electoral contests; that obsession must be loosened if a core vote strategy is to take root. It must recognise the idea of good losers – candidates who did not come first but built up members and long term voters. This concept is so alien to the party’s campaigners that they will not take it seriously. This is why the idea of these values campaigns being led by an elected official with a separate mandate (whether or not Deputy Leader) is a critical element of the overall plan.

So campaigning is likely to provoke conflict, but it is not an easy place to have a theatrical row to demonstrate that the party really has changed its spots. That may arise from political strategy. Political strategy is about how the party intends to use its assets, especially seats in various representative bodies, to further its aims. For a liberal party that must mean working with other parties – rather than throwing rotten tomatoes from the fringes. To date such political strategy has been left to the leadership, and not spelled out clearly to electors and debated amongst the wider membership. At parliamentary level the declared policy is to work with the largest of the main parties to form a coalition in a hung parliament. But it matters a lot to voters and members which party or parties the the Lib Dems choose to work with. That is one reason why their vote tends to drain away in election campaigns when a hung parliament looks likely. In this year’s election the party’s stand contrasted with the Greens, the SNP and Plaid Cymru, all of whom said the would not work with the Conservatives.

But the party’s campaigners hate to take sides – they see that it will upset groups of voters they are wooing, and so make winning marginal seats that much more difficult. When the question was put to the two leadership contenders at the London hustings, neither said that the party should change its position of working with either of the main parties. That surely has to change. It makes the party look opportunistic and transactional – only interested in the status of power, rather than principles. This was the most wounding criticism of the party while it was in coalition. The party, after debate and consultation with members, will need to say that it will not work with a Conservative-led government (the party may accept Tories as junior partners…). In due course we might contemplate electoral pacts in order to promote an agreed programme of political reform. Labour is the competition; the Tories are the enemy. And I say that as somebody from the right of the party that loathes the Labour party, and has more sympathy with the Conservatives than most.

I do want the Liberal Democrats to want to be a clear and effective political voice for the 30% of so of the electorate that is open, tolerant and internationalist. I also want it to champion reforms to politics, public services and economic management that place sustainability and wellbeing at their heart, rather than money and vested interests. David Howarth and Mark Pack point to some useful next steps. Necessary, perhaps, but not sufficient.

Heathrow is a big test for David Cameron’s leadership

The election is done with, so now it is safe for the Airport Commission to report on options for expanding airport capacity in England’s South East. They have duly proposed that another runway be built at Heathrow airport.

Personally I was a bit surprised. I had expected the Commission to recommend expanding Gatwick. An article in the FT a while back led me to think that its Chair, Howard Davies, favoured the expansion of point to point services, which allow greater levels of competition, over the conventional arguments for the economies of hub airports, which favour big operators. But if he felt that way he was overwhelmed by conventional economic arguments that pointed to expanding the biggest airport, while skating lightly over the pollution and noise arguments that arise from this airport’s proximity to the main London conurbation.

I am emotionally very anti Heathrow airport. Living under its flightpath I find the noise of planes coming into land irksome, especially when they thunder over before 6am. I hate the way it ruins such beautiful places as Kew Gardens. I hate it as a passenger, as it is hard to get to by public transport or car, and when you arrive it is just too big. Every step in your journey before take-off or after touchdown takes longer than it should, and the whole enterprise is managed with the lack of imagination we expect from major corporate operators who know that you have no choice. Gatwick is a delight by comparison, especially since it was put under independent management. And I resent the history broken promises from the airport’s operators after each previous bid to expand. Which in turn undermines many of the promised safeguards proposed by the Commission. Heathrow’s lobbyists know how to dismantle such promises one at a time; their victory in this battle would give them immense sway.

But I have to admit that I’m not on top of the business arguments in favour of Heathrow’s expansion. And I have to question how much we can keep shooting ourselves in the foot, in conventional economic terms, while trying to maintain the tax base to support the level of public services and benefits as the population ages. Through gritted teeth I will admit that there may be case to be made for expanding this horrid airport.

But our Prime Minister, David Cameron, and his Chancellor George Osborne, should entertain none of these doubts. They have a conventional economic liberal approach to the economy. The Commission’s logic should make perfect sense to them, and it is exactly the sort of opportunity to invest for growth that the country badly needs in their world-view. It means the country is “open for business” in a commonly-used phrase. As such it is much more solidly based than the distinctly shaky HS2, the proposed high speed rail line from London to Birmingham and beyond. The only thing against it is the politics.

A number of their Conservative colleagues are passionately opposed to Heathrow expansion. These include the current London Mayor, Boris Johnson, and the prospective mayor Zac Goldsmith, who has threatened a by-election. These opponents all have seats in the west and southwest of London, where the party did well in May’s General Election. And in 2009 Mr Cameron himself said, “Ni ifs, no buts, no third runway.” But, as the FT’s columnist Janan Ganesh points out, Mr Cameron’s honeymoon is going to end soon anyway. Why not end it in a manner of his choosing, and on an issue that he feels is right? The quote was before a different election, and against a different proposal; and anyway he will be stepping down before the next election. The Lib Dems, who will oppose, have been reduced to a tiny rump in parliament; the Greens only have one MP. MPs from the the SNP, Plaid Cymru, and the Northern Irish parties are unlikely to show much interest either way. Massive lobbying by Heathrow’s backers will ensure that most of the Tory party stays true, and that any Labour opposition will be divided – indeed their first official response has been to support Heathrow expansion. This is something he can push through. If he acts decisively the whole thing will be a fait-accompli by the time of the General Election in 2020. Even in southwest London it will surely be trumped by other issues by then.

Will he have the nerve? Opponents of Heathrow expansion will hope he doesn’t.

Should I apologise for supporting the Euro?

The this week’s FT Janan Ganesh suggests that those who supported Britain’s entry to the Euro back in the late 1990s and early 2000s should own up to to their error and apologise for it. He feels that the arrogance of that generation of Europhiles is undermining the pro EU case as we face a referendum on membership. Well he won’t have me in mind. I am not a prominent politician; I wasn’t even blogging in those days. But I did have an opinion – and that was that that the country should be part of the Euro – though not at the exchange rate then on offer (about 65p per Euro). Should I hang my head in shame?

In fact this also seems to be a rather desperate line of attack by the Eurosceptics, who are at last realising to their horror that they are being out-manoeuvred. They want to discredit the whole pro-Europe cause. In today’s FT , one its other writers, Martin Sandbu, comes out with a robust defence of British entry to the Euro. He suggests that if the UK had been part of the Euro economic disaster would have been averted, because the European approach to fiscal and monetary policy would have been more pragmatically British. I have also heard a that idea suggested by a commentator from within the Euro zone, though I can’t remember who.

I’m not entirely convinced. But it at least raises the big question. It is treated as entirely self evident that the Euro is a disaster, and that British membership would have made things worse for the country. But both these are counterfactuals. We don’t know what would have happened if the Euro had never got off the ground, or if Britain had been a member.

Let’s consider the first of these. When the Euro was being formed the economies of Italy, Greece and Portugal were in real trouble. Their governments were losing the confidence of the markets; stagflation followed by hyperinflation beckoned. The Euro lifted these economies – before joining the governments were forced to bring fiscal policy under control; after joining interest rates fell dramatically. But these countries failed to deal with deeper seated problems, and eventually the chickens had to come home to roost. Membership of the Euro delayed the denouement rather than caused it. Indeed it gave these countries an opportunity to head off disaster which they failed to take. Contrast this, for example, to Belgium, also considered a bit of a basket case before the Euro, whose economy now prospers, relatively speaking at least. And for each of the other members of the Euro that ran into trouble something similar can be said. Ireland suffered the consequences of a reckless expansion of its financial system not unlike that of Iceland, outside the zone. Iceland’s crash was at least as painful as Ireland’s. Their problems reflect underlying economic weaknesses that governments failed to tackle. The signs were there. Indeed no members inside the zone seem to want to return to life outside it, with the possible exception of Germany (and Finland perhaps).

The ambiguity of Germans is understandable. The interesting thing about that country though is that they were the only, or at least the first, country in the zone to understand the implications of membership for economic management. In the early days they realised they were uncompetitive, and embarked on a programme of “real” devaluation. This was a combination of holding pay rates down and economic reforms to improve productivity. The reluctance of other countries to embrace this style of economic management is the main failure of the Euro project.

And what of the second counterfactual? What if the UK had joined? Well the first thing to be said is that the country did not do so well out of the zone. The financial crash of 2008 was deeper, and the recovery slower, than the major Eurozone economies. Britain suffered a persistent current account deficit, supported by an unsustainable exchange rate. We were in a not dissimilar space to countries like Spain and Ireland, going through a financial boom offering the illusion of wealth while not enough was being done to fix the fundamentals. It is not so self-evident that things would have been worse inside the zone.

Or perhaps not. I would like to think inside the Euro the UK would have been locked into an exchange rate that suited exporting industries (like Germany after its reform/adjustment programme) and not so subject to financial shenanigans. That would have left the economy in a stronger position after the bust. But such an exchange rate wasnot on offer. The chart above shows the average exchange rate between the Euro and Sterling for each year of the currency (source: stastica.com). My view is (and was at the time) that the rate of 65p was high (or too low in terms of the graph). It was distorted by excessive government spending and a booming financial sector – there was a substantial current account deficit to show that it was unsustainable. It did not drop to a more realistic level until 2007-2008. That was too late. There was no chance that the government would have followed Germany’s example in conducting reforms to improve the real exchange rate – not while everything was rosy on the surface.

So If Britain had joined the Euro at its start or early in its existence, then the exchange rate would have been too high. Which would have made the adjustment period after the crash even more difficult. I’m not going to apologise for this because I understood that at the time (or that’s how I remember it!).

But there is a bigger issue that I will have to own up to. The design and operation of the Euro zone was flawed. There are two sustainable ways of running such a common currency area. One is part of an explicitly federal system of government, which allows substantial fiscal transfers between its members and a robust system of federal political control to match. In this system members bail each other out if they get into trouble.To judge from most commentary, you would think that this is the only way to run the zone – and that because the European polity is not ready for such a federal system, then it will never work. But there is an alternative, where each member is not so tied to the others. Each country is left to run its affairs as it sees fit, and if it can’t pay its debts, it goes bust. It requires a sovereign insolvency regime. Nobody bails failing states out.

This latter arrangement is what the Germans wanted, and it is what most Britons that supported membership wanted too. But Euro-federalists in Brussels and the southern states saw the currency as a step towards federalism. The Germans didn’t help matters by insisting on system of fiscal rules for members – the “Stability & Growth Pact” – which is only necessary if you are heading for a federal arrangement. The idea that the system was in fact of the federal type was implied by the fact that government bond rates for the different members were almost identical for much of the Euro’s life before the crisis. This was a bad sign – and yet most European leaders though it was a good one. When crisis approached European leaders were complacent. And when things went wrong, there was muddle and confusion. This problem is still not resolved.

And here I have to own up. While I saw some of the signs, I did not appreciate the full implications of this ambiguity. I thought it was a problem that could be solved by evolution from within.

I still believe that. But the politics of EU membership in Britain are toxic enough as it is. It is better that the country is not part of the tortuous politics of the Eurozone. That is why I accept the consensus that Britain probably never will be be part of the Euro zone. Or not until firstly the zone finds a new and sustainable equilibrium, and secondly that Britain sinks into an economic mire that destroys its self-confidence as an independent nation. Both are possibilities.

Meanwhile I am not a fan of an independent Sterling. It has a way of distracting the political elite from dealing with deep-seated economic issues, like our current account deficit, our inefficient underlying economy and our over-dependence on volatile financial flows. But, it has to be admitted, that, with the exception of Germany, the Eurozone members were equally blind to the self-same issues. I apologise for not appreciating that enough.