I’ve just publish this article on Lib Dem Voice.
This is about the Lib Dems’ need to overhaul campaigning and administration, especially fundraising, but also to develop what I call insurgent campaigns.
I’ve just publish this article on Lib Dem Voice.
This is about the Lib Dems’ need to overhaul campaigning and administration, especially fundraising, but also to develop what I call insurgent campaigns.
The debate about Britain’s economic policy rumbles on, with a speech by the Shadow Chancellor Ed Balls last week. In previous posts I have dismissed the claim made by some that the government’s cuts are unnecessary, and most commentators, including Mr Balls, seem to accept this, even if they don’t say so explicitly. But there is a furious debate about how quickly the cuts should be implemented: 5 years as the government plans, or 8 years as Labour suggests, apparently including Mr Balls, though in the past he has been suggested longer. An impressive array of economists seem to support the Labour argument.
The basis of the critics’ argument rests on conventional macroeconomics, and runs that cutting too fast creates needless unemployment and risks a spiral of lower demand which will make things worse. This argument is open to challenge on its own terms (see The Economist’s Buttonwood column here, or Bagehot here), but the government’s defenders don’t generally try; instead they trump it with an argument about unsustainable levels of government debt. I want to look at the macroeconomic argument in a future post. Today I will consider whether unsustainable debt really is such a risk.
If government debt gets too high, it can derail the whole economy. A default, when governments renege on the terms of their debt, can be absolutely catastrophic. The problem is that if governments can’t raise the money then all the functions of government are threatened. For countries like Greece who are part of the Euro, this means that they literally can’t pay the bills – salary payments are stopped and so on. This is such a frightening prospect that there are strong incentives for other members of the zone to organise a rescue. Countries like the UK do have another option: they can debauch their currency by paying bills with newly created money. That’s how hyperinflation starts; the most recent example is Zimbabwe, and its implications are hardly less disastrous than default.
So what are the risks for Britain? The good news is that before the crisis struck overall debt was modest by international standards at a shade over 50% of GDP. Even better, the maturity profile of this debt, i.e. how soon it has to be rolled over, was long term – longer than any other major economy. The bad news is the massive size of the current deficit – 11% in 2009, and the fact that 8% is “structural” or won’t bounce back with the economic cycle. That means that total debt is increasing rapidly; by the end of 2010 it was already 75% of GDP. This gives two main problems.
The first problem is that debt risks spiralling out of control. Few think that the current economy is capable of more than modest growth, austerity or not, which means that extra wealth is not being generated fast enough to get us out of trouble. And debt comes with an interest bill. There are some classic economic models of this, and on these the warning lights are flashing red furiously. At some point lenders (characterised as the “bond markets”, but potentially including you and me) refuse to lend, or at least start to put the rate of interest up, making things worse.
The second problem is more subtle. If total national debt levels off at a high level, this will drag down the whole economy for a long while to come, as we spend too much resource servicing the debt. One study suggested that serious problems start to happen when debt reaches 90% of GDP – less than two years away at the current trajectory. Taking longer to eliminate the deficit means that overall debt will level off at a higher amount, unless the aggressive option really does lead to meltdown.
There are three further overlapping problems for the UK. Debt markets are very open; there is a degree of dependence on overseas support; and the pound is a floating currency. Government debt problems are much easier to handle if there is ready access to lenders who are effectively forced to lend to you; this has helped such high debt countries as Japan and Italy. Superficially the UK seems to look this way: pension funds are massive, and traditionally hold lots of government debt (gilts) for actuarial reasons. But such funds are aggressively and independently managed, helping to make our financial services industry internationally competitive. That means they switch away from buying gilts as soon as they think it is not such a good deal. Dependence on overseas investors appears to be relatively modest, as buyers of gilts are overwhelmingly domestic (or so I believe). But the country still runs a significant current account deficit (unlike Japan, and even Italy), meaning that the economy as a whole does need foreign lenders. The floating pound is often presented as a get out of jail free card – but the benefits of being able to devalue are two edged. Foreign investors will be wary of sterling if they think it will devalue; domestic investors will likewise increase their overseas exposures in the same event, reducing their ability to buy gilts (unless these are issued in foreign currency, but let’s not go there).
But, the government’s critics maintain, there’s no sign of trouble, and never has been. The government has had no trouble selling gilts, at very low interest rates. The trouble with this argument is that markets can turn in an instant, and you won’t know until too late. An investment decision depends on a judgement looking far into the future, and this can move very quickly. Government ministers seem to have got a genuine fright in May 2010 with the Greek crisis. By and large the closer a commentator actually is to the debt markets, the less sanguine they are about the whole thing. There are just too many risk factors.
So what to think? The Labour plan is probably viable, if backed by a real determination to follow it through (and Alistair Darling, the outgoing Labour chancellor would have been an excellent figurehead, unlike Mr Balls). But it undoubtedly takes more risks with catastrophe. Whether it is worth doing so does come back to your view on the macroeconomic risks. If you think that the austerity programme really will lead to meltdown, then this has real power. But neither is the government argument implausible. It’s about the risks you are prepared to run.
Health Service Journal (HSJ) was on its high horse last week. Its front cover says “The Big Lie exposed: the truth about NHS management”. The proximate cause is a report by the King’s Fund called The Future of Leadership and Management in the NHS. This report suggests that the NHS doesn’t have too many managers, and that, if anything the service is under-managed. The HSJ is directed at NHS managers, and it is easy to see why they are so fed up. But the HSJ coverage has a blind spot. It doesn’t ask how the NHS got itself into this situation, and why NHS managers have become politically toxic. It’s no use waving around King’s Fund reports; if NHS managers don’t understand of this, they will struggle to reverse it.
But let’s clear the decks first. The idea that the NHS has too many managers as opposed to those “front line” staff is silly, and the political target to reduce their number is at best unhelpful and at worst positively damaging. In order to deploy those front-line resources most effectively, they need to be properly managed. Huge strides have been made by the NHS through more and better management over the last couple of decades. Furthermore, my impression of the quality of NHS management is that it is easily up to the same quality as the private sector. That, of course, is not as much comfort as it might be, given that crass management is pretty rampant in the private sector. So a lot of the political comments made about NHS management are unjust, unfair and often just plain untrue.
So what’s gone wrong? Well a clue comes in the frequent use of the word “bureaucrat” by politicians. This is a word thick with negative connotations, of insensitivity to people’s real needs and of the arbitrary exercise of power. Many of the public’s interactions with NHS management have left just this sort of impression.
The NHS is a hierarchical organisation, with pretty much all accountability through a single man at the top, the Secretary of State. To most people this is no accountability at all. One man can’t possibly grasp the intricacies of any particular local situation. So local NHS officials have huge amounts of effectively arbitrary power. And they rub our noses in it.
When the local NHS where I live executed a 180 degree turn and decided to close a local hospital rather than develop it, they rode roughshod over local feeling. A local official just told us the area was too posh to have a hospital. After a kerfuffle involving the local Labour (at the time) MP, more facilities were promised nearby in an appropriately less posh place – but of course these were soon cut, even before last year’s election.
The problem for most NHS managers is, I think, that they don’t remotely get what the problem here is. Tough decisions have to be made. If we followed local opinion all the time the NHS would go bust in days; if we kept consulting nothing would get done. We have clear mission and we execute it. NHS managers seem to bristle at the idea of genuine local accountability. HSJ itself opposed the Lib Dem proposal of directly elected health boards. Chaos. Postcode lotteries. Working for people that don’t understand. And so on. NHS managers are all too happy with their hierarchies, allowing them to pass the blame upwards the whole time.
But the local NHS is taking political decisions all the time. For example, reducing health inequalities, a key local NHS objective, is loaded with political judgements. A key political objective is to maintain middle class consent for the service; without middle class users the NHS would collapse (and we already have the example of NHS dentistry to show that). So treating them like muck because they are on the wrong side of the equality equation should be a no-no. Politicians can see that easily; bureaucrats can’t – it’s just not their problem.
And once you are perceived as an insensitive bureaucrat, the rest follows pretty quickly. An organisation as large as the NHS will always throw up examples of crass management, which will be gleefully reported by patients and clinical staff alike. And if managers are overstretched, they are bound to drop some balls too. Episodes such as the Mid-Staffs fiasco add grist to the mill (and incidentally I did not sense much outrage from other NHS managers in the HSJ coverage of that sorry affair). Throw in the management consultant blather dropped on the NHS (World Class Commissioning and such), and you have a massive stock of ammunition.
So NHS managers need a lot more political sensitivity, and should welcome more genuine political accountability instead of resisting it. The NHS reforms are meant to help this, though whether do, of course, is another matter.
Am I the only person here in Britain to feel just a little uncomfortable over the so-called “Military Covenant”, given prominence by the Prime Minister over the last couple of days. This basically holds that servicemen should be given extra respect by the rest of us because they put their lives on the line on our behalf. This is meant to have practical consequences for medical treatment, housing and schooling for their children. There is talk of enshrining this in law.
I don’t have an issue with these practical points. The demands of service personnel (especially tours of duty in remote spots) place huge pressures on family life in particular, which means that it is very easy for service families to fall foul of arrangements designed for the rest of us. It sounds as if these could do with improving. Service families, servicemen who are injured (mentally or physically), and those making the difficult transition to civilian life, all deserve extra attention from our public services. Mind you, I would like our public services to do a better job for everybody.
But respect? This can’t be unqualified. Soldiers do put their lives on the line on the public’s behalf. But it isn’t like firemen going into burning buildings to rescue people. We equip these people with lethal force and (in practice) some fairly free rights to use it. In the big perspective, this power is often abused. Sometimes soldiers (or airmen or sailors for that matter) are just careless with innocent lives. But many worse atrocities occur, for no better reason than the individuals want to exert power. A lot of soldiers are, well, not very nice people; that goes with the job, but we need to be careful. Most of the worst atrocities around the world are committed by people in armed services. It’s very easy for them to abuse their power.
The record of modern British forces is not at all bad. But things do go wrong; we have abuses of prisoners in Iraq, for example. And there was Bloody Sunday, of course. But the standing of British servicemen (and women) has never been higher in my memory; perhaps there’s a bit of guilt there since we don’t really understand what we are meant to be doing in Afghanistan. If they have maintained high standards of conduct, then they have earned their status as heroes. But the line between hero and villain is very easy to stray across. We must hold our servicemen to that standard. Treat them as heroes if they uphold it, but not otherwise.
It is all too easy for people to excuse bad behaviour by their military. Just look at how long it took for the British establishment to accept that Bloody Sunday was bad. It’s all very difficult in the stress of combat, we say, and other countries are worse. But all soldiers know that discipline is critical to their role. It is imperative to our civilisation that we hold our service personnel to high standards of conduct.
As time passes it is clear that the UK’s economic crisis is amongst the worst of the major developed economies, though Japan may beat it on some measures. It’s not in the league of some smaller economies, like Ireland or Greece, although a comparison with Portugal may be more nuanced. Some people (notably Labour politicians) struggle to accept just how bad things are; others don’t get much beyond railing deficits and the National Debt. It’s worth pausing to consider what went wrong, and to try and attribute responsibility.
What happened? Until 2007, the UK had an astonishingly consistent record of economic growth. This started with the departure from the European Exchange Rate Mechanism under John Major in 1992, and continued until early 2008. Economists had taken an average annual growth rate of 2.5% for granted. Unemployment fell, and most people felt better off, though the very wealthy did much better than the rest. Public expenditure rocketed, with massive investment in the NHS in particular. A recent study by the Institute for Fiscal Studies (IFS) shows that poverty was reduced, largely because of increased benefits and tax credits.
And then bang! GDP shrank by 6% in a year, stayed flat for the year after that, before struggling to a bit under 2% growth in the year after that (taking the year to the 1st quarter from the ONS). Forecasts are for consistently anaemic growth. This is striking. When economies hit a recession due to a temporary shock, they bounce back quite sharply, as temporarily unused capacity comes back on stream; this is what has happened in Germany this time. Not for us; a good 7% of the economy has vanished never to return. What makes this particularly bad is that this 7% produced an awful lot of taxes, while public expenditure carried on regardless (with benefits increasing due to the extra unemployment and hardship). This has left the country with a “structural deficit” of about 8%. This is the excess of public expenditure over taxes after you strip out temporary factors; the actual deficit was much larger (it reached 11% and has now dropped to 10% per annum). Now I’m not sure how we ended up with an 8% structural deficit after losing just 7% of GDP, of which presumably no more than half would will have been taxed. The government was already running a bit of a deficit when disaster struck; I think that capital taxes must account for the difference, now that the property boom has disappeared.
What this comes down to is that a lot of the pre-crisis growth was not for real, and government finances were built on unsustainable foundations. What was happening? This phantom growth seems to have been related to a boom in personal borrowing to finance property purchases and good old fashioned consumption. Symptoms included an over-sized finance industry (in earnings if not jobs) and unsustainable levels of consumption.
Who was to blame? The three commonly cited answers are everybody-and-nobody/events-beyond-our-control, bankers, or the Labour Government. Some Labour politicians still seem to subscribe to the first idea. It was an international storm (I never want to hear the phrase “perfect storm” again) and we were caught in it; nobody was seriously criticising government policy before the crisis. As the economy has failed to bounce back, this has become unsustainable; why are we having so much difficulty when other countries caught by the crisis are having an easier time? Of course some try to say this is because of Coalition policies over the last year. But almost all of the many critics of the Coalition policies accept that we were in a terrible mess in the first place.
So the critics shift to another target: Britain’s bankers. These are an easy target, paying themselves handsomely while their organisations required government bailouts. There is also a widespread conception that the bailouts cost a lot of money, and that this is one of the reasons that government debt is a problem. Actually the government has largely got away with it, for which Gordon Brown and Alistair Darling deserve some credit (contrast the terrible hash that the Irish government has made). A lot of government money was put at risk, yes, but the banks were charged for it, and the money lent will largely be repaid, and the guarantees not called on. Where the bankers were culpable was in rampant lending, supporting excessive consumption and a property bubble. But the lending was nothing like as reckless as in the US (or Ireland for that matter). If the government had awakened to the idea that consumer lending needed restraint, something could have been done. Let me be clear; the banks were reckless; we need to regulate them much better – but they were not the fundamental cause of the crisis. We had a narrow escape.
Could the government have seen the vulnerability of the British economy? There were not many prominent critics at the time, though Vince Cable was clear enough, for exactly the right reasons. But it was a matter of undergraduate economics to see that economic policy was on an unsustainable path. Literally. As a second year economics undergraduate at UCL in early 2007 my macroeconomics lecturer, Professor Wendy Carlin, used the UK economy as a case study to illustrate her model for an open economy. It was also used as an exam question. Was the UK’s strong economic performance due to increasing economic efficiency or excess aggregate demand, she asked. It was clearly the latter: the giveaways being the appreciating real exchange rate, and a large current account deficit (the economy as a whole consuming more than it was spending).
What should the government have done? The first thing should have been to raise interest rates and tighten monetary policy much earlier. Unfortunately this was genuinely difficult, because this was the Bank of England’s main target was inflation, and not the general standing of the monetary system. And the inflation rate seemed benign (thanks in large part to the overvalued pound). The second thing would have been to regulate the banks harder, to restrain lending. This was the FSA’s job, although the degree of independence of this agency is less strong. Finally the government could have tightened fiscal policy to reduce the level of demand in the economy, through expenditure cuts or tax increases. Nominally the government’s policy was to run a zero structural deficit, but it chose to fiddle with the statistics on the economic cycle so as to argue that it did not have to do anything. The government was not egregiously profligate, as Coalition politicians like to suggest, but it was pushing the wrong way.
What comes over, above all, is a failure of leadership, especially from Gordon Brown, as a formidably powerful Chancellor of the Exchequer. The tripartite arrangement for managing the financial system (between Treasury, Bank of England, and FSA) did not help, but it is very clear that if in doubt it was the Treasury’s job to lead. They didn’t. They could have leant on the FSA and Bank of England, as well as tightening fiscal policy directly. But Mr Brown either refused to recognise the gravity of the situation, or his political courage failed him. Given his constant level of denial about the seriousness of the crisis, I suspect it was mainly the former. He could not face admitting that so much of economic achievement was unsustainable. It is invidious to blame one man, when the hands of many were involved. But Gordon Brown had the authority; there was enough evidence for him to act on; and he made things worse not better. A career in the Treasury that had started so brilliantly ended catastrophically.
My next topic on the economy: is the Coalition economic policy making matters worse or better?
Ever since the NHS was formed over 60 years ago, politicians have struggled to manage it. Assorted ministers and policy wonks have dreamed up elegant reform plans, while the NHS’s insiders have undermined them in a bid to carry on much as before. The NHS does change, but never quite along the path that the politicians have in mind. That is as true now as ever. The difference is that NHS management is promoting reform rather than resisting it; but they are going about it in their own way. The fire and fury of the current political debate is mostly irrelevant.
I have already posted some thoughts on the NHS. I considered the question of the timing of the reforms, alongside the £20bn cost-saving challenge posed by NHS Chief Executive Sir David Nicholson (referred to alternatively as “the Nicholson challenge” or “the QIPP*programme”). My conclusion was that the main organisational damage has already been done, so we do not have much choice but to follow through. I left aside the question of whether the reforms are wrong-headed. I would like to consider this, before coming to an equally pragmatic conclusion.
What is being proposed? A continuation of the big idea of the last 20 years or so: to create a purchaser/provider split, and to use this to introduce market mechanisms, under the banner of improving choice, to help ensure that the NHS is effective and efficient. The problem that these reforms are supposed to solve is that the NHS is too dominated by hospitals, and the doctors who run them, who do not have enough incentive to change to meet new needs or to become more efficient.
In this latest incarnation, the purchaser element (now usually referred to as commissioners) of this set-up will be a combination of consortia of general practitioners (GPs), and an arms-length NHS Commissioning Board operating at national level (i.e. for England – the reforms don’t cover the other parts of the UK). The intermediate commissioners under the current system, regional Strategic Health Authorities (SHAs) and district Primary Care Trusts (PCTs), are to be phased out. On the provider side (i.e. the hospitals and other facilities), the idea is that all NHS facilities should be run by more or less independent Foundation Trusts, but that the commissioners will be allowed to secure services from “any qualified provider”, which will not be restricted to these trusts.
These reforms are a natural, if rather accelerated, continuation of the previous government’s NHS reforms. Commissioning by GPs was already being piloted, and the idea of moving all hospitals to Foundation Trusts was the previous government’s idea too. What is newer, and perhaps more radical, is the proposed regime of accountability that is being imposed on this. Previously the NHS was run by the Secretary of State for Health, with very little restraint or accountability. Now a complex framework of powers and accountabilities is being imposed, giving both parliament and local authorities a greater role.
The government argues that this is just evolutionary change. But there has been vehement opposition from people who think that the new regime will end the NHS as we know it. One problem is the commendable desire by the government to establish much of the framework in parliamentary law, rather than simply letting the minister rearrange things by fiat. People now have the opportunity to project all their worst fears into the legislation on the basis that it does not specifically ban them. In fact we are still being asked to trust ministers to do the right thing, only with more accountability.
Two lines of criticism that I can see have some kind of traction. First is that the framework will open up the health market to competition law (and specifically European law) in the same way as for gas and electricity. This means that the NHS trusts and the private sector would have to compete on a level playing field – and this might literally drive some NHS trusts out of business. A lot of what NHS hospitals do is a natural monopoly (accident and emergency work, complex surgery, etc) , like the railways. The fixed costs are so high that the market cannot sustain competition in most localities. However, so the argument goes, these fixed costs also support activities where private sector competitors could undercut the NHS; if these are competed away then many hospitals would cease to be viable, and so the service on core activities would deteriorate.
Frankly I’m not stressed by this. If a train wreck is on the way, it will be in very slow motion, giving time to take corrective action if need be. More to the point, NHS professionals are masters at keeping the private sector at bay (except for NHS doctors doing private work on the side…), and they will only be seriously vulnerable in places were the service offered is ludicrously bad. And as for European competition law, judging by its impact (not) on the French and German energy markets, there shouldn’t be anything that the politicians can’t handle.
The second criticism is more cogent. It is that the rules for setting up GP commissioning consortia are a bit vague. They could be set up in such a way that makes them very difficult to hold to account, or to act in partnership with other agencies. For example, they may not be geographically coherent, cross local authority boundaries, and so on. This does need some more thought – though again the worry is the direction reforms could take, rather than what is actually likely.
Personally, I don’t place a huge amount of faith in the purchaser/provider split and the marvels of choice anyway in this context. There are two big problems: that the buyers (you and me) don’t know enough about what they are buying, and have to rely on intermediaries, whose incentives distort the picture. The second is that so many providers are natural monopolies. After decades of reform, the NHS does not remotely resemble a market economy. It reminds me of a large company trying to introduce market-style rules for internal transactions; these systems never achieve as much as their proposers hope, since everything is trumped by politics in the end. There have been two big achievements of the NHS reform process. First is that hospitals are gradually being forced to be more efficient and accountable; this has mainly been achieved by good old-fashioned management, of which the “Nicholson Challenge” is but the latest example. The second is that commissioning processes have forced NHS managers to address the question of what society actually needs, and then try to reorganise the service to meet these needs. This last development is the more recent, and the the reorganisation of PCTs has interrupted it – but the new arrangements will probably be more effective in the long run.
The big prize to be won from the current reforms is hardly spoken of at all. It is that GPs will start to come under the same sort scrutiny as hospitals have. The consortia themselves will do some of this; the NHS Commissioning Board, which must authorise the consortia, will also be on the case. The PCTs were supposed to be doing this, but were mostly pretty ineffectual. The important point is that we should be in no hurry to authorise the consortia, to allow this scrutiny process to have real bite. This seems to be exactly what Sir David Nicholson (who will chair the NHS Commissioning Board) has in mind.
Meanwhile the over-large number of PCTs has been reorganised into a more manageable number of “clusters”; these and the SHAs will no doubt live on as embodiments of the Commissioning Board. The NHS will become much more centralised in the short term. With some very sharp minds at the centre, including Sir David, this doesn’t have to end badly. But the politcal arguments are mostly a smokescreen.
*QIPP stands for Quality, Innovation, Productivity, Prevention
So the Nos won the UK AV referendum comprehensively, with 68% of the vote, on a higher turnout than expected. Their campaign only seemed to gather momentum as time went by. This is a bitter blow to me, as I actually liked AV – while having reservations about proportional representation (PR). Now it will be considered politically toxic, probably forever. It doesn’t help that most people that voted No did not understand what they were voting against. In fact very few voters seem to have understood the system or its implications. It is highly frustrating that so many nonsense arguments were tolerated, and even encouraged by the media (turning back on hundreds of years of history; would cost £250m; gives some people but not others more than one vote; and so on). What went wrong?
There were clearly tactical errors by the Yes campaign. They failed to find compelling reasons to change. Their two favourites, making MPs work harder and ending safe seats, were very weak as AV would not make a huge difference. They took a tactical decision not to explain the system to voters, on the basis that it would turn them off. So they left that to the Nos, until finally they found a good way of communicating it (the Dan Snow broadcast with pub vs coffee shop). That broadcast proved that you can communicate new ideas if you apply enough thought and creativity to the task. There seemed to be too much time spent online, and not enough trying to get through to proper floating voters. It is more difficult to say whether the later idea to portray a Yes vote as an anti-Tory one was right; it certainly swayed some.
Why was the No campaign so effective? The use of the Tory machine clearly helped. The campaign was very well funded, so they were able to put much more, and much better produced literature. They weren’t even trying to win the argument, simply repeating a whole series of misleading sound-bites endlessly. But particularly striking was their use of of mainstream politicians. David Cameron and the Conservatives put on a strong, united front. And enough Labour politicians supported them to rally many traditional Labour supporters. By comparison, the Yes campaign had only the much weaker Lib Dem machine behind it, and tried to use non-politicians much more.
So the voters were not engaging with the arguments and trying to make sense of them, but taking a lead from people they trusted. Conservative supporters rallied to a very impressive extent behind the official Tory line (80-90% according to one poll). The newspapers may also have helped. If all these respectable people were reinforcing even the more spurious No arguments, people thought there must be something to them.
So people actually have quite a lot of respect for good old-fashioned politicians when it comes to political arguments. A year ago we thought that disillusion with politicians was ushering in a new politics. The surge for the Lib Dems after the election debates. The coalition with political enemies coming together in the national interest. But this new politics seems to have been a mirage. People are happier in the more familiar, tribal territory. They will follow the old politicians, who don’t seem to care what they say in support of causes they think are in their interest. The expenses scandal is completely forgotten now.
There also seems to be a deep conservatism amongst British voters. They are sceptics of almost any change, though they are quick enough to get used to changes when they happen. This is quite comical at times. I remember huge resistance to the London Eye being erected; now nobody would want it taken down. David Cameron’s and Boris Johnson’s appeal to “hundreds of years of history” to support FPTP is comical in the same vein, given how recent our democratic institutions actually are. The idea of a “progressive majority”, popular with some on the left, is a nonsense.
A further lesson is that we should be highly suspicious of referendums to decide constitutional changes. If people just follow the politicians, then shouldn’t just let the politicians decide? Independence for Scotland – yes to a referendum; electoral systems, European Union treaty changes – no.
So the old politics is back. What does that mean for progressives? And what does it mean for the Liberal Democrats? Topics for another day.
Truly my last blog on the arguments for and against AV for Thursday’s UK referendum on AV. It’s been quite a campaign, but the arguments made by either side are weak or worse. This may get a little better in this last week. In its broadcast tonight the Yes campaign is at long last explaining what the system is and why it is a good idea, and even toning down some of its exaggerated claims. The Yes campaign had left too much of the explaining to its opponents, while spending too much time twittering to to the converted. By contrast the No broadcast seems much more about rallying the converted, especially Labour supporters; it rehashes the usual arguments in quick soundbites, using a variety of politicians and vox pops. Up to this week the No campaign has been much more vigorous, albeit scurrilous.
First, for the benefit of those that haven’t decided, and want to get beyond the soundbites, let’s have a quick round up of the usual, weaker, arguments before identifying the stronger ones. First the Yes:
It says much about the Yes campaign that they haven’t said much more than this until this week. The Nos, on the other hand have given us a massive battery of arguments:
Enough. What are the arguments that count? For yes:
And for the Nos:
And that’s enough!
In the latest issue of Liberator magazine there is a letter from Peter Wrigley, a retired economics teacher who blogs as KeynesianLiberal. It’s actually about a review of David Laws’s book, but it contains a wonderful statement that summarises why some people think the the government’s strategy of cuts is wrong-headed. It is deeply flawed, but it strikes me how very little attempt is made to explain the UK’s economic plight beyond shallow sound bites. I will try make a small contribution to correcting this. But first, the quote from Mr Wrigley’s letter:
Distinguished economists and commentators, including David Blanchflower, Martin Wolf, Jospeh Stiglitz, Paul Krugman and William Keegan, have all pointed out that Britain’s debts are not historically high (in fact the debt-to-GDP ratio is quite modest by comparison with many similar economies); that Labour’s expenditure was reasonably prudent up to 2008, the year of the crisis; and that the current deficit is a result of falling revenues arising from the recession rather than profligate expenditure. Above all, we are not Greece, are not and never have been in danger from “the markets”, which are, after all, largely institutions within our own economy, including many pension funds, lending to their own government. Clearly, the “savage cuts” are far from a matter of necessity but are ideologically driven.
The interesting thing is that the facts cited in the statement are not widely out, if you separate them from the opinions. But the last sentence is a glaring non-sequitur. Of the various people he cites in support, all are critics of the government’s policy, but I have only followed the writings of two: Martin Wolf (of the FT) and Paul Krugman (Nobel Laureate and New York Times columnist). Mr Krugman has not made any commentary on the British economy to anything like the detail that Mr Wrigley implies, or not that I have seen – but he does seem to come to the same conclusion – that Britain’s austerity is madness and not an example for the US to follow. But it is the US that is his interest. Mr Wolf has given some excellent, clear analysis (such as this article, behind the paywall I am afraid). I don’t think he would describe Labour’s expenditure up to 2008 as “reasonably prudent”. He actually says of the deficit before the crisis struck:
The deficit was surely too large for that stage of the cycle, even on what was then thought about prospects. But it was not a disaster.
A quibble, perhaps, since coalition politicians certainly imply it was a disaster.
Britain’s debts are indeed not frighteningly large. Yet. But the same cannot be said about the deficit – i.e. the rate at which we are adding to the debt. Over 10% per annum will soon take the debt up to the 90% level where most commentators suggest it really starts to weigh the economy down. The frightening element is the estimate that 8% of the deficit is structural; in other words such a deficit won’t disappear as the economy bounces back. This is the point that Mr Wrigley appears not to have understood, or perhaps not to have accepted.
That 8% number is truly astonishing because it suggests that much of the economy pre-crisis was built on air, and has been lost never to return. We can’t just bounce back. Remarkable, but it isn’t seriously disputed. Certainly not by Labour’s last Chancellor, Alistair Darling, and not Mr Wolf either. I can’t speak for the other commentators. In a later post I will return to how this situation arose.
It will be necessary to close this deficit – and nobody denies that either. A lot of people are suggesting that the government is doing so too quickly and too aggressively (and I’m sure that goes for all the distinguished names cited). It hardly follows that the cuts “are far from a matter of necessity”. To understand the problem it is necessary to put aside the timing issue, and to ask how will the finances be put straight when they are eventually addressed. There are three ways: growth, taxes and cuts.
Let’s think about growth first. To claw back 8%, the economy has to grow by at least 16% (though 20% is probably more realistic). If we can get the economy to grow by about 4-5%pa this looks reasonably feasible, perhaps. But if you accept the view that there is not a lot of spare capacity, then a growth rate of 2.5% is more realistic, and this, or close to it, is already built into the government’s plans. The government can’t stimulate such high growth rates by increasing the deficit – because ultimately this growth must come from the productive part of the economy. The argument about austerity is about the government not making things worse, not about stimulating a boom.
So how about higher taxes? Many on the left hope that the UK can move to a more Scandinavian style of economy with perhaps 50% of income taken in taxes, rather than the typical 40% odd typical of the British economy. Many hope this can be done by just taxing the rich more. Actually it is hard to see how this last can be done, beyond what the government already has. Not much money can be made from corporate taxes, contrary to popular belief, because there just aren’t enough taxable profits around. The various soft targets postulated don’t look so soft closer up, and wouldn’t make enough difference anyway. It is a game of diminishing returns: the more you tax, the less incremental revenue you get – and there are costs to the wider economy. It gets worse, since if you actually succeed you become over-dependent on rich people and big corporations to fund government. There is clearly a problem that companies are making too much money, and that a lot of people are being paid too much; but taxing this inequality even further not a sustainable solution to the country’s fiscal problems – even if you think it is right to do anyway. To raise taxes sustainably you have to aim lower. At the “squeezed middle”. There are two problems. First that this may be economically inefficient, by reducing incentives to work; so you keep having to raise the bar. Second, and more certain, it is politically toxic. To say the least we do not have the necessary political consent across society.
Which leaves cuts as carrying the main burden. This seems to be what the last Labour government concluded. And if you are going to make big cuts, to public services, and to benefits, there is a lot to be said for getting on with it to let people get used to it and move on – rather than leave the Sword of Damocles dangling – and especially with public services.
But what if you think the government is cutting the deficit too quickly? The best thing to have done would have been to delay the increase to VAT. The second thing would be to delay cuts to benefits. But benefit cuts have been pretty limited so far, and may yet take place slower than planned. Perhaps other tax cuts might be considered. The logic of the public service cuts is powerful, I am afraid.
Which leaves with two questions. How did we get into this mess? And is the government right to move so quickly? More of that another day.
This week The Economist has come out for a No vote in a leader on the UK’s referendum to the voting system. It argues that AV is no improvement on FPTP, so we should vote no. It wants the system to be more proportional, with 20% of parliament’s seats reserved selected by proportional representation (PR), and the rest on FPTP. It dismisses the argument that a Yes vote would make further change more difficult, without really saying why, beyond “It might exhaust the national appetite for reform.” This is pretty weak stuff, but on two counts the paper has undermined its own argument.
Update. Having read more of this week’s edition, the Economist’s hidden reasoning looks a bit clearer. They are worried that a Yes vote would make the Conservatives so angry that they will derail other reforms, such as that for House of Lords. Alternatively if there is a no vote then these reforms are more likely to go through as a consolation prize. They appear to think that these other reforms are more important.
Also they are making a big deal out of the fact that because many voters will not preference all candidates, then some candidates will be elected with less than 50% of the vote. They think this is a major problem with the Yes case; and yet I think this is simply equivalent to an abstention. Nobody suggests that MPs should be elected with 50% of the whole electorate. And enough people will cast preference votes, especially if there is a major left-right polarisation, to make the change in system worthwhile. This article on NSW and Queensland state elections, which use the same preferential system envisaged here, makes that quite clear.
In the first instance, in the very same edition, the paper covers the Canadian general election, held under FPTP, with the sub-headline “A last-minute surge for the left might end up benefiting the right.” This is exactly the sort of perverse outcome that AV can do much to prevent, because it reduces the problem of the split vote. In Australia, which uses AV, the rise of the Green party has not benefited the right. Under FPTP, using first preferences, the right would have benefited royally from the Green’s success in the last Australian general election. So, “no improvement”? The Economist makes the case against its own editorial with wonderful succinctness.
Next, the paper has changed its view. It used to be a strong advocate for AV in the UK. Admittedly that was a long while back (and certainly before 1997, when the paper’s online archive starts). But the paper routinely refers to previously held positions, sometimes dating back to the 19th century. And yet the paper’s leader makes no reference to this earlier view, and why it has changed its mind.
I have been reading the Economist since 1984 (and its position on AV swayed me in its favour back in the 1980s – one of the reasons that my support is not as lukewarm as some). This is very disappointing. The editorial team was probably deeply split. Its Bagehot columnist, burnt by experiences elsewhere in Europe, hates PR and fears that AV might eventually lead to PR because more people will cast first preference votes for minor parties. Others no doubt favour full PR. I can imagine the poor leader writer trying to reconcile all this. And failing.