What is liberalism for? What I have learned from a Brixton school

What are the five fundamental British values? If you have missed that in your schooling, you can always go to a primary school in Brixton, talk to a Somali-heritage child and ask him or her to tell you. You are likely to get an enthusiastic answer. I have, on visits to the school where I am a Chair of Governors, not far from Brixton prison. And there is plenty of evidence from the children's parents that they think these values are a good thing.

The five values are: democracy, the rule of law, individual liberty, mutual respect, and tolerance of those with different faiths and beliefs. This formulation came from  a Conservative-led government at a time of moral panic, when it was thought that immigrant communities were undermining our society. But it is, of course, the immigrants who are most enthusiastic about them.

There is a curiosity about these values. Looking at that list in isolation, would you think that "British" is the word that best defines what they have in common? Do these things make Britons different from Americans or Swedes, or even French? No. The common adjective that most comes to mind instead is "liberal".

Liberalism is under attack from many sides. A lot of people say that it means treating foreigners too well compared to your own people. Or that it stands in the way of effective government action. Liberalism is, in many people's eyes, middle class, elitist and Western, with a clear white ethnic character. It is a source of hypocritical lecturing by Westerners to people from countries that they have a long record of undermining or oppressing.

This is causing many people who hold liberal values as core beliefs a lot of angst - and I am among them. At various points I have suggested that liberalism needs to be rethought to break out of its white middle class ghetto. But I have struggled. My mistake is the usual one: I am over-intellectualising it. You might not think that appealing to Ludwig Wittgenstein is an antidote to intellectualism, but it was he who said: "Don't ask for the meaning, ask for the use". So just what is the use of liberalism?

At which point I remember my south London school. The school community is ethnically diverse (African, Afro-Caribbean and Hispanic all feature strongly) and predominantly working class. Why should they find liberal values so appealing? Or useful.

And the answer is clear. It forms a basis for people of different cultures to cooperate. And in such a diverse community people must cooperate in order to overcome common problems. And it also gives people the hope that they can get on in society based on their own merits. And, to many, it all looks a lot better than the state of things in the countries from where they draw much of their heritage - however proud of that heritage they are.

But Brixton liberalism is a much grittier and more basic affair than the Cambridge sort that I was brought up on. Many young girls wear the hijab in public; and the attitudes of many towards gays is probably best described as "toleration" rather than "embrace". But liberal values achieve real, positive, tangible things - literacy, numeracy and a more self-confident attitude to the world. Human rights means saving lives and stopping arbitrary torture, not just allowing prisoners access to cats (as our Prime Minister Theresa May once tried to suggest in an appalling speech while she was Home Secretary).

So why is liberalism so unpopular in swathes of our land, from the Daily Mail reading middle classes of Maidenhead, to the working classes of Doncaster? To them there is a better alternative: sticking together with their own group, and stopping other groups from having what they have got. These communities are not diverse, either ethnically or in terms of class. Or not as diverse as south London, anyway. To them liberalism just lets the foreigners in to walk all over them.

So is liberalism only useful to a middle class elite, who easily navigate the upper echelons of a liberal society, or to minority groups seeking to make their way against the odds? If so then it really is in trouble. Liberalism should be by its nature inclusive. If it is seen as exclusive, then it is in trouble. It isn't in Brixton. It is in Doncaster and Maidenhead.

So the challenge for liberals is to show how liberalism is useful to the besieged middle-classes defending their privileges, to the white working classes with insecure job prospects, or, for that matter, to tight-knit Muslim communities in Midland or Northern towns who feel their culture is under attack. And the first step towards that is to convince ourselves.

And here we can learn from Brixton. People there show us that  liberalism isn't just about promoting a clever elite. It is about embracing diversity and about allowing everybody to get on in life. The world is being forced to change. It must face up to advancing environmental catastrophe, and the unavoidable march of technology. To do this the people of different nations and communities must work together. We must embrace diversity.

And there is something else we can learn from Brixton. Amongst the most positive things that a liberal society has done for this community is to provide them with good schools. In common with the rest of inner London, Brixton's schools are generally very good, notwithstanding high levels of disadvantage. and their ethos is unmistakably liberal.

If you want to see the use of liberalism it is easiest to do so in schools that are inclusive and help people to embrace the world more confidently. It's been said many times before, but that doesn't make it less true: you cannot beat a good liberal education. And there is no good reason why everybody in our society should not have one. That should be the loudest rallying cry from liberals.

The Great Divide in liberalism: school holidays or basic income? @Radix_UK

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Liberal blogger David Boyle and I are the same age. We have worked together on Liberal Democrat policy. But, according to David, we are on the opposite sides of a great divide across the heart of what he calls the "radical centre". But I don't think we are.

David is a much more successful blogger and general activist than me, and has got as far as founding a think tank - Radix. He is an old Liberal, where I was a founder member of the SDP in 1981. But I thought we were converging - and I had regarded myself closer to the old Liberals these days than the SDP.

That was before I read David's article in the most recent Liberator about Lib Dem tribes. That was followed by this article published by Radix, after a fringe meeting at Bournemouth, which I did not attend. On both counts it was clear that I was still a social democrat in his eyes, and he a Liberal, and that, furthermore, there was no more important division in what he calls the radical centre, and which I prefer to refer to as "liberalism".

David set a test to show which side you are on. What is your attitude to the fining of parents who take their children out of school for holidays in term-time? He is against; I am for (though I am actually against automatic fining, which is what he posed to the Radix fringe). To him we should assume that parents know what is best for their children, and not the experts. What is needed in politics is to break the power of the experts, in his view, and  empower people to make their own decisions.

I don't really disagree with that sentiment, but I do believe in state intervention in a number of cases, and compulsory schooling is one of them. The question of school holidays is not an abstract proposition in my case. I have been a primary school governor for 18 years or so, and chair of governors for ten (at two different schools). This issue is a hardy perennial.  The teachers insist that term-time holidays disrupt both formal education, and also the cohesion of the school community, and I have been on their side. We haven't gone as far as fining people (or if we have that is only because regulations have become more restricted - and it is the local authority, not the schools which impose them). Instead there has been a sort moral war of attrition. I think the presence of fines is there to set the moral moral tone, and to give schools a weapon in this moral war. I'm much more hesitant about actually using them - hence my reservations about making the fines automatic. But withdrawing the fines could set in motion a disruptive free for all.

At the heart of this is an age-old battle between freedom and solidarity. Flourishing societies need both. My worry is that in modern Britain, and not least the poorer urban communities that my schools serve (alongside more prosperous ones), the elements of solidarity are breaking down. A lot of people are struggling, and worse, not really coping. The modern state would rather hide these people away. I am a deeply-believing liberal, but I recognise that liberal language can be used to camouflage hard questions. Why not say that the struggling individuals and families are free to solve their own problems, and that we shouldn't burden others with them?

State schools are one of the most powerful forces for solidarity that we have. They can, and should, be a lifeline to struggling families, and make them feel part of a wider society. Schools also provide a a good place from which to make the sort of state interventions needed to give disadvantaged families help to cope with the stresses of society. They should also, in subtle ways at least, open the eyes of others to some of the difficulties faced by their neighbours. A well-run, socially mixed state school one of the wonders of the British state system; it would not happen without compulsory schooling, and it is undermined by an excessive emphasis on parental choice - which often leads to de facto segregation. Parental freedom on school holidays chips away at that solidarity.

So I worry that vocal Liberals are a middle-class pressure group who want to push their own families forward without regard to what is going on around them. But, of course, I know that is not fair.

I think I have a better question to divide the radical centre: do you believe that a universal basic income should an important part of the state system? I suspect that some Liberals and social democrats alike would say yes. It empowers poorer people by giving them cash to spend as they choose, and it offers a way replace a costly and divisive welfare system with universal entitlements. Others (like me) say no - it is just an attempt to hide away the needy with no-questions-asked cash so that the rest of don't have to bother with them.

In fact I think the real choice is between grand designs to be rolled out nationwide, like UBI, and community interventions with a human face, carried out on a localised scale and based on a sense of human solidarity. I don't know if that is Liberalism or not, but I'm sure that is what David is looking for, to judge by his railings against empty corporations (though he has said some favourable things about UBI).  There is an important line to be drawn, but I think he is drawing it in the wrong place.

Postscript:

I strikes me that my defence of school holiday fines doesn't contradict David's distinction between Liberals and social democrats. Social democrats are more inclined to appeal to solidarity. But social democrats also tend to like standards set nationally, and are suspicious of localised solutions. That's where I part company. And I do that is the most important thing about trying to develop answers to the crisis in modern government.

Liberals must address the politics of information or sinister forces will prevail

In my last post I urged the Lib Dems to think beyond Brexit. I suggested that the party should develop radical new ideas on the politics of information and technology, following a recent essay by Paddy Ashdown. But that was all very abstract. What does this actually mean?

Information and technology are throwing up difficult issues that affect practically everything. And yet liberal politicians seem to be in various stages of denial - and that may let more sinister forces make the running. Let me touch on just four issues to illustrate my point: fighting crime; cyber security; making the NHS more efficient; and tackling the cyber monopolists.

According to popular myth, crime is always getting worse. Statistically that looks like nonsense (except cyber crime, which I will come to) - but the nature of threat is changing, and a lot of people worry about it. Top of the list is terrorism, and especially Islamic extremist terrorists. Increasingly police forces are using information technology to fight these crimes. And these largely depend on gathering banks of data (DNA profiles, mug shots, video camera footage, email records, and so on) in order to identify criminals and terrorists.  Liberals, fairly consistently push back. But it is far from clear that the public is against this banking of data. It looks like a good way of stopping the bad guys.

I am sure that the liberal position on this needs to be rethought. Society has changed, including attitudes to privacy, and old-fashioned techniques for fighting crime are losing effectiveness. But the threats of excessive state power are real enough. False positives happen, and that can lead to a quagmire of circular investigation procedures with nobody taking responsibility, and a potentially permanent stain on reputation, all for a completely random cause. Perhaps it is better to reform the management and oversight of security services so that false positives can be dismissed rapidly, rather than throwing sand into the wheels of justice? That's a half-baked idea - but by simply pushing back and dismissing the danger, liberals are in danger of losing the argument. And if that happens the advocates of unchecked state control will win out.

Cyber crime is definitely growing, and we struggle even to recognise it. It seems to be invisible in the crime statistics. We don't bother to report the attempts to defraud us that come to our email inboxes and telephones daily. Further, we depend increasingly on online databases, and yet there are sophisticated hackers out there who often get ahead of those charged with data security. Can we leave it to the market to keep up with the hackers and ensure our security? Or shouldn't the state be more involved in establishing data standards that will make life much harder for criminals?  I hear no politicians, liberal or otherwise, who want to talk about this except the odd injunction that "somebody must do something". But action for action's sake will simply lead to regulators making life harder for the innocent while doing little to tackle the real criminals. And we can't rely on state agencies to protect liberal values while dealing with the problem either - their solution is always to appropriate more arbitrary power to themselves. Liberals must get involved.

For a different angle, consider Britain's National Health Service. The NHS is chronically inefficient. Large organisations are best dealing with simple problems; our health is infinitely complex. One aspect of this inefficiency is record-keeping. Our health records are fragmented, adding to medical risks and causing delays to treatment. And we can't check whether patients are entitled to treatment without making everybody feel like foreigners in their own land. Technical solutions to this depend on creating a single central NHS file for everybody from birth. There have been attempts to develop this, but, quite apart from the difficulties that afflict all ambitious IT projects, there is a big problem. This central record will contain highly personal and confidential data. How on earth to stop it being stolen? If it is voluntary it will lose much of its power. We are back to the problem of hacking. Once again liberals shout about protecting privacy and individual choice without coming forward with constructive solutions. And the NHS is collapsing under the strain.

Another feature of the 21st Century world is the enormous power of a small group of businesses who are able to harness network effects to create a virtual monopoly. Google, Apple, Microsoft, Facebook and Amazon spring to mind immediately. Apart from Amazon, these businesses are starting to pile up enormous profits. And yet they are also innovative and constantly improving their offering - so unlike classic monopolies, especially state-owned ones. What should governments do? On the one hand excessive power is accumulating to people who are not properly accountable tot he public. On the other hand most types of intervention risk reducing the benefits of modern technology available to ordinary people. Liberals need a new angle on the problem.

And I could go on. Fake news; tax avoidance and evasion; automation and the destruction of stable, secure jobs for the majority. All these are 21st Century problems to which liberals have few new ideas. And there are opportunities too. Technology has the possibility to abolish poverty and allow everybody to achieve a more fulfilling life. It is very interesting that Germany's Free Democrats (see the the FDP minimanifesto for the current general election) have chosen the more optimistic gloss. This party has rebranded itself, based on the idea that politics need to be rethought in the modern information age. Whether they are targeting the right things is another matter - to some it may simply look like re-badged neoliberalism. But keeping the message positive is probably the right tactic.

The liberal agenda should be an enabling one. We want people to benefit from the many things technology and information-sharing can offer. But we need to give individuals more control. And we need to prevent the state growing into something that suppresses freedom and democracy in the name of security - as is happening in China, Turkey and Russia, to name but three. Neither do we want the world turned into an open market for abuse and bullying, in the manner promoted by Breitbart News. Sinister forces will prevail unless liberals start to make the running.

This will need fresh thinking. Some newer technological developments - blockchains for example - may offer answers. But it will not be easy - there will be trade-offs. Privacy against security, for example. We need the intellectual framework to manage these trade-offs.

I will try to practice what I am preaching. I am not especially well-qualified to deal with the politics of information, but I will give it a try. I don't know where this journey will end, but I hope to provoke further thought and discussion amongst my readers.

 

Is it right to vilify homoeopathy? Sometimes. Often, perhaps. But not always.

In a brilliant article for the Guardian Tim Lott decried the intolerance of people on the left of politics. He complained that people, like him, who raised questions about gender discrimination, Islamism, feeling English or complaining about political correctness, risk unleashing intolerant invective from the "liberal" left.  He was speaking as a Labour loyalist - but I recognise the same issue in the Liberal Democrats. Now let me make my politically incorrect contribution to the genre. It's about homoeopathy.

Homoeopathy is a branch of alternative medicine developed in the 19th Century. Its theoretical grounding might fairly be called mumbo-jumbo. But it has retained a degree of popularity, and has been available under Britain's NHS, which supports placebo therapies in some circumstances. It is, however, a popular subject of ridicule, particularly from the liberal left. They condemn its availability on the NHS, and want it to be driven off the face of the earth. This article by Edzard Ernst in today's Guardian is one of the more temperate ones. It follows some publicity from a recent Australian study showing that there was no scientific foundation for its claims.

Let's clear the decks a bit. I have no doubt that homoeopathy provides cover for charlatans. And practising homoeopaths are their own worst enemies. They persist in using their outdated mumbo-jumbo explanations. According to Dr Ernst they also cite scientific evidence that is spurious. That goes for David Tredinnick, the Conservative MP who is a public supporter. People that suggest that homoeopathy is an equivalent discipline to modern conventional medicine deserve the ridicule that is heaped on them.

But there is another side to this story. Arguments over the discipline's scientific basis miss a point that should be understood by everybody. Scientific evidence will only ever get our understanding of the world around us so far. Much knowledge is simply beyond its reach. Homoeopathy may not be an alternative to modern medicine, but it may enter space that modern medicine cannot go.

Conventional medicine it is bound up with the idea that people suffer a series of different ailments, and medicine's job is to find and test therapies for each of these ailments in turn. These ailments are further described in turns of measurable chemical or biological imbalances. The therapies are likewise usually chemical or biological agents - though other therapies may be admitted so long as they are standardised and repeatable. This line of approach (which I like to call the "magic potion" method of medicine) is extremely powerful. It goes alongside a system of evidence gathering  that allows you to place a tick or cross against each therapy. The standard is whether or not the symptoms are alleviated against an alternative "placebo" treatment which uses chemically inert substances. Through this approach medicine has developed a formidable inventory of magic potions over two centuries and prolonged many, many lives.

But it will take you only so far. Now take two places where homoeopathy might help to provide patients with relief. The first is what might be called "mind over matter". It has been demonstrated countless times that mental outlook can affect symptoms. This phenomenon accounts for the placebo effect.  Scientists do everything they can to eliminate its effects from their evidence. So if homoeopathy is an effective placebo, the scientific studies wouldn't show it. This is something Dr Ernst's article is quite careful to state ("no effect beyond placebo").  Of course there is danger if a patient is persuaded to use a placebo when something else is more appropriate - but not to treat a patient with a placebo when this might be effective also poses an ethical problem. Or it should. Conventional doctors often use antibiotics to treat viral infections; this is surely a much more questionable practice.

The second way homoeopathy might work is holism. Homoeopathic practitioners should (even if many don't) look at the patient's complete circumstances - from  the complete range medical symptoms to anxieties and outlook on life, before selecting a therapy that is individual to that patient. This is another place that scientific method cannot go. It cannot produce the sort of repeatable results that science requires - because everybody is a bit different. That still leaves therapies depending on placebo effects, but it could give that effect extra oomph. One of the causes of disillusion with modern medicine is that patients are treated as disconnected symptoms parcelled out to different specialists, with  obvious things (like what the patient eats in hospital) often neglected. Puzzling symptoms are overlooked to focus on ones more within practitioners' comfort zones. There is much talk of patient-centred medicine, but remarkably little practice. That may be because building up an appropriate evidence base is impossible.

To my mind that leaves space for an ethical homoeopathist who is no simply trying to peddle expensive but inert magic potions. Modern medicine can't be beaten in the magic potion business. But when it comes to treating mind and body as part of the same human being and looking more widely on how to advance that human beings health and wellbeing - modern medicine does not look so hot.

 

Rethinking Liberalism 7: what are the liberal blindspots?

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I started this series of essays because I thought liberalism, to say nothing of Liberalism, was at a low ebb and needed some fresh thinking. I started with the easy bits. Big questions, like the future of capitalism, but not ones that make liberals particularly uncomfortable. This is an old strategy to deal with something big and difficult. If you clean up the easy bits first, what remains looks less intimidating. But I have been a bit underwhelmed with the results, which are well within the spectrum of ideas that are regularly discussed by liberals. After a few weeks break, including a refreshing holiday, I think it is time for a change of direction.

All political philosophies have difficult bits: areas where the principles conflict with each are, or seem inadequate in the rough and tumble of the real world. Socialists want to clamp down on businesses to stop exploitation, and yet crave the tax revenues that will only come if you give businesses some serious rope. Conservatives yearn for a less intrusive government, but are annoyed when they find this gives people the freedom to behave in what they see as antisocial ways - and on which their views tend to be very narrow-minded. Liberalism is no exception. Liberals have blindspots.

I call them blindspots because most liberals behave as if these difficulties aren't really there. Many have created a sort of alternative reality in which these problems don't arise. Or they simply change the subject. But this is damaging in two distinct ways. First, it means that we don't talk about many issues that bother people, and are therefore perceived to be weak or lack credibility. Second, when liberals do get their turn in government, and have to confront these intractable problems, liberal ranks are torn apart. The pragmatists are seen as betrayers of liberal principles; the fundamentalists are seen as people who will not come out of their alternative universe to confront the real world. The British Liberal Democrats in the last four years are a case study in both of these phenomena.

But even identifying what these blindspots are is hard. Because we rarely talk about them in any depth. We seem afraid of what we might find if we do. But this blogger is not running for electoral office, and so should be less frightened of tackling difficult issues. I think my time in this series is most constructively spent identifying and discussing these issues - in the hope that liberals can, in due time, work their way through them to an updated political philosophy. I feel a bit inadequate to the task. I have not read great tracts of John Stuart Mill or even Conrad Russell. But then, maybe spending so much time reading great men can be part of an evasion process.

Anyway, today I will make a start. It is time to move from the abstract. What are the liberal blindspots? Here are few problems to get us going:

  • Dependency. Liberals feel that people should have equal chances. Poverty is usually not a choice, but stems from some form of bad luck. So we offer help to redress the balance: cash handouts, subsidised housing, and so on. But very often this help creates a relationship of dependency between those being helped and the state. This does not worry socialists - but it does worry liberals because dependency is disempowering; it reduces freedom.
  • Free riding. Liberals like rights to be unconditional, since that gives individuals the maximum power. But that creates the opportunity for free riding: people who take but do not give back. Since many rights (health care, education, minimum housing standards, etc.) cost money, the opportunities for free riding are manifold. Progressive taxation, asking the rich to pay more, makes things worse. Free riders not only undermine the financial viability of entitlements, they undermine the sense of community solidarity that underpins unconditional rights.
  • Oppressive communities. Liberals like the idea of strong local communities. These balance the need for a strong central state. They give individuals more weight, and a greater sense of control. Members of strong local communities are generally happier than those of weaker ones. The word "community" even gets into the preamble to the Liberal Democrat constitution - the place that the party's core values are set out. And yet strong local communities are not liberal, open places. They often  promote uniformity and are hostile to outsiders, especially those from other cultures. For many liberalism is a reaction to the oppressive nature of strong communities.
  • Multiculturalism. This is closely linked. Often immigrants form strong local communities that don't gel with their neighbours, and challenge liberal values. Conflict often ensues. This is a worldwide problem; neighbouring communities from different cultures may live side by side in peace for a long time, and then there is an explosion. The mechanisms of liberal democracy don't seem equal to the task. And yet forced integration is illiberal.
  • Fighting crime. There are bad people out there, who have no interest in promoting a prosperous, inclusive society. They want to steel our money, or even kill us as participants in some imaginary war. These people adapt quickly to the modern world. But liberals often seem more interested in theoretical notions of privacy belonging to a different age.
  • Postcode lotteries. Universal rights create expectations that vital state services should be more or less the same everywhere. Strong local democracy suggests that different local communities should be able to make different trade-offs that match their own priorities and preferences. But this creates variations that are derisively referred to as the "postcode lottery" - your actual entitlements to universal rights depending on where you live.
  • Managing businesses. Businesses are at the heart of our society; we don't just need them, we need them to be prosperous and innovative. This is at the very heart of any strategy to combat poverty. But liberals often see businesses as a threat, to the welfare of their employees, their customers or anybody that gets in the way. Liberals dream of cooperatively owned businesses, grounded in their local communities. And yet, valuable as such businesses may be, they do not provide a credible template for the majority of forward-looking enterprises that society needs.
  • Migration. Migration of people from other countries provides a flashpoint for most of the issues already mentioned. And yet it is undoubtedly a dynamic force, and a vital escape valve.

I'm sure I could go on. The agonising of liberals over events in Iraq and Israel shows liberals in a bit of a post-colonial muddle - though that affliction is hardly unique to liberals. Still we have enough to get started.

Just looking at the list of problems, I think a can see the outlines of a more general one. Liberals paint a picture of an ideal society, based on Goldilocks local communities with just the right amount of cohesion. We want all countries to follow that idea. But we also believe in universal rights; a fundamental equality of all people. And yet many of these people want to use these rights to take themselves and society in a different direction. Perhaps they have an alternative ideal; perhaps they just want to promote themselves in what they see as a rat race. We are getting to two muddled - the society we are trying to create, and the what should apply to everybody in the diverse here-and-now. And we do not address the issue of how a liberal society coexists with others made up of people who have freely chosen something different.

In this light liberals need to rethink their cherished framework of universal rights. That is what I will attempt in future essays. I'm feeling uncomfortable already. Good.

Rethinking Liberalism 6: reinventing the state

So far in my series of essays my conclusions have been quite conventional, if a little left of centre. We need to keep capitalism in a mixed economy; the state will need to get bigger to cope with the demographic challenge; we will have to tax the rich more as middle incomes are squeezed. There's nothing here that would upset the denizens of Whitehall unduly, notwithstanding the economic liberal tendencies of some. But I think we are badly let down by our system of government. It will have to change radically - and yet the complacency of the Westminster elite is overwhelming. Liberals must rally to challenge it.

Unfortunately one of the best examples of this establishment complacency comes from our own Liberal Democrats. Back in the 1990s I was inspired by anti-establishment rhetoric from our then leader, Paddy Ashdown. The whole system was rotten, he said; we were the outsiders and only we could change it. Then, in 1997 the party arrived as a serious force in Westminster politics.  But, somehow, under the leaderships of Charles Kennedy and Nick Clegg (or the brief leadership of Ming Campbell, come to that) this radicalism came to be toned down. In spite of some radical language from both of these leaders, policy was more about trimming the Westminster policy agenda here and there without counting too much controversy. Ideas, such as a local income tax, which might have meant a decisive break from the Westminster-centred way of the world, were quietly buried. By the time Lib Dems took up cabinet jobs in the current coalition, they looked very comfortable in their new Westminster ministries, with the possible exception of Vince cable, the industry minister.

And the public could sense this. My heating engineer, classic old-school lower middle-class, told me that the Lib Dems had sacrificed their principles to get their hands on the prestige of power. Mr Clegg looked as if he was enjoying themselves too much. This feels very unfair, of course. There was a national crisis in 2010, and the compromises of coalition were needed for the country's sake. And the Liberal Democrats have stopped the Conservatives doing a lot of silly things, like cutting Inheritance Tax. But there's a grain of truth in the accusation; what about the promise to really shake-up British politics? It's not clear that senior Lib Dems ever wanted to do more than change the standard Westminster priorities a bit, by pushing education and redistribution up the agenda and making the odd stand on behalf of civil liberties, unless real heat got applied. If there has been any reinventing of government, it is mainly Tory ideas that are driving it. And they are about keeping the basic Westminster architecture in place, but diversifying the delivery (more private contractors and Quangos in place of top-down state hierarchies). The attempt to devolve more power to democratically accountable local bodies has been a particular disappointment. Each step forward is accompanied by at least one step back. The malign orthodoxy of the Treasury, with its insistence on a highly centralised model of power, remains unchallenged by key Liberal Democrats - or so it appears.

Why does this matter? Firstly because the pressures caused by the demographic shift have only started. I have already written about pensions. Health costs will rise too as the ratio of older people increases. And then economic growth will continue to stagnate, for a variety of reasons, including the increasing number of people entering retirement, but for other reasons too. Meanwhile the twin (and related) economic deficits of government finances and trade are unsustainable in the long run. The government has to tax more and spend less. It has to become much more efficient and effective.

The country's direction of travel is not encouraging. Government cuts have been very painful, and the public is tiring of them. Endless privatisations are affecting the quality of service. The fiscal deficit creeps down, but it is still very large, and he trade deficit is getting worse. This shows that the underlying economy remains weak, and that growth is hardly more sustainable than it was under the last Labour government. No sooner does the economy grow, than does Sterling appreciate to undermine all the rebalancing. Meanwhile the country is sleepwalking into the breakup of the United Kingdom (even if Scotland votes No in September) and exit from the European Union, as political dissatisfaction with the status quo grows. Pulling all the usual levers of power in Westminster seems to be doing not much good.

What have liberals to say about this advancing gloom? The first point is that we want people to have as much power as possible over their own lives. That means we dislike people being dependent on the state. It is here that we differ from the socialist left, who don't mind if the public has a permanent client relationship to state agencies, as this creates a political constituency both amongst the dependents and the employees who serve them. Liberals should recognise that in a modern society the state must play a very big role - but we also need to push back on dependency. The state should fix problems so that demand for state services reduces.

The second point is that we believe that as far as possible state structures should be fully and democratically accountable to the people they serve. The state does not devolve power to citizens, but citizens delegate power to the various levels of government. This too is difficult in the modern world. Many problems are complex and must be solved at a national and international level - and the further up power is delegated, the weaker accountability becomes.

Have we delegated too much power to transnational bodies like the European Union and the World Trade Organisation - with the threat of more as part of a transatlantic trade deal? I don't think so - these structures merely recognise the transnational nature of problems and the need to agree international standards and laws. Countries that opt out of these structures don't seem conspicuously better off as a result. Is Australia, for example, really a better and happier place than Britain? Its recent economic success is as much down to the luck of geography and natural resources as anything else. Does having to dig up vast amounts of prime farmland to get at the coal beneath, while poisoning the great natural wonder of the Barrier Reef, really look like freedom?

No. I think the main problem is that we have delegated too much power to Westminster, and that the Westminster elite is protecting itself rather than solving the countries' problems. It has created a series of administrative silos that perpetuate problems rather than solving them. To tackle this we need to do three things.

  1. Establish a federal system for United Kingdom, by creating a new English parliament and English government, based outside London, and taking to itself the same set of administrative responsibilities as the Scottish government has.
  2. Radically reform the way public services are commissioned to ensure that solving problems for their clients becomes their prime driving force. This will entail a radically increased role for locally accountable agencies.
  3. Reform the country's tax system to follow this radical redistribution of responsibilities so that every level of government controls more of its own revenues - alongside a system of transfers to ensure a fair distribution of resources.

Each of these three depends on the others. Federalism is required to break up Westminster complacency; public services will only be properly remodelled if it is not controlled from Westminster; power cannot be decentralised unless tax is decentralised too. I will pick up each of these themes in future essays.

 

 

Rethinking Liberalism 5: pensions and the state

In my previous essay I concluded that we had no choice but to tax the wealthy more, and this was the most divisive issue in current British politics. The reason for this is that state commitments on pensions and the health service, and potential commitments on social care, would force the state to expand, and for taxes to rise. The hollowing out of the economic middle meant that the wealthy would have to take up an increased share of the burden. But what are liberals to think about these state commitments? It is easy to see why socialists favour them, but less clear for liberals.

At the recent CentreForum seminar on the Orange Book, more than one speaker referred to the coalition government's commitment to a "triple lock" on the state pension as being disastrous and illiberal. This guarantees that the state pension will rise by the higher of consumer prices, earnings or 2.5%. So as the proportion of older people grows the cost of this promise will mount. The same demographic trend means that we cannot look to economic growth to camouflage the policy's generosity. And yet pensions are something that people should be able to sort out for themselves through saving over their lifetimes. Relying on the state just fosters dependency - and it can only be funded by increasing the tax burden, largely on people who will not directly benefit. If liberalism is about fostering self-sufficiency and independence, this is surely a step in the wrong direction?

A similar logic applies to health care for the elderly. In Britain it is widely assumed that this will remain free and funded by the taxpayer. As the population ages the overall cost rises. Greater efficiency in the state spend can only get you so far. Social care for the elderly is a similar issue, except that this is only a universal benefit in Scotland - though there it was enthusiastically supported by the Liberal Democrats.

The answer to this puzzle comes in two familiar guises: the need for a safety net, and market failure. A safety net allows people who succumb to bad luck to get back on their feet. I am sure that highly sophisticated arguments can be made in their defence, but to most people it is simply being part of a civilised society. Once families and social solidarity could have taken most of the strain, but the demands of economic efficiency have broken these institutions down; so economic efficiency, and the taxes they can generate, should provide the solution.

The safety net idea isn't entirely satisfactory when providing for old age, however. The capacity to earn at this stage in our lives is limited, so it is rather more than a just a temporary helping hand. However, it still means that your life can't be entirely ruined by bad luck. But everybody is entitled to the state pension, not just those down on their luck. The triple lock may be required to keep the state pension for the destitute at an acceptable level, but should it apply to everybody?

What lies at the heart of the problem is a market failure. Start with an obvious problem. If pensions are means tested, then the incentive to save is destroyed until you get past an amount that gives you a reasonable pension. Let's use some numbers to get this into perspective. The new basic state pension will be about £7,500 per annum in today's money. To get an annuity of this amount, indexed to RPI (admittedly a mathematically flawed measure of inflation that tends to distort upwards) would cost in the region of £220,000 for somebody of 65, the current pension age. For a forty year working life, with zero real investment returns (I'm coming to that), that £220,000 takes a saving of £5,500 per year, which is over 20% of the average rate of pay (£26,500) before tax. Average savings rates are, of course, much less than that (typically 5-10% of household income).

But surely people can earn more than o% real return on their assets? Actually most people can't. There are two problems. First is that investment returns are very low at the moment. Central bank interest rates are less than inflation (negative in real terms). All other returns take their cue from that. The prospects for higher interest rates are bleak; that's they way the world economy is. There are too many savings chasing too few investment opportunities. To break this stranglehold you need a combination of three things: low transaction costs of investment, an ability to take greater investment risk by spreading it, and access what economists call economic rents - income that is not earned through adding wealth to society, but by exploiting an "unfair" advantage. These advantages are usually only available to the better off. For the first two you need a decent sized starting portfolio (over £1 million, say). For the last you need some kind of economic privilege. While the economy was expanding, and before the demographic crunch, you could, in fact achieve these ends by owning your own house. Rising house prices are a form of economic rent, earned by the ownership of land, which is in limited supply. That covers an awful lot of people, but these are now a privileged elite: it is getting harder to join them.

Can't people band together to get a better return? That is what an old-fashion final salary pension scheme used to do. Administrative costs were low (because you the calculation of entitlements is simple), and investment costs and average risk was low because there was single, large investment pot. Unfortunately such collective schemes are another victim of the drive to ever greater economic efficiency, which destroys the large and relatively stable employers who are needed to sponsor such schemes. Collective action means the state.

The state is the only institution that can take effective collective action. And, with private sector investment opportunities in such short supply, increasingly the state has access to the best investment opportunities too (consider much infrastructure investment). And they have the chance to tax those economic rents. That is the central logic behind the new triple locked state pension. A basic minimum, which the public has every incentive to improve through private saving, which will, unfortunately, rarely add up to a great deal more.

Meanwhile, the various distortions of tax and regulation that inhibit private savings can be gradually dismantled. The government has started by dismantling the rules compelling people with pension plans having to buy annuities. Personally I would start to dismantle income tax relief on pension contributions, increasingly of benefit only to a wealthy elite, and which comes with a dense thicket of rules to prevent abuse. That is a formidable political challenge, though, and can only be achieved in small stages.

Because efficient long-term savings are not accessible to the vast majority of people, especially those without access to property assets, the state must intervene to fill the gap. That makes the economic liberal dream of a low-tax society an impossibility - the alternative is mass destitution, or a needs based system that will be economically less efficient. And if you add health costs and social care into the picture, the problem gets bigger.

The state must get bigger. The question is how to do this in the most liberal way?

Rethinking Liberalism 4: taxing the wealthy

There is a growing view that"inequality is one of the main problems confronting the modern world. This is quite a change. Distribution of income or wealth (or indeed the difference between the two) was not a major concern in the previously dominant neoclassical economic world view. But now that the benefits of growth in the developed world go almost exclusively to a tiny elite, while median incomes stagnate, this view has become complacent. And the work of the French economist Thomas Piketty has drawn attention to the potential power of the very wealthy. This presents a major challenge for liberals.

The problem is that liberals should have no particular problem with inequality of income and wealth in their own right. We believe in individual responsibility and free choices. We have unequal economic outcomes because people want and choose different things. So what? In fact inequality is cover for a series of issues which liberals should care about. Today I am writing about one of them: the wealthy elite.

The problem is known colloquially as the "1%", because a disproportionate share of developed world income is going to the top 1% (or 10%; or 0.1% depending on how you want to present the figures). Rather than providing evidence for this assertion, and how it specifically might apply to Britain (perhaps less than in some countries), I will take it as a given, and look at some of the issues of principle that it uncovers.

Why does it matter? To some it is a simple matter of social justice. Inequality is one thing, but the justification for these extremes is another. There is more than a suspicion that the lucky few are winning because of unfair advantages, rather than just ordinary luck and talent. But regardless of this is a further problem. This wealthy elite has the chance to consolidate its advantages with political influence, so as to rig the economy in its favour. The growing influence of big money in politics, and the enormous lobby industry in places like Washington DC, points in this direction. There is an economic problem too: excess wealth is deadweight. The wealthy do not consume as high a proportion of their income as poorer people. And only a small proportion of their savings get channelled into constructive investment  (paying people to build things) rather than various forms of speculation in pre-existing assets.

Why is the problem growing? It seems to be a case of a weakening middle. In other words it is not a question of rising poverty, but a hollowing out of the middle class. It is easy to see the culprits: technologies that automate medium-skilled jobs, and globalisation that weakens local bargaining power. Thus we have the problem: the economy becomes more productive, but the benefits do not go to most workers. Can this trend be reversed? That is a central challenge for progressive policymakers, and it is a question I will return to.

But if we take the trend as a given, which I fear we must, then what can be done about it? The answer is clear: redistribution via taxation, public services and transfers. This issue divides politics like no other. On the right, we have "economic liberals", who think that lower taxes and smaller government will unleash economic growth that will benefit all of society. On the right we have what I will call progressives (not all liberal), who appreciate that with today's skewed power structures such growth will only benefit an elite, and will in any case be undermined by the deadweight effect of excessive wealth. Like most Liberals, I am in the progressive camp here.

Apart from the deep flaws in the economic liberal logic, progressive thinkers can see something else. The state has no choice but to grow. We have signed up to a society which seeks to (more or less) guarantee minimum levels of access to health care and old-age pensions.  The aging of developed world populations will increase the burden of these. And much of the investment needed to keep a modern economy growing, from education to roads and bridges, requires some level of state support. Meanwhile the ability of the middle classes to fund their own needs through savings is under pressure - both because their own incomes are not keeping pace with inflation, and because returns on saving are diminishing, a little appreciated aspect of the "hollowing out" process - with the exception of those able to own property in prosperous parts of the country.

So this comes back a stark truth. Taxes on the rich must rise. This serves to recycle wealth that would otherwise drop out of productive economic flows, and it helps fund the basics the state has to provide. So how to do this? There are broadly three directions: income, assets and capital gains.

Until now, most of the argument has been over income taxes, and in particular the best top rate of tax. When I started my first accountancy job in 1976, the top rate of tax was 83%, which rose to 98% for investment income. Conventional wisdom turned against the wisdom of such high rates. They dropped to 60% and then to 40% in the UK, before rising to 50% in 2010, and then being clipped to 45%. Economists are less sure about the wisdom of cutting such high rates. They did think that cutting tax rates would mean that rates of pay (for the elite) would fall, as it was cheaper to provide the same net salary. In fact the opposite has happened. This seems to point to senior salaries being more about power politics than market forces. Companies paid their executives more because they could; they did not do so when tax rates were high, because they did not like to see so much of the extra money disappearing in tax.

I can see no harm in reinstituting the 50% top rate of tax, though experience suggests that this won't bring in a huge amount of extra revenue. Such high rates create a tax avoidance industry. There is a problem with very high rates of income tax though: they tend to entrench a wealthy elite, because they make it more difficult for outsiders to join them. The way to become wealthy becomes to to inherit rather than earn. This was the rather interesting conclusion of a quite wonderful contemporary study of the British tax system of the 1970s by Mervyn King and John Kay - which was recommended as a model piece of economic writing 30 years later by the UCL Economics department.

So should we not look at taxing wealth? This is the recommendation of Mr Piketty, who worries that the rate of return on the elite's assets is too high, and entrenches their dominance. Such a tax would probably be about 1 or 2% per annum - which may not sound much, but is enough to dent annual returns significantly. Such a tax exists in the Netherlands, hardly as basket-case economy. A variation on this general idea is just to tax land - an idea (Land Value Tax) that has an ancient history in the Liberal movement. I personally have a difficulty with taxing a theoretical value of an asset, rather than a realised one - given that the reliability of asset valuations is weakening. But I have to admit the idea is growing on me, especially the land-only version.

A further way of taxing assets is at death. This is theoretically very sound, but too easy to avoid in practice. The rates here can be very high. In order to make this more watertight such taxes should no doubt be applied to large gifts as well. This used to be the case in the UK. But taxing legacies and gifts seems to attract a particular political opprobrium, and we have to tread carefully.

Finally we should mention capital gains: where assets and incomes meet. These are the commonest loopholes in tax systems. Aligning such taxes with income tax seems the best way of dealing with this. But this may undermine the case for an asset tax: the Netherlands does not tax capital gains.

But in discussing such details we must not miss two big and interrelated issues. The first is that our elites tend to be globally mobile. Taxing them will require growing levels of transnational cooperation. And indeed the need to tax such mobile elites puts greater importance on such transnational cooperation. The EU's tax dimension should grow. Such bodies as the G20 need to focus on the matter too. It is not particularly surprising that so many rich businessmen are in favour of the UK leaving the European Union.

Which brings me to the second issue: politics. The rich seem to be of an economically liberal mindset (which is actually a recent development, as this article in the New Yorker observes). They increasing fund political movements with an economically liberal agenda. This is already poisoning the politics of the USA. It will make taxing the wealthy harder. But not impossible. If the public understands that the alternative is to cut basic pension and health systems the economic liberals will lose. But whereas we used to think that politics in the developed world was getting dull, this growing clash of economic interests will inject real conflict into it. Class war is back.

Rethinking Liberalism 3: defeating intolerance

In my first two essays in this series about rethinking Liberalism, I kept to my comfort zone of economics. I concluded that we need to retain capitalism as part of a mixed economy, but that we need to develop the language of economics so that policymakers become less obsessed with crude productivity and growth. Now I want to step back and look at what troubles me most about our society, both in Britain and elsewhere: rising public intolerance.

In my personal bubble, as a white middle class citizen of British heritage, here in a smart inner London district, it is easy to ignore the problem, or even to deny that much of one exists. It just isn't visible directly. My neighbours are easy-going. The parents and staff that I meet at the local primary school where I am a governor are very positive about taking a tolerant society forward, notwithstanding its ethnic and social mix. I witness easy interactions between people of different ethnic and national groups everywhere. This is all much better than in my youth.

But venture beyond this and things soon get darker. Take this cry of pain from Asian Lib Dem activist Kavya Kaushik, on the relentless hostility and rudeness she has encountered while canvassing for the party, directed not just at Asians, but East Europeans. This is consistent with what other ethnic minority writers have said; things are getting worse not better. Ukip has done well by tapping into this angst, especially in working class communities. Britain First, an intolerant Facebook grouping, keeps coming up on my newsfeed, and has nearly half a million "likes". Jewish groups are under increasing fear of attack, exemplified by recent murders at a Jewish museum in Belgium. A recent opinion poll found a growing proportion of people admitting that they had racist views, although the Economist has tried to talk this down.

This phenomenon seems typical of the white working class. But it would be a mistake to think that it is only prevalent there. One of the nastiest media outlets is the very middle class and female-oriented Daily Mail. On a local forum this morning it was a nice middle class woman that drew a connection between a local rubbish dumping scam and the arrival of travellers locally (something that I am sure is baseless, judging by the person that tried it on us).

First a note of caution. I have been careful to use the word "intolerance" as being the primary issue, not "racism". Intolerant comments are typically introduced by the expression, "I'm not racist but...". Ukip, and the mainstream newspapers who also promote intolerance, are careful to avoid outright racism, without complete success in the case of Ukip. The flashpoints are cultural (Muslim dress code, for example) or over the impact of immigration on the availability of housing and jobs and the take-up of state benefits. And the intolerance is itself multi-ethnic. Some of the things that I have read an Islamic writer say on state primary education are totally inexcusable ("worse than a toilet, because at least after the toilet you can wash your hands..."). On being challenged by me, incidentally, this writer quoted the Daily Mail. But it all boils down to the same thing - and talking about racism obscures rather than clarifies the problem. And anyway ethnic intolerance is leading to intolerance of anybody who is different, such as benefit claimants, the upper or lower classes, gays and so on, and an orgy of scapegoating,  of politicians, bankers and anybody else you don't know personally.

There is an optimistic way to view this. It is like the anger stage in the seven phases of grief - just a phase that society must get through on the way to becoming more tolerant - and the product of temporary economic tensions. But behind that optimistic view there lurks a nightmare. In the 18th Century the Enlightenment ushered in period of rising tolerance, and especially the integration of Jews to mainstream society. But from the middle of the 19th Century there was a backlash. And this backlash was no temporary phase. It grew and grew until it burst out into mass murder and destruction with the Nazis.

What lies behind the current rise in intolerance? There are two big phenomena, at least here in Britain. The first what I might call a Muslim backlash. This is a complex thing; it is mostly a peaceful but angry battle between conservative Muslims and the rest of society over things like mosques and dress codes. But it also inspires terrorists - and since the 9/11 attack in New York, these have been elevated by our security services to being the greatest security threat the country faces. This backlash generates its own backlash. The second thing is the mass immigration of East European workers since the end of the Cold War, and especially the entry of former Communist Bloc countries to the European Union. This has visibly disrupted job and housing markets.

But I think there is an even more important driver: the insecurities generated by the world's headlong process of globalisation and technological advance, of which both of these are aspects. People are stirred by events in far-away places (such as Iraq and Israel); jobs are made less secure by the rise of developing world industries and automation; people are more inclined to change their country of residence for better economic prospects or a more conducive climate. This creates both physical and cultural insecurity, as well as economic advances. This is not unlike the situation that persisted in the 19th Century, which fuelled intolerance then.

So what should liberals do? Many mainstream politicians, Labour and Conservative alike, are seeking a middle path. They accept that immigration is a problem; they want to push minority groups to integrate better into the mainstream way of life. This includes promoting "British Values" in schools, which include "tolerance", as  away of promoting universal human values while at the same time nodding to the intolerant appeal to Britishness (see Britain First).

I don't think this is working. It just encourages intolerant attitudes. "We spoke up by voting Ukip," they might say "and now at last they are listening. Let me speak some more." The more politicians talk about immigration as being a problem, the more members of the public think it is OK to be intolerant. That may not be logical, but it does seem to be the way things work. And as for "British values", the trap is obvious. What the public thinks this means ("no foreign cultures here like Islam") is different from what the politicians think ("Accept Muslims as being fully British"). It's all a bit "I'm not racist but...".

Instead liberal, and Liberal, politicians should concentrate on three things: challenging intolerant attitudes, without the buts; developing broad-based community education; tackling the insecurities.

First is challenging intolerance. This means taking on people who say that immigration is destroying society, that Muslim communities are a threat, that benefit claimants are scroungers, and so on. This is more difficult than it sounds. Most mainstream politicians say the words, but destroy them with a "but". "This society could not survive without immigration, but it has disrupted communities," for example. Instead politicians should try and divert the blame for the society's stresses onto economic insecurity following technological and global development.

Next is community education. Schools, especially primary schools, should be celebrated as places where different communities meet. Pupils should be taught about different religions, world regions and so on. Of course Britain's own special story must be taught as part of this, but not in such a way as to promote narrow nationalism. And the school curriculum should embrace wide life-skills, such as dealing with people who disagree with you, and taking responsibility for you own fate, rather than always trying to blame somebody else. This is not rocket science. Many of our schools are already doing this. But it is difficult to see how this is compatible with the government's programme of fragmentation of school management, driven by parental choice - and focus on narrow skills such as literacy and numeracy.

Finally we must tackle the insecurity that drives intolerance. This brings me back to economics, and I will develop my ideas on this in future essays. But in essence I think we need to look for stronger local economies, with stronger local governance - to balance the global dimension with a local one, at the expense of our current national focus.

 

Rethinking Liberalism 2: economics

The discipline of economics pervades all reflection on public policy. This is only right, as it is this discipline that tries to reconcile supply and demand for resources, and present a rational framework for choices. But it can be pernicious. It can frame the policy debate in the wrong way. As we refresh liberal policy ideas so as to put sustainability and human needs at the heart of public affairs, this is becoming a major problem. Liberals must challenge many tenets of conventional thinking.

First of all, let me say what I'm not going to talk about. There has been much heated debate on the value of austerity policies in tackling the recent economic crisis. I have read some liberals who say that "Keynesianism" is a core liberal belief, something given added resonance by the fact the Maynard Keynes was a Liberal. These tended not to be professional economists, who are careful not to label their beliefs with the name a of a dead economist, however inspirational. And it is based on a misunderstanding that Keynesian policies implied free public expenditure at all times, rather than being a temporary measure in response to a short term crisis. The problem that I have with economics applies as much to conventional, liberal "Keynesian" economists, such as Paul Krugman, as it does to the neoclassical ideologues - though the liberals are the more pragmatic, and the more likely to support changes to the conventions of the discipline. Having said which, I am sure Keynes would have recognised the value of what I am trying to say.

The problem that I want to deal with lies at the boundary of what professionals call "positive" economics, which refers to the factual or "scientific" side, and "normative" economics, which deals with policy recommendations, and where personal value judgements play a role. Much normative economics is presented as if it positive. Policy makers have taken simplifying assumptions used in positive economics, and used them as the basis of concealed value judgements.

I need to get more specific. These are the sorts of things I mean:

  • Economic growth is good for a society and should be an objective of public policy.
  • High productivity, the key to economic growth, is therefore a critical policy objective.
  • Free trade promotes economic welfare and drives economic growth forward, and should therefore be maximised.
  • The more people consume the better off they are, and the healthier an economy is, provided that spending does not outreach income.

I could keep going. The issue is not that these assumptions are wrong - they have served policy makers well - it is that life is not as simple as that, and we should always question them before using them in the decision-making process. And increasingly they are taking us in the wrong direction.

To be fair, economics does not stand still. I did not put on that list that aggregated income is the critical measure of success, and how it is distributed is of secondary importance. Economists (some of them at least) are at last seeing through that idea, which had been universally accepted. Also a worship of open market mechanisms for allocating resources is coming under question. And indeed, you can have perfectly sensible conversations with professional economists in which it is clear that they understand the limitations of their discipline. But when they get back to their desks and analyse policy options, the same old things keep coming up.

The result is that policymakers are trying to push the economy in a direction that it does not want to go. Growth remains obstinately slow, distribution becomes more skewed, public services struggle for funding. We worship highly centralised, "efficient" and specialised models of business and public services that are failing to meet human needs. And we are heading in slow motion for an environmental disaster.

Economics needs to adapt to the modern world. To do so it must start to take on board ways of thinking. Consider the following, none of which are particularly wacky in terms of economic theory, but all of which undermine the conventional wisdom of public policy making.

  1. Wealth must circulate for a healthy economy. This is the main idea of George Cooper's book Money, Blood and Revolution. If wealth is accumulated by a rich elite, it drains the life out of an economy because they don't spend it, or don't spend it efficiently. They save too much, and the bulk of their saving goes into unproductive assets and speculation, and not enough into productive investment. Worse, they use their accumulated wealth to skew the workings of society in their favour. This presents an economic argument for progressive taxation and the taxation of wealth - as well for trying other interventions which distort the way incomes are set.
  2. Consumption should be optimised, not maximised. Once basic human needs are met, the utility of consumption rapidly diminishes, and often gets tangled in a zero-sum game of status competition. This challenges the idea that economic growth is the be-all and end-all, as well as bringing distributional issues to the fore.
  3. Don't confuse the acquisition of wealth with its realisation. This is a related point. The conventional wisdom, based on the gods of maximising consumption and productivity, is that we should go out in the world and work as hard as possible for the common good. But what if somebody wants to work less and consume less? Or if she prefers to consume less goods, but which are made in a less "efficient" way (organic vegetables, say rather than mass farmed ones, for example). Provided that she does not consume more than she produces, does this really matter? What is the point of piling up wealth if we can't use it in the way that we want? Economists frown on organic vegetables as they reduce productivity, but the ability to choose such low productivity goods is a sign of a wealthy society. They are confusing the creation of wealth with its realisation. This suggests that the more developed a society becomes, the less worried it should be about productivity and income growth.
  4. Trade is a means to an end, not an end in itself. No human activity has done more to banish poverty than trade. Yes we should celebrate it, and yes protectionism usually ends badly. But there comes a point when its uses diminish. Trade between the developed world and China had economic benefits when China had a pool of very unproductive agricultural labourers who could be used to make cheap industrial goods. But these benefits diminish as China catches up, and as this happens, it is more than likely that the volume of trade (and its benefits to the developed world) will diminish. That's economics. Don't panic. The party was fun while it lasted. Globalisation remains key in the world of information and ideas. Trade of physical things remains is important to helping undeveloped countries to develop (though the locus of that trade is likely to be mainly with middle income countries rather than developed ones, as these bulk larger). But trade of physical things over huge distances is not so important for the sustained progress of developed economies.

Liberals should believe that an economy should develop based on free human choices, long term sustainability and a degree of human solidarity which diminishes with distance. Increasingly human preferences, technology and world development will take us away from the mass-produced, high productivity, high consumption, global trading society that policy makers favour, guided by economic conventional wisdom. It isn't what people want (free human choices), it isn't sustainable (carbon emissions and world resources) and it is less needed for human solidarity (developing countries are increasingly able to look after themselves, while the need for more localised solidarity grows). The discipline of economics needs to catch up.