Neoliberalism’s three blind spots and how we move on

In my last proper post I examined the idea of neoliberalism, a set of ideas that is at the heart of modern economic policy. I concluded by saying that most people think it has failed. But how can we move on?

The first point to make is that the two central insights of neoliberalism seem as valid as ever. The first is that markets provide the best way of processing information on complex human needs and how to meet them – and they do this far better than bureaucracy. The second is that governments and regulators are beset by dysfunctional incentives – and tend to serve the interests of elites and client groups, rather than the people as a whole.

This is the starting point for those that continue to defend the philosophy, though rarely by that name. They suggest that the problems that have arisen since the 1990s have much more to do with the advance of technology and globalisation than anything else. This is a rather pessimistic view. It suggests that society in the 1990s was faced with the choice of embracing technological change, with the benefits to health and wellbeing that resulted, or a futile attempt to keep change at bay for the sake of social stability. It is hard to think of any society that has successfully followed the latter path. The collapse of blue-collar and white-collar middle-income jobs was pretty much inevitable. And countries that seem to be more successful in embracing this change, like Germany, have done so by adopting policies that have undermined their global neighbours’ attempts to do the same thing. Germany preserves swathes of middle-ranking jobs only by exporting large quantities of manufactured goods to other countries compared to what it imports. By this pessimistic view, the world is being swept forward by technological change and governing elites are powerless to stop it. We may be alarmed at the political backlash, but any new leadership that this sweeps into power will most likely make things worse than better.

There is doubtless some truth to this. It is very striking how the political backlash seems bereft of new economic thinking. The right wants to create higher national boundaries and limit free trade between countries. This thinking recalls policies that deepened and prolonged the Great Depression in the 1930s. The left wants to expand state control. The Labour manifesto in Britain in the recent general election recalls to me the failed development policies in places like India in the 1950s and 1960s before a turn to neoliberalism unleashed massive growth. That isn’t entirely fair, of course, as both left and right also indulge in some new thinking. But it is really quite worrying that the only new idea on the left that has any currency is universal basic income – an idea that has no chance of meeting the huge expectations being placed on it.

But there are clear problems with neoliberal thinking. I think the three key blindspots are capital markets, Baumol’s disease and human organisational capacity. Add these together and you get pointers to what a post-neoliberal economic philosophy might look like.

First: capital markets. Hayek’s insights on the efficiency of markets does not to apply to assets, as distinct from goods and services. The market value of assets does not reflect their future economic worth. Bubbles build and burst, creating ruin in their wake. The problem is as old as the capital markets themselves – but that does not stop these markets from causing society’s resources from being allocated inefficiently. Another problem is that asset price inflation reinforces a gap between the haves and have-nots, and, in Britain, between the young and the old. Neoliberals (like the Economist newspaper) often say that the sky-high prices of land in popular cities simply reflect the laws of supply and demand, and that we should build more homes where people want to live. Whatever the truth of this, it is surely clear that excessive levels of personal debt are a large part of the problem – as well as the issue of human organisational capacity that I will come to. This causes the prices at which supply and demand balance to be much higher than they would be otherwise.

To cut a long story short, modern developed economies (especially the Anglo-Saxon ones) place far too much reliance on private debt, and this leads to instability and inequality. The risks associated with state debt, by comparison, look easier to manage. One leg of the neoliberal system of economic management, monetary policy, is broken.

The second issue is what economists call Baumol’s disease. This idea has been in circulation for decades, and is taught to economics undergraduates. It is amazing how little its implications seem to be understood. Baumol pointed out that as productive sectors of the economy develop in efficiency, the less productive sectors bulk up in proportion. Agriculture used to account for the bulk of the British economy; but as it became more efficient it eventually sunk to a small fraction of it. The same is now happening to manufacturing. As we become more efficient the bulk of jobs will be in sectors where high productivity is impossible or undesirable. And in the current situation they will increasingly be in sectors where market solutions have been found wanting. These include healthcare, education and law enforcement. These sectors are dominated by government and the public sector. We must expect the public sector to grow, and we must learn how to manage this, rather than trying to push the boundaries of the state back.

My third issue is what I have rather clumsily called human organisational capacity. The human brain can only handle a limited number of connections efficiently. And humans are at the centre of human organisations. Artificial intelligence won’t change that; it will simple extend the reach of what individual humans can do. This human capacity sets limits to the size and scope of human organisations. Organisations that grow eventually face a stark choice. They either become staggeringly inefficient, or their operating systems have to be very lean, requiring few people to operate them. Commercial organisations are forced into the latter category by competition. Dealing with a large corporation now, like Google, Amazon or PayPal is extremely frustrating for ordinary human beings, unless you manage to stick to the automated procedures that they prescribe – which are unable to handle any degree of complexity. Modern technology is allowing these commercial organisations to extend their reach by cherry-picking things that are simple to deal with, and leaving behind the difficult ones. This is creating a hollowing-out effect that is one of the big drivers of inequality.

Governments, meanwhile, are left to pick up the pieces. But they are subject to similar limitations. They have to choose between monstrous inefficiency or simplification. As tight finances force them into the latter course, power accretes to an elite in geographically concentrated centres of power. Neoliberals tend to shrug at this, and simply say that this is price we pay for a more efficient society. But I think it points in a different direction: to towards the decentralisation of political power, and the development of local democracy. One country has taken this idea further than any other: Switzerland. But if you go there you do not find grinding poverty as people are forced to choose between local control and drawing the benefits of modern society. You find one of the most prosperous societies in the world, with economic activity geographically spread out. One key thing to note: the Swiss have not just found ways to devolve political power to relatively small units, but they have also found ways to involve their citizens in taking responsibility for the society that they live in.

All this raises many, many questions. But the overall direction of travel is clear. We need to expand the scope of the public sphere (I am being careful not to use the word “state”), but also to shrink it geographically and allow people to take more ownership of it. Markets are useful, but we need democracy too.

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Vince Cable and economics – what he says in Newswire

No time for a proper post from me this week. But I was intrigued by an article in Mark Pack’s Newswire (a Lib Dem newsletter), with an extensive quote from Vince Cable.

This shows how hard he is to pin down into conventional categories of economic thinking. But that’s for the best possible reason – he has studied and thought about the issues for a long time, and observed economic policy in practice in many different situations.

Here it is:

The roots of Vince Cable’s political beliefs

Placing Vince Cable on the left-right political spectrum never quite works because he combines both a passion for intervention to deal with market failures with a suspicion of the failings of big government. The roots of that combination are well illustrated in his excellent memoirs, Free Radical. They highlight how his work on development issues in Africa helped give him both those passions – seeing both the need for action and the consequences of government failure. Writing here exclusively for Lib Dem Newswire, Vince Cable sets out the roots of his political views in more detail.

My earliest political views were a reaction to the extremes I encountered growing up. My father was an upwardly mobile, working class, Tory who sought to inculcate some good values (hard work, thrift, respect for the law) and some bad ones (racism, which split the family when I married an East African Asian, my late wife Olympia). He died after contracting pneumonia delivering leaflets for Mrs Thatcher in the snow. My mother secretly voted Liberal, defying his instructions to vote Tory.

My best teenage friend was a card-carrying Communist like his father, a shop steward at York carriage works. His revolutionary zeal got him expelled from college, allegedly for arson. He tried to re-educate me in sound ideological principles but concluded that I was a ‘bourgeois liberal’ with Menshevik tendencies.

When I went to university I sampled both the Liberals, becoming their President, and also a student branch of the social democratic wing of the Labour party. Sensing that they were saying the same thing but using different language, I tried to achieve a merger. Both sides were outraged and the merger collapsed ignominiously, 20 years ahead of its time. I joined Labour, beguiled by Harold Wilson’s white-hot technological revolution.

As a young economist, educated by the disciples of Keynes, I was then exposed to real world economics as a Treasury official in Kenya. Experience of African development quickly taught me that textbook ideas of ‘planning’ – or Keynes for that matter – had little relevance. The state was usually a vehicle for predation and patronage. Wealth was created by farmers, especially by entrepreneurial African small-holders; by mainly Asian businessmen; and by professionally run multinationals. And then looted by politicians and civil servants

I moved on to Latin America where the fashionable nationalistic ideology of ‘self-reliance’ merely entrenched vested interests and reinforced extreme and often appalling inequalities. Much of my development writing would now be described as ‘neo-liberal’ but I think is right in that context.

The country which most influenced my thinking was India which I have visited many times over 50 years for family and professional reasons. I have seen India’s remarkable transformation, much of it based on the adage that ‘the economy grows at night, when the government goes to sleep’. I have always been torn between torn between my admiration for India’s democratic and dynamic ‘anarchy that works’ and my admiration for the technocratic revolution in modern China which has produced an economic, poverty reducing, miracle, albeit seriously illiberal.

Between the travelling I got involved in British politics and became a Labour councillor, helping to run Glasgow. The establishment was pure Tammany Hall, so I moved to the Left where the idealistic and capable people were. I marched proudly down Sauchiehall Street alongside the charismatic Communist leader of the shipyard workers, Jimmy Reid and Tony Benn, and contributed to Gordon Brown’s Red Papers on Scotland.

I led a somewhat schizophrenic existence teaching students Adam Smith’s economics in the morning and practising municipal socialism in the afternoon. I found a more comfortable place campaigning for Britain to join the EU alongside Labour figures like John Smith, for whom I later worked as a Special Adviser, and Liberals like David Steel.

My Fabian, centre-left, eclectic, version of social democracy didn’t long survive a move to London where the Militant Tendency and assorted Trots, including today’s leadership, were in control of the Labour Party. In the civil war which followed, I joined the SDP, albeit after some heart-searching, unsuccessfully contesting my home town of York in the 1983, and then the dispiriting 1987, election.

In the long period in the political wilderness before becoming MP in Twickenham I had two other formative political experiences. One was spending several years working on global environmental issues in the late 1980’s: helping to write the Brundtland Report on Sustainable Development and then one of the first intergovernmental reports on climate change. The other was when Shell recruited me into their long-term scenario planning team, later to be Chief Economist. I found the management culture admirably professional and honest, albeit conservative, and I like to think I helped to steer them towards a future in emerging economies and to a greater sense of social and environmental responsibility.

For the rest, my record as a Lib Dem MP after 1997 is reasonably well known. As an economic spokesman, my approach initially reflected the social liberal consensus of the time. The financial crisis changed everything. My intellectually eclectic background in economics helped me to see ahead and better understand the nature of the crisis, to write coherently about it – in The Storm – and to advocate correct but controversial measures like nationalisation of the banks and the taxation of property wealth.

The Coalition was a classic head-heart dilemma. My head told me that joining the Coalition was right and that we had no alternative but to address the massive budget deficit which was the legacy of a crisis of financial capitalism. My heart was definitely not with the Tories. But I found a useful role as an interventionist Business Secretary promoting industrial strategy and state-led banking, German-style innovation and training policies and applying a pragmatic, problem solving, approach to government. In a sequel to The Storm After the Storm – I set out where I think we should be going as a country, now, in terms of economic policy.

There is one more important strand in my approach to politics. I have long been interested in, and worried about, the politics of identity. Bringing up a multiracial family and fighting racism; experience of the tangled web of religious sectarianism and incipient nationalism in the west of Scotland; immersed for over 50 years in the movement to anchor Britain in Europe: these have been major, often dominant, concerns. I wrote the first of two pamphlets for Demos in the mid-1990’s on identity politics and have seen its growing influence, culminating in the Brexit vote.

My first venture into fiction, the novel Open Arms – due out in a few weeks – involves the interplay of identity politics and personal relationships. And in the real world, I anticipate that the future of the UK and our party will be determined by whether national identity or a broader, more outward-looking, more European, view of the world dominate politics.

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The rise and fall of neoliberalsim

The left loves to frame politics in terms of abstract nouns. And as is the human way, they are happier talking about what they are against rather than what they are for. Two abstract nouns in particular are top of the left’s hate list: “austerity” and “neoliberalism”. For the left’s challengers, it is usually best ignore this war on the abstract. It convinces few, after all – the left is much more effective when it campaigns on the concrete: food banks and bedroom tax, for example. Yet abstract ideas have their place, and it is worth exploring them more deeply sometimes. Austerity I will leave for now; I want to look a little more deeply at neoliberalism.

To most on the left “neoliberalism” is a scattergun term to brand all right and centre economic thinking that prevailed from the 1980s, after the collapse in confidence in the system known as “Keynesianism”, though Maynard Keynes would have disapproved of much of it. But if we are to understand what was actually going on we need to distinguish it from neoclassical economics, which was an important strand of thinking in this period. As its name suggests, neoclassical thinking harks back to classical economics, that evolved in the late 19th and early 20th century, before Maynard Keynes revolutionised economic thinking. This saw economies as self-correcting systems that did not need state interventions. At any point an economy is in an equilibrium, and any attempt to shift it would be self-defeating. Attempts to kick against this system would simply lead to such ills as inflation and unemployment.

Keynesianism fell out of favour in the stagflation of the 1970s, following the collapse of the Bretton Woods system of managed exchange rates and the an explosion in the price of oil.  Some economists used this to go back to classical ideas, saying that Keynesianism was a big mistake. In America these economists were often based in Chicago and the Midwest – and were known as “freshwater” economists in contrast to the “saltwater” sort on the American east and west coasts. They turned to the idea of “real business cycles”, which proposes that the fluctuations from boom to recession  are driven by changes to the “real” economy in equilibrium – and not a process of disequilibrium, as Keynes had suggested. So, for example, in pre-industrial societies the cycle might reflect the effect of weather and plague. In the modern age economists call this changes to technology. The true heroes of a neoclassical economy are the entrepreneurs who advance the productivity that make us all wealthier – the American author Ayn Rand was something of a hero. The state and taxes were loathed.

In spite of some rather superficial empirical studies which provided some evidence to support it, real business cycle theory is almost self-evident nonsense. Modern economies are almost never in equilibrium; state interventions are frequently helpful. Neoclassicism kept going because it was politically convenient to a certain class of wealthy American, who funded supportive institutions – and it was, and remains, politically influential amongst US Republicans. It lost all credibility to everybody else in the aftermath of the financial crash of 2008-2009, when the neoclassicists had nothing helpful to say. It was also clear by then that their advice in such places as Russia (post the fall of communism) and Iraq (post the US invasion) had been disastrous – they had advised the Republican US government to stand back and let things take their course – it was the economic wing of neoconservatism. Still, almost no idea is completely without merit. Technology has important implications for the workings of macroeconomics, and yet it is almost universally ignored by macroeconomists, who think that the economy worked much the same way in 1900, 1950 and 2000, and that all changes are explained by decisions in fiscal and monetary policy. In fact if you want to understand why Keynesianism worked so well in the 1950s and so badly in the 1970s, technology provides the most convincing explanation.

So, what is neoliberalism? It is an altogether more subtle economic analysis that sought to built on the insights of Maynard Keynes rather than throw them out. Indeed their ideas evolved into something referred to as “neokeynesianism”. At its heart are two ideas. First is that markets function as processors of information, and are the most efficient way that information about supply and demand can communicate and coordinate in our highly complex society. This is an idea developed by the Austrian economist (and sparring partner of Keynes) Friedrich Hayek, and who is the patron saint of neoliberalism (and much more pragmatic than his leftist critics pain him – he formed a common front with Keynes during the war). The second is that the incentives of people who manage institutions that are not subject to market forces, such as regulators and governments,  are generally not aligned to the public good. These insights lead to the conclusion that even well intentioned state interventions often do more harm than good – and that it is best to try and design such interventions so that they work closely with market forces, aligning incentives and making better use of information.

Neoliberals sought to repair the tattered state of the Keynesian conventional wisdom with the idea of “equilibrium unemployment” – a state of the economy at which any increase in demand would simply lead to inflation – with the insight that the level of this equilibrium could be much higher than what was conventionally regarded as full employment. It depended on the state of labour markets and technology – best addressed through “supply-side” policies, which often meant deregulation. In the 1970s, they said, the trouble arose from over-managed labour markets (the effect on trade unions in particular) and technological disruption (especially the relative rise of energy prices) that rendered much of the industrial economy obsolete.

In terms of economic management, neoliberals liked free capital markets, including floating exchange rates (in contrast to Keynes’s preference for managed international capital flows, exemplified by the Bretton Woods system). They disliked the use of fiscal policy (i.e. the deliberate management of government budgets to regulate deficiencies in demand), as it was rendered useless by misaligned incentives – there would be a tendency to let booms run too long. They did like the idea of “automatic stabilisers”, being tax and benefit policies that tended to increase or reduce demand according to the state of the business cycle – and as such accepted a large state sector – unlike the neoclassicists. Instead they preferred to regulate demand through government intervention in interest rates, delegated to arms-length central banks (an idea which neoclassicists hated, incidentally – they want to leave interest rates to the market).  Like their Keynesian predecessors, they thought that inflation was the critical sign of whether or not supply and demand in an economy were in balance – though they developed the idea that inflation could be built on expectations, as well as simply mis-matched supply and demand (i.e. if people expected inflation to be high, they would demand extra wages, turning this into a self-fulfilling prophecy). For all their scepticism of government, they still saw it as playing  a central role in the management of the economy – and searched for optimal levels and designs of intervention.

Neo-liberalism became the conventional economic wisdom in the 1990s, all the way through to the great financial crash. This period saw an unprecedented advance in living standards across our globe. So why do most people think it has failed? Because the picture in developed economies in that period is much more mixed. In the US in particular, the economic gains have been concentrated amongst the wealthy, with large companies amassing unprecedented levels of profit. The destruction of many industries through technological obsolescence and globalisation left a huge legacy in ruined lives and failing local communities. And finally there was the crash itself, which most neoliberals had failed to see coming and to head off – and whose fall-out they proved ill-equipped to deal with.

And yet. The main advance in human well-being in the neoliberal ascendancy came in the developing world – and the adoption of neoliberal insights was clearly responsible for this – in China, India, and many other countries. And the failure of attempts to defy neoliberalism, in France under Francois Hollande and, more dramatically, by the Kirchners in Argentina, has led to local revivals of neoliberal ideas. Something has clearly gone wrong, but is the whole system really rubbish?

I will examine that question in a future post.

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Can Vince Cable broaden the Lib Dems appeal?

Last week Vince Cable was elected unopposed as leader of the Liberal Democrats, following Tim Farron’s resignation. This is not a situation many Lib Dems expected to be in a month or so ago.  I don’t think I would have voted for him if the selection had been contested.  Yet I dare to hope.

Let’s start with my reservations. The first is his age at 74. This is the least serious. Age has different effects on all of us, and Vince has clearly been looking after himself, physically and mentally. He will have bitter memories of 2007, when he was advised not to run for the leadership vacated by Ming Campbell, who was only slightly older. Ming was widely bullied for being too old – I remember some vicious cartoons. And yet the reasons for his failure were clearly something else – age was just a convenient proxy, reflecting the prejudices of the time.  By picking the relatively youthful Nick Clegg, it is far from clear that the party was better off. Meanwhile there have been a number of successful older politicians – including Jeremy Corbyn and Donald Trump. Age does mean that Vince’s tenure is likely to be less than a decade. But that may not be a bad thing.

My next reservation is more serious. It is that Vince is not known for grassroots campaigning. His constituency organisation in his Twickenham seat was notoriously weak between elections – and that ultimately lost him his seat in 2015. In the jargon, Vince is a man of the air war, not the ground war. That is a worry because the Lib Dems weakness in ground organisation is one of the bigger issues that the party has to face. Tim Farron, by contrast, was much stronger on the ground activity. But am I worrying too much? Vince’s constituency campaign this year was one of the better organised – and the result was spectacular. Tim came within a hair’s breadth of losing his seat, which had been the “safest” in the country (there’s no such thing as a safe Lib Dem seat). For all Tim’s enthusiasm for grassroots campaigning, he did not strike me as a gifted organiser. We may be no worse off.

And finally there is policy. I have advocated fresh thinking on economic policy for the party, in particular to unlock under-used potential in poorer areas. I am also deeply suspicious of monetary policy as a method of managing aggregate demand. Vince is much more of a traditional economist – he seems more interested in using neoliberal ideas more effectively than looking for the next revolution in economic thinkin. Again, I am probably making too much of this. He has a lot of common sense, and does not strike me as a man that pushes policies that aren’t working because he thinks they work in theory. And innovation needs to be small-scale at first if it is to win public confidence.

Against my reservations, though, I am finding quite a lot to like. He is very impressive when being interviewed on the radio. He answers the questions being asked, and confidently, displaying a great deal of expertise and honesty. He has enormous credibility, built up over many years – not least his five years as a senior cabinet minister. He can overdo the honesty and get himself into trouble – but this is a net benefit. Former London Mayors Ken Livingstone and Boris Johnson have learnt to pull this trick – being a bit too honest – off very successfully (though Mr Johnson’s shine has now worn off), as has the Labour leader Jeremy Corbyn. When it works it is a priceless gift. Vince has much more impact on the media scene than did Tim Farron. He makes headlines effortlessly – and not by making gaffes.

And Vince’s evident experience and expertise puts him ahead of almost every other front bench politician in the country – especially since Labour have been forced to promote inexperienced MPs into front line roles. This makes the Lib Dems look like a player in the grown-up game of politics, which hasn’t been the case since the party’s catastrophic defeat at the 2015 general election. Especially since there is now a back up team of experienced politicians in Norman Lamb, Ed Davey and Jo Swinson. This is important, because if the major parties do start to break up under the pressure of divisions over Brexit, the Lib Dems are starting to look like a credible alternative for refugees – or at least a vital alliance partner for any new grouping.

So that is why I dare to hope. But meanwhile the party is very weak. Many of the sixty or so parliamentary seats where the party used to be in close contention now look gone for good. It is not clear how the party is to replace them with new ones. The party might have some success in tapping angry Conservatives, but it is remains pretty hopeless against Labour in the pitch for younger voters. I am seeing quite a lot of manufactured kerfuffle about how Labour is supposedly breaking promises on student debt. Any Lib Dem who thinks that the party is going to make traction with that line of attack should think again. It’s best hope against Labour remains its firm position against Brexit – but as yet Labour remains coated with Teflon on the topic.

Recently I read an article in the Guardian by Deborah Orr that lambasted the party as a waste of time. What is striking is that this liberal, well-informed journalist only ever thought the party stood for electoral reform – and so the party’s failure on that in coalition leads her to claim that it “lost all it stood for”. That shows how much work the party has to do. Most people think that the party stands for very little – they associate it with a single policy, like electoral reform, or, before 2010, free university tuition. When the party fails to deliver on this policy, it is reduced to emptiness in their eyes and it has start all over again. Meanwhile the Conservatives and Labour can chop and change policies at will, because they are seen to stand for something much broader. At the moment the big policy for the Lib Dems is opposing Brexit, with legalising marijuana as a second string. This is far too narrow.

So the Lib Dems need to be seen as standing for a broader range of ideas, and not tied to a single headline policy. There may be an opportunity for this. Most left-inclined liberals still think Labour stands for them – but Mr Corbyn and his allies want to take their party somewhere different. And many Conservative supporters think that their party stands for pragmatic liberal economics – but Brexit ideologues in cabinet don’t seem to care what happens next as long as it is Brexit. If anybody can convince these people to look, or to look again, at the Lib Dems, it is Vince Cable.

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The British are bowing out. Now the EU is a battle between the French and German visions.

The European Union dominates British politics at the moment – but in a rather superficial way. It is focused on the short-term implications of the country’s relationship with it, and not on the institution itself. And that is true especially of continuing Remainers. They concentrate so much on stopping or diluting Brexit that they avoid tackling questions about what the Union is, and what it is turning into. More thoughtful Leavers will no doubt suggest that the focus on Brexit is a displacement activity from more uncomfortable questions about the EU. So it is worth taking a step back from the kerfuffle about Brexit to think about the Union itself.

I think it is helpful to view the debate over the EU as a conflict of three visions. I will characterise (or caricature) these as the British, the German and the French visions. The British vision is of the union as a free trade area; its fundamental purpose is economic, and to bring to its members the manifold benefits of free trade. The British are divided on whether this necessarily includes the free movement people, or, rather, labour (as opposed to temporary visitors, which most people are happy with). Many older people (and probably a majority) think emphatically that it doesn’t, and that goods are fundamentally separate from labour. Younger voters tend to say that it does – seeing free movement as a way to expand their personal horizons. Some are muddled – wanting all the benefits of retiring to Spain and using its health service for free, while stopping people from moving into Britain. But all sides treat this as a fundamentally economic question. and think of it individualistically – how does it benefit me?

The Germans feel that the fundamental point of the EU is to create transnational order. This affects trade, so that manufactures and services are based on common rules, and that countries don’t get an unfair trading advantage through lax labour or environmental laws. But it goes deeper; they see nothing wrong with rules that secure fundamental political principles, such as human rights and the democratic order. Britons tend to resent this as an unnecessary intrusion, feeling secure in their own country’s institutions – different histories do much to explain the different attitudes. Britons have learnt to trust domestic institutions; Germans (right up to 1990 in the East) have learnt that trust can be abused. The Germans’ outlook is more collective than the Britons’ – but they share Britons’ distaste for political meddling from EU institutions.

But the French, on the other hand, emphasise the political union. To them it is a joint political project, in which their country must take a leading role. They tend to see the EU as a counter to the giants that stalk the world stage, and in particular to the US – but also to Russia and China. Internally they advocate a greater use of political mechanisms to resolve the problems and conflicts within the Union itself. This is the most collectivist view. If Europe as a whole advances, the logic goes, then we all do as individuals. The British tend to view it the other way round.

It is tempting to suggest that these three visions are all right, and that some form of reconciliation or compromise must be found. But I find it more helpful to see the three visions as varying stages of understanding of what the European project implies. A free trade area cannot reach its potential without transnational rules, including some form of transnational arbitration. And you cannot have such a transnational system of rules in the long run without common political processes to manage them. The North American Free Trade Area (NAFTA) was often held up as an example of what “just” a free trade area might look like – but it first lost momentum and is now in imminent danger of collapse, as it has been unable to handle the  political tensions it has created. The French understand the implications of the EU the best, the British the least – which, of course, is the main reason why Britain is leaving. Most of the British public do not want to accept the political implications of the EU; many of those that voted Remain were in denial, and voted that way to maintain their own short-term economic prospects. The whole Remain campaign last year was based on little more – one reason that the more thoughtful Leavers feel that it is they that hold the high ground.

With Britain on the way out, the driving tension will now between the German and French visions. The British view was shared by other members, especially the Scandinavians (as a matter of principle) and the eastern members (as a matter of political convenience). Brexit not only removes the British view’s biggest advocate, but also it points to the ultimate destination of countries that follow it.

The Franco-German tension could ultimately destroy the union. The Germans are easily the union’s most powerful member; but the French are ultimately right – the Germans are simply postponing an inevitable reckoning. This tension is most easily seen in the management of the Eurozone. The EU’s treatment of Greece, for example, was brutal and surely misguided – even if I find most of the pleadings by Greek politicians such as Yanis Varoufakis to be self-serving and evasive. To the Germans, the Greeks simply broke the rules. They lied about their economy to get it into the Euro, and then milked the Union for all they could get with no attempt to make their economy more productive or less corrupt. The crisis was a reckoning, and it must be played out according to the rules. That Greek voters approved of gobbling up their neighbours’ resources as an easier alternative to fixing deeper problems at home did not make what they were doing democratic. But this view is also self-serving and evasive. German banks contributed mightily to the Greek bubble, and German businesses where happy to sell things to people who could not afford them. There must be a principle of caveat emptor. Instead the German taxpayer bailed out their banks, and their government is trying to blame the Greeks. It is a political mess that requires a political solution, and that means some of the rules must be changed. It is clear, for example, that much of the Greek government debt must be forgiven. The country also needs financial aid to help its economy to grow on a financially sustainable path. But that implies accountability from the Greek government.

And yet the French view, which is now being vigorously pursued by its new president, Emmanuel Macron, leaves hard questions at its core. It requires stronger and deeper transnational institutions, whether at the EU or Eurozone level. But are the democratic institutions up to the job? And is there democratic consent for them? And how deep must these central institutions go? The type of problem posed by Greece persists: member states trying to take the rest of the union for a ride – to take the money, but without any any serious attempt to develop an open and efficient economy, buttressed by democratic institutions, based on the rule of law applied without corruption. Challenges aren’t just being presented by such countries as Hungary and Poland, but by countries closer to the heart of the picture, like Italy. And France. And even Germany with its destabilising surplus savings. Mr Macron’s strategy is to boost France’s credibility by reforming its economic institutions. But what will make other countries follow this path?

What will happen next will be the usual European muddle and fudge. That muddle and fudge will either lead to disintegration, or to something that looks much more like a federal state. Or both – if more countries leave but a more integrated core remains.

And that poses a challenge to British Remainers, who either want to reverse Brexit, or to rejoin the union at some later stage. If Britons remain wedded to what I have called the British view, this will end badly. Britons must accept that they are signing up to a political project that reduces the sovereignty of the British state. Liberal Democrats, in particular, need to understand when there will be too much European centralisation, and when they would say no. After all their other rallying cry is the decentralisation of political power.

And me? Fundamentally I am a Frenchman on this. Proud though I am of my British and English identity, I also have a strong sense of European history and identity. I long to be part of a joint European political project. But not even I have thought through the full implications – and I am in what looks like a small minority. For that minority to grow, more persuasive arguments must be made.

 

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Can Britain afford to abandon austerity? Maybe

Perhaps only Brexit is a more important political issue in Britain than austerity – the policy of restraint in public spending that is causing acute stress in parts of the public sector. It might surprising, therefore, that the quality of debate is so low as to be nonsensical. But then again, when things get important, truth is the first casualty. So let me attempt a dispassionate overview.

First let’s look at the case made by government supporters in favour of continued austerity. This runs at the level of household accounting. The government is outspending the revenue it collects. This means it is piling up debts which future generations must pay. How irresponsible! “There is no magic money tree,” says the Prime Minister, Theresa May. But one of the first things you learn in economics is that running a government budget is nothing like a household one. And the government does have a magic money tree – it’s called the Bank of England. It is perfectly safe for a government to create money to pay its own bills, in the right economic circumstances. Japan has being doing this for a couple of decades. Plus spending government money in the right way may generate the means to pay it back – through bringing spare capacity into the economy, or through investing in projects that generate a return. Or even both at the same time. The case made by government ministers is simply irrelevant. But that doesn’t make them wrong.

The case made by the left has more economic sophistication – and it is even nominally supported by authoritative economists like Joe Stiglitz, an American Nobel Laureate (who wrote a useful textbook on public economics). The main argument they make is often referred to as “Keynesianism” after the great Liberal economist Maynard Keynes, who offered it a the time of the Great Depression in the 1930s. Keynes pointed out that if there is spare capacity in the economy, such as during a recession, extra public spending will not displace other activity, and it will (or should) therefore cause the economy to grow, and pay for itself. But this argument is made by left-wingers regardless of the economic climate. Find me a trade unionist that has ever, ever said that because the economy is overheating, government spending restraint is required. It’s like finding a businessman who says, in any given economic conditions, that interest rates should go up. They are like barristers making a case, no matter how ridiculous. What should judge and jury think?

Two pieces of evidence may be offered in favour of Keynesian expansion now. First is that economic growth since the great financial crisis of 2007-2009 has been lacklustre, and behind many of Britain’s peer economies. Surely it needs a kick up the backside? Second is that inflation is low and looks stuck. Actually, inflation has been creeping up a bit, but that is due to the pound falling. Pay inflation – surely the critical point in this case – remains low. In classical economics high inflation is the surest sign of an overheating economy.

But two pieces of evidence can be offered against Keynesian expansion. First is that unemployment is at near record lows for recent times, and overall employment is very high (unlike in the USA, there don’t appear to be a lot of people who have dropped out of the labour market and so not treated as unemployed). Second is that Britain has a high current account deficit – at 3.1% of income it is one of the highest in the developed world, though it has been coming down since the pound fell. That means that Britain needs foreigners to pay it in its own currency, or Britons need to acquire foreign currency to finance foreign debts. This means that the country depends on “the kindness of strangers” as the Chairman of the Bank of England put it. Among other things that takes some of the magic out of the money tree owned by the Bank – and is a contrast with money-plucking Japan, which tends to run big surpluses. Money trees need net savings (or current account surpluses) to nurture them, or else their fruit turns bad, as many a horror story from South America will attest.

So there should be public debate around what these pieces of contradictory evidence mean. Unemployment is low, but the quality of many jobs is low – so would people work more productively under the right pressure? Britain has a trade deficit, but most debt (including government debt) is still denominated in Sterling, reducing risks substantially. There is much to explore, but few take the trouble. Easing austerity could simply raise growth; it could cause us to borrow in currencies that the Bank of England can’t print; it could cause inflation; it could simply stimulate more low paid immigration; or nothing much might happen at all.

The important message, though, is that it matters how any extra government money is spent. This rather goes against the flow of the usual macroeconomic debate, which likes to deal in quantities rather than qualities. But if you read carefully you will see that trained economists brought into oppose austerity policies are quite careful about the type of extra spending they advocate. They want more investment. If the government invests in things that generate financial returns by making the economy more efficient and productive, then the question of whether or not the economy is running at full capacity is side-stepped. The Labour manifesto at the general election offered this line of reasoning, and that is doubtless why the likes of Mr Stiglitz felt able to endorse it. Labour also wanted to put taxes up albeit mainly on the rich – which, nominally, at least, should reduce excess demand.

Unfortunately this can lead simply to politicians labelling all public expenditure as “investment” – a favorite trick of former Labour Prime Minister Tony Blair. We need to look at matters case by case. What if the government gave NHS employees a pay rise, which some say they are due after years of pay restraint? Some of the extra money would come straight back in taxes; some would be spent creating demand which might help local economies to grow. But some might be spent in businesses that will just put their prices up; some might simply be saved (which has no short-term economic impact) or spent on things like foreign holidays that just add to the current account deficit. Unless balanced at least some extent by tax rises the economic case for this looks unconvincing (where those tax rises should fall is not a simple question either…). But there are other benefits to increasing pay. Would it make it easier to recruit and retain top quality staff that would make the service more efficient? That mean the service could run on fewer temporary staff and make cost savings by heading off medical complications? Well that’s the key, and it depends on strong management. These benefits don’t just happen.

But what of devoting more money to public health? If done properly, this will head off demand for health services, and reduce the costs of poor health elsewhere in the economy. The case for funding this from borrowing is much easier to make. A similar case can be made for schools funding – though again this depends on good management (though personally I am more confident of that in schools than in hospitals, if only because the former are much simpler to run).

There is a lot of extremely interesting debate to be had around the economic implications of different sorts of public spending. Would forgiving student debt be a financial catastrophe? Or might it provide an economic boost in exactly the right places? We need some dispassionate analysis.

Instead we have a Conservative Party that will not engage in arguments of any economic sophistication, and is allowing some of its cost savings to do lasting damage to society. And though the Labour Party understands this, it seems uninterested in the discipline that will be needed to ensure that extra government spending and borrowing does not drag the economy down, rather than boost it. Each party is sponsored by advocacy groups who think that the overall outcome for the country is somebody else’s problem. Such is modern British politics.

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Modern liberals have a religion problem

Shortly after the General Election Tim Farron resigned as leader of the Liberal Democrats. He said that it was impossible to maintain his Christian faith and be party leader. He was echoing a complaint from many practising Christians that they feel excluded from the party and in wider liberal circles. Muslims feel exclusion too, though often from different people. Is this true? And if it is, does it matter?

Opposition to discrimination is one of the defining principles of liberals. This started with religion, and in particular, in England, discrimination against Catholics and various non-conformist sects, such as the Quakers. It then moved on to issues of sex, race and sexual orientation. Now the problem seems to be between secularists and those practising religions with a universal claim to truth, such as Christianity and Islam.

At the heart of this is a genuine problem. Many adherents of these faiths claim that their faith requires discrimination against sex and sexual orientation, and opposition to such modern practices as abortion. These are important battlegrounds for liberals. Christians who believe that the state should discriminate in these fields clearly can’t be liberals. But how far should liberals lay claim to private beliefs? It is quite common for people to say that they don’t believe in abortion personally, but that they do believe that the state should permit it – that it should be a matter of personal conscience.

It is over such issues that Tim Farron tripped up. He was seen to prevaricate. Famously he tried to evade a question about whether gay sex was a sin, with the statement that “we are all sinners”. I have some sympathy with him over that one. I have a church upbringing, and though I am no theologian, I know enough to tell that what Christians mean by sin is quite a complicated thing. The point is not to avoid being a sinner, but to forgive sins. I could add that many Christians feel that hetorosexual sex is a sin – or at least taking pleasure in it is – although this has softened in recent times. Tim was trying to say that it was the wrong question. Much later he clarified to say that he didn’t think gay sex was a sin, but the damage had been done. To many “sin” meant “wrong” and that he therefore could not be trusted to uphold liberal values. The party’s opponents made useful weather of this (unofficially, of course). It did real harm to the party.

That makes me very uncomfortable. It seems to exclude a large number of religious people from the movement. It draws the line in the wrong place. Liberalism is becoming equated with aggressive secularism. The response of many people (such as the Guardian’s Polly Toynbee) is evasion. Religion was not the reason that Tim resigned, they say, but political ineptitude. Well there are plenty of reasons for saying that Tim was not up to the job (including his evasive response to that interview question – and his rambling email when he resigned), but this type of reaction reminds me a lot of the ways that people try to escape accusations of race or sex discrimination by pointing to other reasons for their views.  It’s the “I’m not racist but…” position.

Tim is hardly the first person to claim that liberals discriminated against him for his religious faith. It strikes me that secularists have no idea when they are being discriminatory. Again there are parallels with race and sex discrimination. Workplaces that accept women as equal provided they behave in exactly the same boorish way as the men are discriminating against women. I found advancing sex equality when I was working in the City of Londonwas really hard work in many roles, especially senior ones, as many men had no idea what the problem was. They did not see that a whole range of behaviours and assumptions were discriminatory. The Lib Dems themselves are wrestling with why so few women advance to elected office, and why so few people from ethnic minorities join it. I think there is a similar problem with religious faith amongst liberals, but it is worse because it is unacknowledged.

This is exacerbated by a certain intellectual arrogance amongst aggressive atheists, who form an important minority amongst liberals – people like Richard Dawkins who are apt to talk of prayer as “talking to your imaginary friend”. This stems from a rather old-fashioned logical-positivist outlook. They say that you should only believe things if there is sufficient evidence for them. But you have to have a nul hypothesis – you have to have a working assumption that you hold to until something with more evidence comes up. The battles of religion can be seen as asking what shape that nul hypothesis should take, and how much it should be based on handed down wisdom and shared understandings. To more thoughtful religious people, the classic aggressive-atheist viewpoint is an incomplete, like trying to drive a car through the rear-view mirror, and it is often device to evade discussion of important spiritual and moral issues. The point here is not to have debate on the virtues of religion, but suggest that many atheists suffer from arrogance and could do with a bit more intellectual humility.

Which would a good place to start when working out how to treat religious people in politics. So I want to make a number of points:

  1. Political movements should be about changing public life, and not private beliefs. There is much that liberals want to change, and to protect, in public life. It hurts that political cause if you exclude potential allies because of differences in private faith. This is happening with people of religious faith, and liberals need to be more tolerant.
  2. Being a liberal may still be quite challenging for many in particular religious traditions, especially those that set store by traditional teaching and interpretations of texts. Liberals need to give such people more space – without compromising on liberal public values. I don’t think they did with Tim Farron, or others like the former Lib Dem MP Sarah Teather.
  3. Liberals also need to be careful about promoting their own religious interpretations in the political sphere. This is a particular issue for Christianity. People like me who were brought up in the faith have strong views about some religious traditions. Pushing these views should not be part of political discourse – though, of course, that doesn’t mean that those views should not be aired. I might think that there is no serious theological objection to women priests – but I need to be careful about where and how I air that view, especially since I am no longer a practising Christian.

It strikes me that there are two things going on here. The first is that we should be more conscious of our religious or anti-religious biases, which could lead to discrimination in public life The second is that is important to bring people into the liberal political movement even where their religious faith creates tension.

So we should be worried that Tim Farron’s religious faith proved such an obstacle to being part of the liberal movement. And we shouldn’t pretend that it wasn’t.

 

 

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The Brexit fiasco shows how Britian is being let down by its political class

More than a year has passed since the shocking result of Britain’s referendum on leaving the EU. Pessimism about a very messy break is growing. This is typified by this article by Gideon Rachman in this week’s FT, which suggests that whatever happens there will be humiliation for Britain. Are we really in such a mess?

Mr Rachman suggests three forms of humiliation. One is that Britain is forced into a deal by which it subscribes to most of the substantive terms of membership (including cash contributions and the jurisdiction of the European Court of Justice) in order to stave off severe economic disruption. This is sometimes called Soft Brexit. A second is that Britain drops out of the EU without a complete deal, and is subject years of confusion and disruption, resulting, inter alia, in economic hardship. The third is that exit does not happen at all, and Britain crawls back in, its attempt at exit having failed, like the German Fleet returning to port after the Battle of Jutland.

This analysis is based on a simple idea. There is just not enough time before the exit becomes legal, on 29 March 2019, in order to arrange alternative structures outside the EU Single Market or Customs Union. And that such a failure would result in chaos from air travel to the manufacture of Guinness (brewed in Dublin, bottled in Belfast). There may elegant solutions to each of the problems thrown up, but we simply don’t have the time and resources to decide what is best, and still less to put in place any of the new infrastructure required.

One reaction is simply anger: to blame the shadowy EU powers for creating such an unreasonably short departure window. And yet a longer interval would not have been acceptable to the Brexiteers. Some chafe that two years is too long. The interval is a reflection of the politics; it is up to ingenuity and negotiation to find solutions to the problems it throws up. The puzzle is why that does not seem to be happening.

And it really isn’t very hard to see what that solution is. It is a phased withdrawal, whereby full membership expires on the treaty date, but other aspects of membership do not. In particular that means prolonging the single market membership (including financial contributions) well beyond that date – three to five years, say. Single market membership along the lines of Norway should be a relatively simple thing to put in place, because it leaves so much of the existing apparatus intact. It is a soft Brexit followed by a properly thought through and prepared hard Brexit. It is a much less risky enterprise. It is also more democratic. Membership of the EU is a very complex thing, and a simple referendum result does not tell you what people actually want; indeed, how could people know? A prolonged period over which the details are discussed and subject to the normal democratic process is much better than being railroaded into a solution advocated by some faction of the ruling political elite. Deliberation is a critical element of the democratic process – and we saw precious little of that in the run-up to the referendum.

I have suspected that this, an orderly phased withdrawal, is what Theresa May’s government has been planning all along. But recent statements by members of the government have shaken my faith in this. They have been ruling out being part of the single market after 29 March 2019 – on the grounds that there would be a big backlash from the Brexit supporting public if they did. This is unconvincing until you substitute “Tory MPs” for “the public”. The public shows signs of weariness over Brexit, and most would surely accept a well-argued case for a transition. But many Tory MPs are Eurosceptic to the point of insanity. Maybe it’s all tactics and those government spokespeople plan to unveil more realistic transitional plans later.

And a properly prepared hard Brexit may not be quite the nightmare many Remain supporters think it would be. Modern technology and fresh thinking could provide innovative solutions to many of the logistical problems involved – not least for trade and immigration. The country could move to some form of associate status with the EU (perhaps alongside Ukraine and even Turkey?) to provide a framework for political cooperation. But there is no sign of any such coherent vision being put together by our political leaders. Instead the Conservative government has what the Auditor General, Amyas Morse, has called a chocolate orange strategy – something that falls apart on contact. Meanwhile Labour are content to play a game of obstruction, with no attempt to create an alternative vision; for them the prospect of seizing the levers of power amid the chaos trumps all other considerations. The country doesn’t just lack time – it lacks the leadership.

The truth is that the country is being let down by the poor quality of its governing class, who can’t work complex problems through. That is how we got into this mess in the first place: a referendum on EU membership simply to settle an internal party feud was a terrible idea. If the government had been clear in its wish to leave, and presented a prospectus for departure (as the Scottish government did on the independence referendum in 2014), that would have been an entirely different matter. And now the politicians seem incapable of getting us out. The joke that the British are behaving like the family cat, which mews like mad to be let out into the garden, only to simply sit on the threshold when the door is opened, remains as funny now as it was last year.

Why are we being let down? One argument runs that it is a recent thing. Politics no longer attracts big beasts with worldly experience  – and instead is dominated by shallow types who have devoted themselves to a political career from their early 20s. This idea was developed by the columnist Peter Oborne in his book The Triumph of the Political Class. A less familiar argument is made by the FT’s John Gapper, which is that it has always been this way. Britain’s ruling class has long favoured dilletantes with humanities degrees, who shy away from technicalities and details, and instead make clever debating points, like barristers who will move on to another case tomorrow (and many of them are barristers…). He quotes a lecture in 1959 by the novellist and scientist CP Snow. This rings true. The most obvious example is Boris Johnson, the country’s embarassing Foreign Secretary – but it applies just as much to David Cameron and Michael Gove. It applies less obviously to Mrs May or the Labour leader, Jeremy Corbyn. But there is a worrying narrowness to Mrs May – exemplified by an obsession with the ECJ and an evidently weak grasp of economics. Mr Corbyn’s lack of patience with detail is legendary – though he may have improved a bit recently.

This is in stark contrast to the way most other countries do it. France’s leaders are educated in elite institutions that prize deep analysis; Germans value technical expertise; Russians admire chess players; the Chinese like to be led by engineers. And so on, with the important exception of the United States – but even they do not fall for clever dilletantes like Mr Johnson – they prefer authenticity to the superficial cleverness so beloved by the British. And it was not always that way in Britain. Gladstone, the great British 19th Century prime minister, started his ministerial career sorting out railway timetables, and sealed his reputation overhauling the country’s tax system in minute detail.

How we could do with a Gladstone now. Alas national humiliation is the price we will pay or picking such weak leaders as we now have.

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Grenfell Tower shows the poor state of British democracy

I have made passing references to the Grenfell Tower disaster – the tower block fire in a social housing estate in London’s North Kensington district on the evening of 14 June, in which at least 80 people are thought to have been killed. It has been a highly significant event in British politics, but its implications are as yet unclear. To me it marks a failure of British democratic institutions. Alas it is in the nature of those institutions to divert attention to other issues raised by the episode, and a few that aren’t.

The tragedy got wall-to-wall coverage very quickly. It was conveniently located in central London, and it produced some spectacular television footage. BBC TV news set up their anchor with a smouldering building in the background. Although the published death toll in those early days was modest, the coverage was proportionate to the scale of the event. There is a curiously about this. Nobody in the mainstream media wanted to speculate on the number of deaths, but there was an unspoken understanding that it must be high. The estimate doing the rounds amongst those who knew a bit about the block was apparently in the region of 100. Those who felt that the authorities were trying to minimise the scale of the disaster apparently estimated the figure was 200 (the block housed over 300). But there are standard protocols about reporting casualties, so the BBC and others were probably being responsible in not reporting such estimates – though they would have helped public understanding if they had.

The main story in the days following the tragedy was the failure of the official response. There was a din of complaints from those close to the scene that was eagerly reported. I don’t know how justified these complaints were – and how much they were affected by the anger that such a disaster could be allowed to happen in 2017. But both local and national politicians showed a failure to grasp the political implications. Theresa May failed to talk to victims in her first visit, which nearly cost her job. It is easy to understand why she was advised not to – she was going to be on the receiving end of abuse, and there would have been public order issues that would have diverted resources from the relief effort. But savvy leaders understand that you have to allow people to vent when things go badly wrong. Other politicians, such as the opposition leader Jeremy Corbyn and the London Mayor Sadiq Khan, had a much easier job, but did it well enough. The media, meanwhile, seemed uninterested in deciphering the cacophony.

The government’s overall response is damage limitation. Firstly that means a properly resourced relief effort – it took them longer than perhaps it should to wake up to the need for it, but they did get there. They also set up a public enquiry and commissioned safety tests on other blocks of flats. And they promptly moved the goal posts on the standards to which cladding, clearly a factor in the fire, should be tested – causing widespread (if not universal) failure of materials that had previously been considered safe. But there is something missing from all of this. It is being treated as a technical failure, to which technical solutions should be sought. There is no attempt at real dialogue with social housing tenants. The victims feel short-changed.

But one of the big issues arising from the disaster is that concerns over fire safety raised by residents were ignored. The management of the block was  delegated by the council to a Tenants’ Management Organisation (TMO). This is a classic piece of government decentralisation of a type that is characteristic of government in the last thirty years or so. Decision-making is pushed down to a body with technical powers but no  democratic mandate of it own, and no revenue-raising powers. The TMO had to negotiate its budget with the council, so the critical decisions ended up by being the council’s anyway. Governments claim that they are pushing decision-making closer to the users of services, but in practice this has very little meaning – the important powers are retained in the centre, and no meaningful consultation with users or local communities occurs.

The Labour opposition are picking up on this democratic deficit – or rather, they are trying to exploit it. Labour politicians have been trying to relay, and in some cases even stoke up, local anger. A lot of this is legitimate democratic politics. But it has been taken to absurd levels. A low point was reached last week when objections were raised by some victim groups to the judge appointed to head the enquiry. Now I have no idea whether this was a sensible appointment, but the objections raised initially by victims’ groups were hard to take seriously at face value. They wanted somebody who had experienced the deprivations of social housing and tower-block living, and who would share their anger. In other words they did not want an impartial inquiry, and the wider benefits that would flow from it. Two Labour spokespeople who were interviewed on the radio, including the newly-elected local MP, simply endorsed this view at face value. One, a front bench spokesperson (I forget who – alas that is rather the state of Labour’s front bench), then went on to deliver a tirade about private sector profiteering. Now of the many failings exposed by the disaster, profiteering is not among them. The failings mainly arose from public sector stinginess – the normal Labour bugbear of “austerity” would have been closer to the mark, though still not quite on point. This bespeaks politicians who are not really interested in the lessons arising from the crisis, but simply want to exploit it for short-term gain.

But surely there is a major political failure that neither the government nor the opposition want to do much about. The victims for now have their moment in the spotlight, and an unaccustomed moment of actual political power. But they know it is transitory. The failures of public administration that led to the tragedy grew out of the powerlessness of local communities, and of social housing tenants in particular. That is characteristic of the British way of politics. The local council, Kensington and Chelsea, is politically uncompetitive, with a large Conservative majority. Political power is concentrated in a clique of the ruling party. Most council wards, where councillors are elected, are safe for one party or another, so little dialogue takes place between the electors and their councillors. Any such dialogue arises from a sense of duty from councillors (who are only paid meagre allowances, except for the most senior), not political necessity. And councils themselves are highly constrained by central government in their powers – especially over funding, which has been severely cut since the financial crisis of 2009.

Politicians of all parties talk about more devolution of power from the centre, but mostly they don’t mean it. They want to devolve blame and not real power. That TMO is the model. So they will insist that the problems are down to inadequate rules, incompetence of some intermediate level of administration, or poor funding decisions at the centre, or some combination. Giving voice to the voiceless does not seem to be on the agenda.

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Why the Lib Dems must keep going

As a Liberal Democrat I started the General Election full of optimism. Labour looked down and out; people would surely want another alternative to an uncompromising Tory leadership? Those hopes soon vanished, as the party failed to spark, and ended up with even fewer votes overall than in 2015. Existential questions arise. If two party politics is here to stay, is there any point to the party?

There was a silver lining to the gloom. The party has increased its number of MPs from 8 (or 9 counting the by-election win in Richmond Park) to 12. And not just that; the new parliamentary team looks a lot stronger. Three former ministers (including two at cabinet level) return, for the loss of Nick Clegg, who, for all his virtues, does have a bit of baggage. One third of the MPs are now female (none were in 2015), redressing a long imbalance. And I took an extraordinary amount of vicarious pleasure in the election of Layla Moran in Oxford West and Abington. She first stood for parliament here in Battersea in 2010, when I was her agent. That brings to two the number of MPs that know who I am (the other is Ed Davey, whom I’ve known, though not well, since 1990). From a motley collection of surviving old hands in 2015, we now have something much more diverse and dynamic.

But three of the gains resulted from the peculiar shifting of multi-party politics in Scotland. In most of England and Wales, the party failed, losing five out of its eight seats, even if they regained another five. In particular, the party was unable to handle the rise of Labour amongst younger voters, except in Bath and Oxford. There is bitter disappointment. The party had been showing momentum in local elections, and even in an ongoing by election in Manchester, until the election was called. Its membership has grown massively, and it could call on a much larger army of enthusiastic activists than the demoralised bunch in 2015.

What went wrong? Some commentators have blamed the party’s policy of a second referendum on Europe, once the exit terms are known. Most electors weren’t interested in this, but it was critical to the party keeping faith with its core vote, especially those new members, who mainly came from a Brexit rebound. The Lib Dems have done enough betraying of its core support in coalition. And I don’t think the policy actually put many potential voters off – nobody expected the party to be able to actually implement its policies, after all. The problem was that the party had little else to say. It claimed to be the only opposition to the Tories and hard Brexit. As Labour surged, that proved nonsense – Labour had no difficulty in winning votes from people supporting a soft Brexit or even no Brexit at all. The Lib Dem manifesto was quite a decent stab at a programme for government – but it looked like an undistinctive split-the-difference programme when compared to the others. Labour went uncompromisingly for the protest vote, in a way the Lib Dems used to, and found that it worked – perhaps because nobody expected them to win either.

On one issue in particular did Labour manage to skewer the Lib Dems: student finance. By promising free university education, Labour picked up a policy that was popular with younger voters, and which had been a Lib Dem flagship until 2010. The Lib Dem reversal on this in coalition continues to haunt the party, and Labour’s policy was the most dramatic possible demonstration of this. That this policy presents major headaches for any government trying to implement it (Labour’s manifesto is comically vague on this) is beside the point when nobody expects you to win. Digging their way out of that hole will be a major headache for the Lib Dems.

The party’s leader, Tim Farron, did not help. He lacked gravitas – he was prone to overblown rhetoric and did not look like a cabinet minister in waiting – even compared to the Labour leader Jeremy Corbyn. Labour campaigners successfully employed distraction tactics over his religious beliefs, and how these might or might not affect his views on gays and abortion. Tim has now resigned as leader – based on the issues around his faith. It was the right decision for the wrong reason – and I will come back to the issue of liberals and religion in a future post. Tim had a solid grasp of the party’s long term strategic priorities (core votes, more women and ethnic minority MPs, community campaigning and so on) but he had too many other weaknesses.

A further problem was weak organisation. There are honorable exceptions, but there were many horror stories from the campaign trail about disorganisation and opportunities lost. For example in more than one seat inexperienced campaign managers exhausted themselves organising the Royal Mail free delivery at the start of the campaign, while neglecting the advance organisation required for polling day, which they then became too tired to do properly. It is likely that organisational errors like this, and gaps in communication between local and national campaigning, cost the party as many as four seats (including seats in Wales and Cornwall, which would have given the party a better geographical spread). This is particularly disappointing given that the party had a head start on candidate selection. This points to serious organisational weakness in the party that successive leaders have failed to address. It has is an out-of-touch national management, chaotic local management and weak middle management, all reinforcing each other’s ineffectiveness. I exaggerate – there are  islands of brilliance – but strong organisational leadership needs to be a priority.

But is it worth it? Does the party contribute value to British political life? I still think it does because the party has two historic functions that the election has not changed.

The first is as a beacon for liberalism and democracy. Both major parties are taking these for granted. They are fragmented coalitions only interested in seizing a parliamentary majority by whatever means, and then using it to impose a divisive policy agenda. The Conservatives have taken pragmatism past the point of bankruptcy. They continue to peddle failed ideas because they know no better. Labour have collapsed completely into a party of protest, pretending that hard choices do not have to be made.

The second historic function of the Liberal Democrats is to bridge the tribal divide between the two main camps, and attract support from both. It looks as if neither of the major parties can establish a decent governing majority – they are just cancelling each other out. The deadlock can only be broken by a third party. This is what happened in 2010 with the coalition government. Disastrous as that was for the Lib Dems, rebuilding a new coalition is probably the only way that Britain will achieve a government that is “strong and stable” in the language of the Conservative election campaign. That poses a major strategic problem for the Lib Dems – but that is surely the party’s destiny. By the time the party is next given the chance – perhaps after Labour attempts a minority administration – public attitudes may have moved on.

There is a further possibility – that the party becomes part of a new movement that governs without Labour or the Conservatives – in the manner of Emmanuel Macron’s En Marche movement. That was my hope when I joined the predecessor party, the SDP, in 1981. It failed then, but who knows?

Meanwhile the party needs to pick itself up and move on. It must continue to fly the banner for Remain, and tap the growing anger over Brexit – even if the end game is unclear. But the party also badly needs to move on to explain what it is for beyond Brexit. With problems for Britain piling up in all directions, the voters surely need to be offered liberal solutions.

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