Vickers Commission: so far, so good

I have deliberately paused before commenting on the interim report of the Vickers Commission on UK banking reform.  I wanted to read more about it; it didn’t help that the post office delivered my Economist several days late.  Unfortunately I still have not had time to read the report itself; let me come clean on that.  Most of the commentary seems to be that the banks have largely got away with it, and are heaving a sign of relief.  My answer is “not necessarily”.  It may be clever politics not to go for the more totemic ideas, like a full split between retail and investment banking, since that clears the path for the reforms that really matter.

The report primarily concerns itself with two things: preventing a future UK government being forced into bailing out or underwriting banks, and increasing competition between the banks.  The latter was behind one of the more controversial recommendations: the breakup of Lloyds Bank.  But I don’t think that’s the main battle.  I despair about the lack of competition in UK retail banking, but I don’t see that the costs to the economy are that large.  The main game is preventing the next bailout.

The suggested strategy makes plenty of sense.  Ring-fence retail banks, force them to hold more capital, and leave investment banks to their own devices.  The significance of the second part of that proposition needs to sink in (as this article from John Gapper in the FT (£) makes plain).  An investment bank may be “too big to fail” in global terms, but the UK government will say is that this is somebody else’s problem, so long as our retail banks are protected.  This is an entirely realistic admission that the UK government is now just a bit part part player in the world of global banking.  If one our big investment banks fails, then we don’t mind if it is bought up by foreigners.  This is a striking contrast to the approach taken by the Swiss government.

But it leads to an obvious issue.  How do you prevent a meltdown in investment banking infecting the supposedly ring-fenced retail banks?  The collapse of Lehman’s in 2008 caused such chaos not because it was so big and important in its own right, but that it was too entangled with banks that had big retail deposit bases.  A retail bank will gather in lots of retail deposits; the question is where does all this money go?  If the bank is to make money it needs to get lent out.  If this lending gets into fancy investment banking products, then the ring-fencing has failed.  There must be some pretty heavy restrictions; the assets don’t need to be absolutely safe, but we want to insulate these banks from the complexities of the investment banking melee.  This will not be easy, as John Kay points out (in another FT paywall article, I’m afraid); all that is needed is an oversized treasury department, which is supposedly there just to oil the wheels of the machine.  Mr Kay knows this from bitter experience; he saw (as a non-exec director in the earlier days) how a runaway treasury department at the former building society The Halifax took that institution down a route that led first to demutualisation and eventually its own destruction; each step presented as innovative and sensible.  The detail must be subject to intense scrutiny.

But what of those excessive bankers’ bonuses and all the outrage that goes with them?  To the extent that this is a retail banking problem, the Vickers reform surely deals with it adequately.  The only way of tacking with it properly is to turn these banks into less profitable, lower risk utility organisations which can’t afford to pay big bonuses.  That is what ring-fencing and higher capital requirements should achieve.

But the bigger problem is investment banking.  This is an international issue, and Vickers is really about damage limitation.  As I have said before, the answer is not directly regulating remuneration, but cutting the profits.  This industry must be made much smaller and less profitable.  The two most important ways are through increased capital requirements and choking off its finance (or “leverage” as they like to call it).  The Basel committee is already making headway on the first.  Retail ring-fencing, if it is done properly, will help a lot with the latter.

Banking reform is a long hard road.  There is a danger that we have “wasted a good crisis”, and the passing of the crisis’s worst peak means that the pressure on politicians to deliver has eased.  But the crisis has not passed, though many financial types waving graphs seem to disagree.  A lot of banks are still in a shaky condition – and so are many governments’ finances, including those of the USA and UK.  There may well be a steady stream of aftershocks to remind our leaders that the journey is not over.  So far the Vickers Commission is playing its part.


The power of Holy Week

As a churchgoer in my distant past Holy Week was the undoubted climax of the year.  Sometimes we would attend services daily the whole week, and almost always from Maundy Thursday.  The move from fast to feast was dramatic.  As with Christmas, the festival may have pagan undertones, linked to Spring and fertility, but unlike Christmas, the Christian content has been able to hold its own.  Even now as an agnostic, Holy Week retains a lot of power; power that other festivals have lost.  Why would that be?

This might be a puzzle.  My attraction to Christianity is based on Jesus’s teaching.  There’s not much of that during Holy Week.  Instead, as this Radio 4’s morning service demonstrated, we get some of the most difficult Christian doctrines to digest.  God sent his only Son to be a living sacrifice, etc.  This doctrine clearly had real power in Graeco-Roman times, and retained it in the Medieval period.  The Universe was a much simpler place then.  It was dominated by a single Earth, with its only sun, with the stars mere spots on the firmament.  It was easy to see that Man was the pinnacle of God’s creation, and that the two would have an important relationship .  God was be a kind of special superman.  Now we are lost in a near infinite Universe, this idea has gone beyond modern imagination.  If god exists, he must be similarly infinite and quite beyond us.  The whole idea of the incarnation and the idea of the sacrifice of God’s only son to save our sins has become a series of stale empty words.  Christians pronounce them as a ritual of identity; at best this formula is an icon – something to be worshipped and contemplated, perhaps, but a man-made creation of little intrinsic worth.  And I haven’t even touched the Eucharist.

So why does Holy Week retain its power?  It helps that it is linked to a clear narrative in the gospels, full of human drama and detail.  So much more gritty and real that the Christmas stories, which seem to have been worked out backwards from biblical prophesies.  But ultimately the drama of struggle, being wronged, hope destroyed and then reborn sums up so much of the Christian message.  An impossible burst of light onto a difficult world.  Most modern religions have a huge focus on the personal lives of their founder, and Christianity is no exception.  Few of these personal stories can be as unpromising as that of Jesus.  The Buddha devoted his whole life to attaining enlightenment; Mohammed attained huge temporal power in his lifetime.  It is impossible not to marvel at how the few days of the Holy week story led to such a dramatic and powerful movement.

So for me Good Friday will be a day of quiet reflection; Holy Saturday will be a normal Saturday; Easter Sunday will be a celebration.  Practising Christians do it better, but I will be shadowing them in my small way.


The intellectual cowardice of Spiked

I really try to like the online magazine Spiked.  They are liberals that challenge the paternalism of the bulk of those who think of themselves as liberal.  They try to make common cause with the attitude ordinary people, outside the ruling and media elites.  But then I read things like this:

Nuclear energy: clean, reliable and powerful.  Physicist Wade Allison expertly demolishes fears about radiation. If only he was equally as sceptical about the fear-fuelled climate-change panic.

It links to a book review by deputy editor Rob LyonsSpiked is trying to resist the scare stories around nuclear power and, separately, climate change.  But its writers seem incapable of engaging in a sensible debate.   They are happy to agree Wade Allison about the threat from radiation, but can’t engage with his arguments about climate change.  Spiked’s writers form a view, cheer anybody that agrees with them, and boo anybody that disagrees.  And this case cheer and boo both at once.  No weighing of the arguments on either side is attempted.

I have a similar issue with their attitude to AV.  Fair enough to challenge the public arguments made by the Yes camp, a lot which are quite shallow, and call for a better standard of debate.  But they don’t bother much with the even weaker (and downright fraudulent) arguments made by the Nos.  And the arguments they offer themselves are just as shallow as the arguments they reject.  Apparently AV will make our politicians even more insipid.  As I have argued elsewhere, because AV makes it easier to field spoiler candidates, there is good reason to think the opposite.  They only have to look at the Australian experience to see.

Spiked simply doesn’t have the courage to take the higher ground when it is offered them.  They won’t engage in real debate because they are too afraid that it will expose their prejudices.  What a shame.


Why vote no to AV?

In my earlier posts on the alternative vote (AV) in advance of the forthcoming referendum, I have focused on the positive case for the reform, and considered some of the practical consequences.  Now it’s time to consider some of the arguments being put forward by people advising us to vote No, in support of first-past-the-post (FPTP).

The leading argument from the No camp, to judge by the reporting on the BBC, is that AV undermines the principle of one person one vote.  Partly this argument is used simply to confuse matters, alongside the idea that AV is complicated.  But the more serious point is that idea that people who vote for candidates who are eliminated get another go, so it seems like they get a bonus.  Meanwhile, as my local Conservative leaflet puts it: “This means that supporters of the major parties, the Conservative Party and the Labour party, will not have their votes counted more than once”.  This is a candy floss argument that disappears if you try to think about it.  AV is in effect a succession of run-off elections, with the loser of each election being eliminated between each round.  The voters of the top two parties are counted in every vote, without their votes needing to be transferred.  Far from being disadvantaged, they are setting the agenda.

But this argument leads to a more subtle one.  Voters of the eliminated candidates  influence the outcome, and these voters are less deserving.  This is endlessly backed up by a quote from Winston Churchill that AV would give power to “the most worthless votes for the most worthless candidates.”  A group of prominent historians were somehow persuaded sign a letter to The Times in support of the No vote, that managed to put this quote alongside the argument that AV undermined “one man, one vote”.  We can summarize this juxtaposition so: “FPTP means one man, one vote as long as you are not worthless.”  Supporters of AV argue that it is precisely the principle of one person, one vote that means that we must count the views of people who initially back less popular candidates.  Even if they support the BNP.  Far too much has been said about the BNP in this debate already; the BNP does not support AV for reasons that I talked about in my last post on AV.

There are rather better No arguments on offer, though you rarely hear them.  Brendan O’Neill of Spiked offers two.  The first is that AV will tend to promote insipid middle of the road candidates.  He doesn’t try to justify this claim very hard, but I think the argument goes like this: when making their choices voters will put less offensive candidates above ones that are more offensive to them.  That means that major parties with a real chance of winning a seat have an interest in selecting inoffensive candidates.  A conservative candidate, for example, will be trying to pick up second preferences from both UKIP and Lib Dems; Labour candidates will be after the Lib Dems too, and the Greens and any fringe left candidates, as well as hoping for some of the UKIP votes; this might be done simply by being less offensive than your main rival.  But it is hard to make the case that this is any more true under AV than FPTP, where the major parties fight hard for these voters’ one and only vote on the basis that only the top two parties count.  Also if a candidate is too insipid voters won’t preference them at all.  There is a more strategic argument too: FPTP suppresses spoiler candidates (i.e. breakaways from the major parties) because by standing these candidates might simply let the real enemy in.  If it is more likely that major party candidates will be challenged by breakaways, as would be the case under AV, won’t politics become more dynamic?  Mr O’Neill spoils his own argument by praising the spikiness of Australian politicians, which he puts down to compulsory voting.  But since Australia uses AV, this shows that at worst AV is not much of problem on this front.  Australian politics is full of challenges by independent candidates, many of them successful; AV helps them. (Incidentally there is an interesting analysis of the impact of AV in  recent Queensland and New South Wales state elections here, important because they use the same system that is being proposed in the UK, rather than the full preferential system used in Australian federal elections.)

But Mr O’Neill also fields a much stronger, if less tangible, argument for FPTP, which comes close to the real reason why most ordinary No voters are going that way.  FPTP is simple, direct and dramatic.  The voter focuses his or her mind on making a single, dramatic choice.  The votes are counted and the election resolved in a very clear process.  This strengthens the bond between the system and the ordinary voter.  AV is by no means a complicated system, but it does reduce the immediacy and drama of the process.  Is this enough to tolerate the problems of FPTP, with the power it gives to unaccountable party machines?  I say no.  And if it was, I would replace FPTP with a system of run-offs, like they use in France and Italy, which have the best of both worlds, but are much more expensive.

Which leaves me with the real reason that major party establishment types want a No vote.  FPTP makes it very hard for rebels in their own ranks to challenge the officially selected candidate, for fear of letting the opposition in.  AV makes it much easier for party rebels.  Candidate selection processes are subject to heavy influence from party hierarchies and give the established order real power over our political system.  Now, ask yourself, is that a good reason why ordinary voters should vote No?  Ed Milliband is very brave to see through this to wish for a more democratic political process, and support the Yes campaign.  He is consistently under-estimated by the politicos that dominate what passes for political debate in Britain.  It will be good for the country if he wins this vote.


Poverty Over campaign: why Christian Aid is not serious about eradicating poverty

I am a regular donor to Christian Aid, with a history of support that goes right back to when I was a boy.  It has outlasted my attachment to the Church itself because the charity does not go in for proselytising, and they are dealing with some pretty gritty and important issues.  So I get their supporters’ magazine.  The latest publicises their Poverty Over campaign (which in the publicity is written as POVERTY).  The aim is to “deal with the root causes of poverty”; the publicity highlights eight issues: climate change, conflict, corruption, disasters, food and agriculture, health, inequality, and tax.  All of these issues are closely related to poverty.  But, like “Make Poverty History” before it, the title suggests that its aim is to end poverty, rather than to merely alleviate it.  And here it has almost nothing to say.  Perhaps because the answer is too uncomfortable for most of the charity’s supporters, and perhaps even its staff, to accept.

There has been rather a lot of progress in eradicating poverty in the last couple of centuries.  According to the map that accompanies the article, in 1821 pretty much the whole world was in poverty (Britain, Ireland and the Netherlands were the exceptions according to this, though the inclusion of Ireland is surely a bit shaky).  Now according to the map alongside it only a minority of countries are in poverty, across the central part of Africa, and a few Asian outliers like Afghanistan and Burma.  That picture seems a bit too bright, but we need to acknowledge the progress made by countries such as South Korea and China in the last 40 or so years.  It is worth asking how such rapid progress has been made.

We usually think of poverty in terms of low consumption – insufficient food, poor shelter, a few clothes and practically nothing else.  It is more helpful to look at the other side of the coin: low production, or low productivity.  Beating poverty is about boosting the productivity of countries that are poor.  It’s not about dumping surplus production from the rich onto poor societies, the only other way it can theoretically be broken

And yet raising production involves wrenching change.  And one change above all: moving people from the countryside to towns.  In poor societies agriculture is ludicrously inefficient, and this drags the whole economy down.  In towns it is much easier to mobilise people into more productive activities in manufacturing and services.  What is more, it is much more efficient to deliver basic services such as education, health services, power and water to people living in towns.  Pretty much every breakout from poverty, from our own in Britain in the 18th and 19th centuries, to China now, has invovled the emptying of the countryside and the growth of massive cities.  Only when society is much more wealthy, and infrastructure much better, do we see some reversal.  Now where’s that in Christian Aid’s eight issues?

The problem is that we in our comfortable developed societies don’t like the idea of imposing such drastic change on the poor.  The change is painful.  Families are torn apart; initially poverty at both ends (in the country and town) is extreme.  Our attitudes to the country are tinged with a folk memory of a lost rural idyll.  There’s another uncomfortable truth.  Such changes sit uneasily with democracy.  Some of the most successful changes have been carried out by benevolent dictatorships  (consider China, the early days of South Korea, Singapore).  The record of democracies may be better than that of kleptocratic dictatorships, but it is flawed.  India has advanced phenomenally, but, compared to China, it has left huge swathes of the population behind in dire poverty without much hope of escape.  Poverty Over implies turning a blind eye to progressive dictatorships.

So what should we be doing if we truly want to end poverty?  Well the first point is that we can’t impose progress from outside.  Ending poverty is painful, and not an automatic choice; things may have to get worse before they get better; this has to be led by the locals.  We have to back off a bit.  The second point is that most aid should focus on urban poverty.  Rural poverty may be cuddlier and more instinctively appealing (remember the Christmas campaigns about buying people goats?) but it carries the risk of perpetuating poverty rather than ending it.  Rural aid should concentrate on making it easier for people to migrate: so improving literacy and education is an obvious one.  But even then you get more bang for your buck in the towns.  Thirdly we should promote the role of competition and businesses in the developing world, if we can.  Too often local elites leach off local businesses, or create excessive regulation as a source of soft jobs and bribes.  That prevents more productive employment opportunities from being created.   Fourthly, promote constructive multinationals.  Multinationals inject a dose modern productivity and efficiency into countries, and helps raise levels of trade.  They are perhaps the best way of channelling our excess wealth into the developing world.  Of course there are badly behaved multinationals, complicit in corruption and taking more than they give – but when they work well they are a better, more sustainable channel of help than any other.

Urbanisation; helping businesses; supporting the right sort of multinationals.  Apart from a tangential reference in dealing with corruption, none of this gets a look in in Poverty Over.  Not even education does.  Instead of ideas that would really help eradicate poverty, we get a ragbag of politically correct issues that suit the tastes of western do-gooders.  Christian Aid is not beginning to tackle the root causes of poverty.  Perhaps it shouldn’t try.  Good knows that just alleviating its symptoms needs doing.  That’s why I will continue to support them.


Archipelago: desolation observed

Some of you will know that the photo on this blog is from the Isles of Scilly – a view of the Western Rocks from the island of St Agnes, in fact.  Since the 1980s I have had a timeshare cottage on the island of Tresco, and go there every other year.  So when we heard about this film, Archipelago set as a timeshare holiday on Tresco, in the neighbouring, though larger, property to ours, we had to see it.  It’s a beautiful but intensely uncomfortable film.

The film is directed by Joanna Hogg, and is an acute observation of a family holiday with two 20-something siblings, Edward and Cynthia, and their mother Patricia, in November, in the shooting season.  It’s the holiday from hell as Cynthia poisons it with overwhelming negativity, which is not explained.  It’s an understated sort of film.  The camera is static; there’s no music, the dialogue is awkward and feels unscripted, there are many awkward silences, the light seems to be as is.  We watch the holiday fall apart in a sort of slow motion.

The film is utterly faithful to the place.  Ms Hogg takes no liberties with the location in the way that film-makers love to.  The sounds, birds, the helicopter, tractors and even the foghorn, all evoke Tresco.  The holiday proceeds exactly as a week’s timeshare does, right up to the housekeeping team turning up on the last day.  The only jarring note is that the birdsong seems a bit vigorous for November, and we get screaming swifts at one point, long after they would have migrated (and swifts don’t come to Scilly much, anyway).

The programme notes at the BFI refer to the English upper middle class’s inability to communicate.  That’s a bit hasty; the English upper middle class is everybody’s favourite object of derision.  There isn’t much communicating going on, but we don’t know why.  Maybe everything has already been said.  We don’t know why Cynthia is so bitter and fragile, but there must be a reason.  Edward is just as isolated, as nobody will support him, especially with his imminent venture as a volunteer in Africa.  He’s nice to Cynthia’s nasty, but equally uncomprehending of others – as poor Rose the cook finds to her cost.  Patricia is the easiest of the family to like, but is unable to bring her family together, with her absent husband, who was supposed to join them, adding to her frustration.

Film makers  love to play God.  Ms Hogg’s restraint is remarkable.  A beautifully crafted film is the result.


Is victim culture to blame for post combat stress disorder?

There’s a long and interesting article in today’s Independent, highlighting the remarkable finding that US soldiers are much more likely than British ones to suffer post traumatic stress disorder (PTSD) – by a massive 30% to 4%.  The article’s American author, Ethan Watters, suggests that the difference is cultural.  His analysis turns out to be more of a critique of US ways in ignorance of British ones – but the core idea, that mental illness can be driven by society’s attitudes is an interesting and disturbing one.  Disturbing because it suggests that the modern fashion for exploring victimhood is making suffering worse than it needs to be.

Mr Watters says that the original diagnosis of PTSD was developed by anti-war professionals in the Vietnam era, and motivated by the wish to show the harmfulness of violence and war.  Because people increasingly expected to suffer illness after experiencing trauma, like combat experience, they duly did.   PTSD was pretty much unknown before Vietnam (and it’s not the same as shell-shock and other manifestations of mental illness resulting from combat experience noted in earlier wars).  Of course there is not much evidence of PTSD in earlier wars because nobody was looking for it.  Also, I might add, survival rates are much higher these days.  Mr Watters then goes on to develop the idea that illness is exacerbated by the emptiness of modern culture, which deprives victims of moral support.

This is all very well as a narrative, and I think there is something in it.  But I don’t think this explains why so many fewer British veterans suffer PTSD.  Mr Watters suggests that the British are much more sceptical about PTSD , and have a stronger belief in natural resilience. That does not sound like the modern Britain that I know and love, where victim culture appears rampant and, I suspect, more politically accepted than in the US.  And besides, we are much less religious than Americans, so surely the desolation of modern culture should be much more prevalent? The difference between the two countries is much more likely to be around the way their respective armies work.  British veterans are more likely to suffer from alcohol abuse or depression, incidentally.

But the idea remains that a focus on victimhood and traumatization, which can verge on celebration sometimes, is very unhelpful.  We should celebrate resilience.  Most people have it within their own resources to recover from trauma, and many can be strengthened by it; we need to acknowledge this, rather than undermine the confidence of those do not, in fact, need outside support.


The anti academy movement is its own worst enemy

Yesterday, as a school governor, I attended a seminar on converting schools to academy status, organised by the London Borough of Lambeth.  The paradox of the education profession was clearly evident; however good they may be at teaching the nation’s young to be clear and rational, the profession’s members seem unable to promote a rational debate about the future of education.

Lambeth tried to put forward a balanced debate with four speakers broadly supportive of conversion in the right circumstances, four vehemently opposed and one complete fence-sitter.  Of the supportive speakers, one, Bill Watkin of the Specialist Schools & Academies Trust (SSAT) was a model of clarity, addressed his arguments to the audience (headteachers and chairs of governors), and was easily the most impressive speaker of the day.  The others included a head and deputy head who had taken their schools into academy status and somebody from the Cooperative School Society promoting a particular model of academy operation; their focus was quite narrow and presentation tended to be a bit plodding with too much PowerPoint.  All four managed to be pretty dispassionate, and none was evangelical for the academy model or government policy.  Each had different light to shed on the issue.

The “anti” speakers were awful; they seemed to be addressing the public or feeding the paranoia of staff, rather than trying to influence senior school management.  Two stood out, though neither stayed for the panel session.  One, Phil Beadle, makes regular appearances on TV and writes for the Guardian.  His arguments were as chaotic as his hair, and amounted to a rant about the way the academies he had worked in were run, mixed in with tribal anti-Tory paranoia.  The other was Alasdair Smith of the Anti Academies Alliance; his grey suit, purple lanyard, grey/white hair, general bonhomie and habit of laughing at other speakers,during their presentations, all put me in mind of an archetypal UKIP candidate.  His arguments were no more coherent than UKIP ones either: a general rabble rouse about how damaging academies would be to the overall education system, how all academies were run like grasping businesses, that it was a lonely world out there for academies, and nothing about how senior managers should weigh up the pros and cons.  The other two speakers, one a headteacher and one from the Campaign for State Education basically said the same thing, but were a little duller.  The arguments were polemical rather a serious review of the evidence, scattering numerous horror stories to support their arguments.  What Lambeth thought it was doing by inviting all four to speak is a bit mysterious.

A few important and interesting points did manage to emerge.  There isn’t much money in converting to academy status; for that you need an outside sponsor.  Since education departments are being cut back drastically (Lambeth is no exception, with the key decisions all being taken before last year’s election, not as a consequence of the Coalition’s cuts) the amount of support they can offer to LA schools is pretty minimal.  Most of the things that schools might want to do (including forming relationships with their neighbouring schools and local authorities) can be done under either model, which cuts both ways.  The best part of the process, one of the academy heads said, was that it forced the school to think about its vision and strategy, and how to carry it through.

But the standard of debate was pretty awful.  Most speakers complained that the government wasn’t offering a clear vision, but they had little or no vision to offer themselves.  The antis seem to want the outside world to go away, so that schools can bumble in their own comfortable little worlds as before.  There was no horror at the awfulness of so many schools, unless they happen to academies, of course.  And then there is the hate and anger.  Mr Beadle quoted extensively from former Conservative education secretary Ken Baker to prove that this was all an evil Tory conspiracy to destroy public services.  I am not so much horrified that he says this sort of thing, but that so many people seem to be listening.  I have seen something similar on local forums about our proposed new “free” school in Wandsworth: a complete inability of the leading anti-campaigners to listen, or to weigh up arguments and evidence – even if they are at least more polite and better tempered than some on the other side of the argument.

But leaders of schools need to do the best for their children and communities schools by working with government policy as they find it.  The academies decision is a delicate process of weighing up pros and cons, often with no killer argument on either side.   What is coming out of the anti academy movement is no help.  It is so tempting to think that if that is the best their opponents can do, academies must be a good idea.  The movement is its own worst enemy.


How would AV change UK politics?

In my post last week I explained why I am supporting the Alternative Vote (AV) in the forthcoming UK referendum.  This case was based on principle.  We have a system of single member constituencies.  First past the post (FPTP) carries a high risk of unrepresentative candidates being elected.  Of the various systems in use around the world to counter the weaknesses of FPTP (primary elections in the US, run-off elections in France, AV in Australia), AV seems to fit the British situation best.  I avoided asking what the impact of any change would be: just that the system is more democratic.  But there are pragmatic types out there for whom the likely impact of the changes is more important than first principles.  Today’s post is for them.  It will help show them why it is best to think about principles.

The trouble with most analysis of this in the UK is that it is based on looking at past FPTP results, supported by some opinion polls on second preferences, and then predicting how the outcome would have been with AV.  This runs into two problems.  First is that the next election is going to be quite unlike the last few, if for no other reason than that the current government is a coalition.  The next problem is that AV will change voting behaviours, and the campaign pitches of the political parties.  The usual conclusion is that the Lib Dems will benefit quite a bit, Labour marginally, and the Conservatives would lose out.  None of these effects would have been enough to change the outcome of elections except maybe the last one.  Extra seats for Lib Dems and Labour might have made the current coalition impossible, and even a Labour-Lib Dem one on the cards.  That’s enough for most Conservatives.  If we had had AV last time, Gordon Brown might still be PM.

The Lib Dems should benefit.  About time many will say – since the party is badly under-represented in parliament.  More pragmatic types worry that this would give a smaller party too much influence in the choice of coalition partners.  But the Lib Dems do face a problem.  In order to benefit their first preference votes need to get past either the Labour or Conservative candidates (in England – it’s more complicated in Scotland and Wales).  They might then attract second preference votes from whichever of these parties gets knocked out.  And yet the classic Lib Dem campaign technique is to persuade voters to vote for them because one or other of the major parties doesn’t stand a chance; this argument has much less resonance under AV.  Voters will say that they will simply give the Lib Dems a second preference, and give their first preference to their most preferred party.  As a result Conservative or Labour candidates currently in third place might sneak into second, knocking the Lib Dems out.  The Littleborough & Saddleworth seat at the last election was a Labour seat that people count as vulnerable to the Lib Dems under AV; but the Conservative vote was strong and under AV they might well have pushed past the Lib Dems into second place, which would, in fact, have made the seat safer for Labour.  This could be a big help to the Labour Party in the South West.  In Australia the two party system is entrenched (one of the “parties” being a coalition in an electoral pact).  The Lib Dems will be desperate for first preference votes under AV, and in the long term it cannot be taken for granted that the party would flourish.

Labour has less to fear.  It might help them pick up in areas where they are in third place – now great swathes of England.  They may not do so well from picking up second preferences from Lib Dem voters next time – but only because they will have done such a good job of persuading them to vote Labour as first preference.  They get some insurance against those voters drifting back.  It is a moment of truth for Labour supporters who believe that there is a “progressive majority” – a majority of voters for whom the Conservative Party is toxic.  If so the system ensures that the Conservatives never get a majority.

And that is the challenge for the Conservatives.  It will be much more difficult for them to sneak in a majority government against the votes of the a majority of the electorate.  But many Conservatives believe in something like a “silent majority” – the opposite of the progressive majority.  There are lot of people sympathetic to their policies that do not say so, and will not give them a first preference vote.  If so, they may pick up a lot of second preferences.  This could be particularly helpful to them at the next election, when both UKIP and the Lib Dems will be trying to pick off their voters.  If Labour succeeds in pulling past the Lib Dems in South Western seats, then this will make a few seats a bit safer for them, since they will get more second preferences from Lib Dem voters than Labour ones.

For the smaller parties AV is ambiguous.  It is difficult to see that extremist parties, like the BNP, will make any headway, since other voters will gang up against them.  Their best hope of an MP is under FPTP in a split seat.  But UKIP and the Greens may well think they can pick up a majority in favoured seats by scooping up enough second preference votes.  In the UKIP case they need to push past the Conservatives, either in what would now be very safe Conservative seats, or in Lib Dem held seats where they can hope to scoop up some Labour voters too.  For the Greens the game is to push past the Lib Dems, and scoop up enough of their votes to push past Labour (or the other way round), to mount a challenge on the Tories.  In both cases these are long shots, but you need a deal of optimism in politics.

In sum, the impact of AV is very uncertain in the UK.  The Lib Dems could assert themselves with a permanently larger block of seats, alongside a scattering of seats for the greens and perhaps UKIP.  Or the two party system could reassert itself, with the other parties finding it more difficult to pick up enough first preference votes.  But the outcome is uncertain for a good reason: electoral politics will be more competitive.  Who knows what voters would do?




Cuts: where will all the anger go?

Today the TUC is orchestrating a big demo in London against the cuts.  Yesterday the Labour party hosted a “People’s Policy Forum” on the cuts.  The focus of both events is anger.  The idea that the cuts are unnecessary is actively promoted; all that’s needed is for the rich to pay their due in taxes.  The Economist’s Bagehot gives an excellent description of Labour’s forum.  The anger is palpable, but where will it all lead?

The Guardian’s Polly Toynbee thinks this will be a turning point, leading to the complete rejection of government policy by the majority of British people.  After all, the cuts have hardly started to bite yet.  An alternative view is that the anger will transmute into depression, in the classic pattern of grief.  And from the depression will come a new consensus about the role of the state in our society.

I am reminded of a change management course I went to as a manager.  I was taught that any serious change initiative had to go through four phases: denial (a muted initial reaction as people think the change applies to somebody else), anger (the moment when indivuals realise that the change really does affect them), chaos (the dysfunctional early phases of change) and finally renewal (you finally start to make headway).  It is a mistake to think you can jump straight into the renewal stage.  Anger is a good sign, because it means you have got beyond denial; and, indeed, it may even help to provoke it a bit (though be careful, as this may prolong the chaos phase).  The art of change management is to get through denial quickly, and manage the anger and chaos phases as well as you can.  Having to put through a number of change programmes myself, I found this advice very helpful.  I would add that it is usually a good idea to take the time let the anger burn out before attempting anything complicated; that way the chaos phase is shorter and less damaging.  The fact that the anger is burning bright now is not an unhelpful sign for the government.

The problem for the cuts-deniers is that there is no way out.  Taxes on the rich have already been jacked up to beyond the point of sustainability (the 50p tax rate, capital gains tax, reforming pension taxes, the banks tax).  It is absurd to think that we can pull in much more from clamping down on tax evasion; if it was that easy, Gordon Brown would have done it ages ago.  Jacking up corporation tax will do nothing for jobs.  The Keynesian argument may bring in Nobel prizewinners, but it doesn’t offer much comfort either.  This runs that if the impact of the cuts is slowed down, the level of unemployment in the transitional period will be less, and this in turn will be less wasteful to the economy as a whole.  The same cuts have to be made, only more slowly.  Unless a private sector renaissance comes to the rescue, in which case extra taxes come in, which will stop the need for some of the cuts.  That seems completely infeasible.  It is a wonderful irony that those fighting the cuts are largely anti-capitalist, and yet only capitalism can save them.  The fact is that either the “squeezed middle” gets squeezed even harder for more taxes, or the public sector has to suffer some fairly drastic cuts.

And here’s the political problem for Labour.  To turf out the government they need the squeezed middle and the outraged public sector workers to gang up – but their interests are opposed.  Nothing will stop the cuts.  Not even a shock Labour victory in an unscheduled election later this year.  The anger has to turn to depression.

And it is not a given that this will rebound on the two governing parties.  For most voters, the world won’t end.  Labour’s credibility problem will be cruelly exposed in any election campaign.  If they want to restore the cuts, they will have to answer who is paying?  If they don’t, they will be saying that the coalition was right all along.  If the economy flags, as it well might, and the government doesn’t manage to cut the deficit as much as it plans, Labour’s dilemma will be all the more acute.  They might be able to say “told you so”, but they won’t be able to restore the cuts.

Labour are trying to recreate the anger of the 1980s against Margaret Thatcher’s government.  But this government is nothing like so reckless.  Unemployment is still much lower – there no swathes of closed factories and coal mines.  And Mrs Thatcher won.