Why Labour are losing the election in 2015

According to press chatter, there is mounting worry amongst those that surround Ed Miliband, the leader of Britain’s Labour Party. I don’t know anybody in this elite circle, and I can’t offer an opinion on whether this is true. What I can say is that it should be. After ducking hard choices when the going was good, he is now in real trouble.

The immediate cause of the Labour wobble, if that is what it was, was the poll bounce for the Conservatives after the recent Budget by the Chancellor, George Osborne. The previously secure Labour lead simply vanished. This poll bounce disappeared as quickly as it came. Clever charts showing that it was part of a longer-term trend look premature. But it did show that Labour support is not solid, and that the Tories are not quite as terminally unpopular as many suggested.

But what really convinces me that Labour are in deep trouble is this exclusive piece in yesterday’s Independent, highlighting an article Mr Miliband had written for the paper. Here’s the first paragraph:

Ed Miliband has promised to rescue Britain’s struggling middle classes by boosting their living standards as he warns that the “cost-of-living crisis” will last for at least another five years.

This seems to be part of a bid by Mr Miliband to rebuild his electoral standing; today he is launching a policy about devolving more power to “super-City” regions, building on a policy developed by the Liberal Democrat leader Nick Clegg, as he will not say.

This political drive builds on two themes that Mr Miliband has been developing. The first is “the squeezed middle” – a deliberately vague reference to people who feel they are neither favoured by government handouts, nor part of the rich elite. It is interesting that this seems to have migrated to “the struggling middle classes”, when it might just as easily refer to working classes (if you get beyond the bureaucrats’ tendency to use the term “working class” to refer to people who are not working, and entitled to state support, as an alternative to the word “poor”). The second idea is “the cost of living crisis”, referring to the fact that for most people incomes have not increased as fast as prices over the course of the last government.

No doubt Labour’s polling shows that these ideas cover a large swathe of generally unhappy people, who might therefore be sceptical of the government’s record. The problem is how to appeal to them. Almost by definition, these people are out of the scope of state benefits. In fact they tend to resent the size of the state benefits bill, apart from the old age pension, whose cost they tend to underestimate. They are not employees of the state, a separate and distinct constituency, even if they share some of the same problems). So how to address their standard of living? There are two ways: tax cuts and a stronger private sector economy. On both counts Labour’s credibility is behind that of the Coalition.

The best sort of tax cut to reach the squeezed middle is a cut to personal allowances, i.e. the point at which people start to pay tax (including its National Insurance equivalent, something all parties seem happy to ignore). But the Coalition has already been increasing this quite aggressively, mainly at the expense of higher rate tax payers, some of whom are now claiming to be part of the squeezed middle too. Worse, it is one of the few policies that is closely identified by the public with the Liberal Democrat part of the coalition, which Labour is extremely keen to denigrate – they have picked up a lot of ex Lib Dem voters. They have floated the idea of a 10% tax band, which is just a less efficient way of delivering the same policy – and has uncomfortable echoes with one of the last Labour government’s policy mistakes.

There is an even bigger problem with taxes. Labour has to convince voters that it will not put taxes up to pay for an expanded state. That means signing up to a series of things, like a cap on benefits expenditure, that will be unpopular with core Labour voters, and not even particularly sensible from the point of view of economic management.

But tax cuts are a fairly minor palliative. What would really cheer voters up is the prospect of incomes rising in the private sector. The trouble is that Labour has done nothing to dispel its reputation for being anti-business. Quite the opposite. Mr Miliband’s view is that there are good businesses (“producers”) and bad ones (“predators”). Wages are being squeezed by the predators to benefit their top managers and shareholders. So his anti-business policies are directed at these predators (banks and energy companies to the fore), while helping the producers. This argument is not entirely without merit, but it is a tough sell. And in practice it is pretty much impossible to create policies that discriminate successfully between the two classes of business, and all those that inhabit the grey zones in between. The result is that Labour’s policies designed to address this problem, such as the devolution to the cities, don’t look as if they will deliver much of a boost to wages in the short term – even if they are perfectly sensible. And sensible policies are liable to get matched or pinched by the coalition parties anyway.

The Conservative counterattack to Labour will point to the fragility of the current economic recovery, and say “Don’t put all this at risk”. Of course one thing that could put the fragile recovery at risk is the Conservative plan for a referendum on the EU. But does Labour want to go out with all guns blazing on that issue? Perhaps I underestimate Mr Miliband, and that is his plan. But so far he is happy for Mr Clegg to take the lead on the issue. In fact you could not  inaccurately describe Labour’s emerging strategy as “I agree with Nick”. A liberal, centre-ground stance that wants more devolution from Westminster, but with a strong attachment to the EU.

So Labour is embarking on an impossible task to convince the electorate that it can out-do the coalition parties at their own policies. This won’t work. But what it will do is to de-motivate their core constituencies of public sector workers and the squeezed bottom, as I might call the voters suffering from benefits cuts.

The trouble is that Labour hoped to get the best of both worlds after Mr Miliband was elected. That they could adopt a “Blair-lite” strategy that allowed an appeal to the centre ground, while at the same time harnessing the wave of anger from their core voters at the government’s austerity policies, which, incidentally, allowed them to harvest a lot of Lib Dem voters. But Blair-lite lacked credibility as soon as the economy started to revive. There was a choice to be made for either Blair II, an unashamed dash for the middle ground, including an apology for the record of the last government’s economic policies (though that would have been too much for Mr Blair himself). Or they could have gone for unashamed social democracy, making a case for higher taxes, a bigger state, and less aggression on cutting the deficit (isn’t going for a balanced budget just willy-waving after all?).  The first of these two choices might well have destroyed the party, given the depth of anger over “The Cuts” – but the second choice was never properly debated or confronted. It would have been perfectly respectable and courageous – even if expanding the state back to the size it was in 2008, or even 2010, would have taken a very long time.

The Conservative General Election campaign has not got started yet. They will allow Ukip their moment of glory in this year’s Euro elections, then quietly mug their voters by stoking up fears of Labour. Labour’s credibility will fall apart, and they will have increasing trouble fending off Tory attacks and keeping their core supporters loyal.

If I was advising Ed Miliband, I would be worried.

 

 

French lessons for British social democrats

Opposition has brought a certain coherence to the British left. There is nothing like a hate-figure being in power to bring about a sense of unity. And the idea that runs through the left’s thinking on the state is social democracy. But last weekend’s electoral disaster for the French Socialists, and the rise of Marine Le Pen’s National Front should give them pause. The left is becoming is becoming disenfranchised from the working class.

What do I mean by social democracy? It is the coming together of several elements. The first is the conventional understanding of western democracy and the rule of law – in contrast to a more radical revolutionary style. The second is a grudging acceptance that the private sector is the primary motor of the economy – but heavily managed to prevent its excesses damaging society, including strong protection for employees’ job security. Next is strong, national government, setting standards that apply across the whole country, rather than the chaotic and inconsistent approaches that come from bottom-up policy. Then there is a faith in large public services, covering health, education, railways and much more.  A strong social, state-funded safety net is added to it. And it is all funded by high levels of taxation, with a strong progressive element.

In Britain I have noticed that a historical narrative has built up around this idea. Social democracy’s breakthrough moment was the Labour government of 1945 (after the perceived success of the country’s state directed war effort). Something like a consensus built up around it, as economic growth allowed the scope the social democratic system to be extended. Then disaster struck in 1979, when a new breed of politicians, the “Neoliberals” were allowed to take over. Mrs Thatcher’s government started to dismantle the social democratic apparatus. Tony Blair’s Labour government wasn’t much better. But at least Mr Blair’s public sector “reforms” were balanced by Gordon Brown’s creeping extension of the scope of public services. In 2010 the Tory-led coalition of Tories and the neoliberal wing of the Liberal Democrats has continued the dismantling process. But the neoliberal ideology is a demonstrable failure – leading to the financial crisis and escalating inequality. The new Labour leadership, under Ed Miliband, has shown interest in reviving the old social democratic system, but it is being urged to be more radical. Social democrats within the Lib Dems hope that the party’s current leadership will be up-ended and the party will never again be associated with Tory government.

My aim here is not to challenge this flawed narrative, though I choke when I’m told that privatised industries like energy, telecoms, water and even the railways all better run when under public ownership. I want to draw parallels between this social democratic vision of society and France. For surely the country where these ideas have been carried through most thoroughly is France. Of course the Left would rather talk about the Scandinavian countries, Denmark and Sweden especially. But these are small, homogenous countries which do not make good parallels – and never mind the often rose-tinted spectacles.

But France is a big, diverse country like Britain. It’s anti-capitalist attitudes are deeply embedded. It combines a very efficient private sector with a strong central government run by a very well-educated and brainy elite. More than half the national income is paid in tax. And in 2012 the Socialists were swept back into power in a landslide. But now the economy is sliding and the Socialists are deeply unpopular. The working classes are defecting en-masse to the anti-establishment, anti-immigrant, anti EU National Front. What are the lessons?

But first a word of caution. It is commonplace for Anglo-Saxon commentators to write the French economy off as a basket case. It is not. Slow growth is probably an affliction that all developed economies will have to deal with. It was no accident that France weathered the 2007/09 crisis better than most developed economies – and just how secure is the new growth in Britain and the USA? Still, it has some big problems.

There are important lessons for the left in both strategy and tactics. Strategically the toughest lesson is than not all neoliberal inspired ideas are rubbish. The world economy is changing, thanks to trade and, above all, to technology. National economies must adapt to this. Developed economies are already highly dependant on global trading – shutting it off would mean a step backwards and reduced living standards. Accepting it means that industry has to reshape, causing job losses in obsolete industries. The neoliberal approach of letting market forces shape the change, by allowing struggling business to go bust and not getting in the way of new industries to take their place, is the quickest and cleanest way of adapting to this change. Fighting it means declining tax revenues, which means putting pressure on the public services and the social safety net. By pretending that there is an alternative to the globalised market economy, all the left does is build up false expectations about what can be achieved. That is the first cause of the Socialist failure in France. Too many on the British left don’t understand this basic, strategic problem.

The tactics are just as important. In France the Socialists have become part of a distant elite, remote from struggling working-class communities. They are full of clever intellectual answers, but they don’t feel the pain. Hence the appeal of the National Front. The British left too is too attached to its own intellectual sphere, sustained by Westminster think-tanks, and various left-wing publications – as well as intellectual cells in universities and (to a lesser extent) insulated public services like schools and hospitals. Strategy is set by using opinion polls and focus groups, not by politicians in the hard grind of finding solutions for hard-pressed local communities.

There is a tactical blind alley here. The focus group approach is telling politicians to respond to working class (and much middle class) anger by taking a tougher line on immigration, the EU and so on. To be fair on the left, they are resisting this temptation. But it isn’t just the pollsters and focus groups that are pulling politicians in that direction: any politician who spends serious time with the public understands that the pollsters aren’t making this up. The problem is that pandering to this anger also leads to false expectations; for very good reasons the politicians can’t deliver, and if they did the public would not like the result.

How to win back working-class communities while staying true to liberal instincts? Well you won’t find the answer in grand reforms and new laws promulgated in London or Paris. It isn’t about crafting the right sort of attack material to wound the right. It is about politicians winning trust by getting out into their local communities, meeting people and facilitating solutions that people can see. The choice of the word “facilitating” is important. It is about helping people to help themselves, not creating new government schemes (though these have a place). It is about mediating between different interest groups, not stoking up fights. People are much more realistic than many give them credit for. They appreciate honest facilitators and mediators more than people who just stoke up anger. But they are suspicious of elites that would rather talk to focus groups than their local electors, or who want to make their name with some new national reform – rather than helping to sort out a local housing estate, or bring together local ethnic groups.

It’s a hard road, but it is one the left must embrace if they are to avoid the fate of the Socialists in France.

 

Labour are in serious trouble

Not long ago Labour supporters seemed very confident. Their lead in the polls pointed to a comfortable majority; the electoral system was loaded against the Conservatives; they (in their own minds) had won the argument on austerity. It was a good moment to move to the political left and drop the Blairite obsession with the political centre. But now Labour’s poll ratings are sinking, and the Tories catching up.  The 2015 election increasingly looks like a stalemate or worse for Labour. What can they do?

And it is not difficult to see the source of Labour’s problems: Britain’s reviving economy, and rapidly falling unemployment. This is not running to the Labour script – which was that austerity policies doomed the British economy to stagnation and misery. It used to be that Labour’s Shadow Chancellor, Ed Balls, sounded easily the most economically literate of the front-bench spokesman of either side (challenged only by the Lib Dem Business Secretary, Vince Cable). Now he sounds panicky and flustered. His arguments, that the recovery is shallow because it is based on consumption rather investment and exports, is technically correct but irrelevant. Labour’s alternative policies of fiscal stimulus were promoting an equally shallow recovery. Labour has no serious ideas on how to promote investment and exports. Meanwhile, the rising economy is giving government spokesmen more confidence: Lib Dem Treasury Secretary Danny Alexander sounded more in control of the economic arguments than he has ever been on the radio this week, managing to pick apart arguments presented by the FT’s Martin Wolf. The Tory Chancellor George Osborne, always more interested in politics than economics, is not wasting any opportunity to skewer Labour using much less sophisticated arguments.

Labour started their damage limitation strategy last Autumn by their leader, Ed Miliband: to try and change the subject. First there was the “cost of living crisis”, focusing on the failure of pay to keep up with prices. Now it is the top rate of tax, where they want to restore the 50% rate rashly reduced to 45% by the Coalition in 2012. Labour’s policy is popular, and the criticism coming in from business groups is unconvincing. These lobbyists say that reducing taxes, especially on the better off, is what is need to awaken dormant business investment. And the government has duly cut taxes (that top rate, and also the rate of company tax) without investment budging. The trouble is that Labour’s policies sound unfriendly to businesses, and therefore likely to stall growth and cause general taxes to rise.

It gets worse for Labour. The energy that drives their activists comes from opposition to austerity: fighting cuts which are seen as mean-minded and ideological. The theory was that the fighting the huge government deficit should be left until later, when the economy was growing. That “later” has now arrived. So how will Labour cut the deficit? Being specific about this, as they will have to be by 2015, will cause huge angst and disillusionment amongst their core supporters.

And in any case Britain’s electoral system is not so weighted in favour of Labour as some supposed. There is a pro-Labour bias in the distribution of seats it is true, but there is also a pronounced benefit to incumbency. When it comes to asking which seats the party will have to capture to win an outright majority it looks hard going. Battersea, the seat where I live, is a case in point. The Conservatives took it off Labour in 2010, but it looks very difficult for them to win back. In the last 3 years I have heard nothing from Labour, but regularly from the Tories; residents aren’t being given the impression that Labour are in contention. The hard fact is that modern politics, with fewer volunteer workers and high postal costs, is an expensive business. Labour surely do not have the money to capture enough marginal through trench warfare tactics in the marginals. They need a national landslide effect, such as they achieved in 1997 under the hated Tony Blair.

So what to do? A change in leadership is out of the question, especially as the most popular alternative, David Miliband, Ed’s brother, is out of contention. A ruthless reshuffle of the front bench might help, but only if it went alongside a wider change of strategy. I think promising more money for the NHS, struggling to keep up with demand, would play to their strengths. But they would have to have credible tax policies to back it up. Taxing just the very rich won’t quite cut it. But taxing a wider body of people would totally undermine their rhetoric on the cost of living. They have dug themselves into a real hole.

Their best bet may just be to keep calm and hope the Tories self-destruct. They show every sign of wanting to do so over the toxic issues of Europe and immigration. Labour’s best chance of benefiting from this tendency to suicide is to appear moderate and centrist. Not a good moment to lurch to the left.

And what of the Liberal Democrats? About half their voters at the 2010 election deserted them for Labour. The polls that show Labour sinking do not show any real benefit for the Lib Dems. But if the contradictions of Labour’s criticism become exposed in the next year or so, then they may get their opportunity. The centre ground, though treated with justifiable suspicion by many of their activists, is a sound place for them to stick to for now.

Labour can win in 2015. A disaster beckons in 2020.

Is it just me, or can I see a certain spring in the step of Britain’s national politicians? Ever since the party conference season last September they have been focusing on one thing above all: winning the General Election due in May 2015. The perplexing state of the country is now simply a source of ammunition to batter the other side. Actually solving the problems can be left until afterwards. What a relief!

The Labour leader, Ed Miliband, is having the better of it, if the relentlessly superficial media chatter is to be believed. This is quite a turnaround, since the same chatterers had him as toast as late as August. He has abandoned his party’s “too far, too fast” criticism of the government’s austerity policies, which helped rally the faithful (and rattle Lib Dem activists) but cut little ice with the country at large. The recovery of the country’s economic statistics has not invalidated their argument, but it has made it far too complex a proposition to argue, especially since their rhetoric had placed far too much reliance on these “flatlining” statistics in the first place. Instead they are focusing on living standards, and things, like fuel bills, which affect them.

From a campaigning perspective, this change of tack is astute on at least two counts. First, it appeals to direct personal experience, rather than the ephemeral world of economic statistics, to which the country’s GDP growth statistics belong. Second, it is such an intractable problem that the government is unlikely to be able to neutralise it. All that remains is to find some eye-catching policies to embarrass the government and keep the political debate on their ground. The centrepiece of this is the pledge to freeze energy prices for two years if Labour takes power, while they put in place a longer term fix to limit the damage inflicted by the greedy energy businesses they blame for the problem. A second push has been to enforce a “living wage” significantly higher than the legal minimum wage, through government procurement, and a tax break for employers who raise their wages.

In this line of attack Mr Miliband is the first of our national politicians to make political capital out of one of the most important developments in the British economy, along with many other developed economies, notably America’s. For the majority of people, wages are not keeping up with growth in the wider economy. In Britain this trend was clearly established, I read in this piece by Chris Giles in the FT, 2003/04; since 2010 (i.e. when the current government took over) wages have not even kept up with average prices. The benefits of growth are going to mainly to a privileged elite, while government interventions tend to be focused on the other end of the spectrum: the very poor. While the main economic issue is slow growth of pay, the main flashpoints are in taxes (especially for things like fuel) and energy costs.

There is, however, a snag. How on earth to actually fix it? This does not seem to bother Mr Miliband too much. His policy proposals are at best ineffectual, and at worst will actually make things worse. In the field of energy Britain is being overtaken by a crisis, as old nuclear and coal-fired power stations are shut down, and replaced by renewable energy sources that place wholly different strains on infrastructure. What the country badly needs is investment, in new capacity, and, especially, in distribution infrastructure (e.g. moves towards a “smart grid”). Just how Labour’s attack on the energy companies is going to solve this problem is, to say the least, unclear. And, if some of what I read is true, the pressure will break out into real problems in two or three years time. Labour’s living wage policies are no better thought through. Using government procurement to do heavy lifting in this area, along with many others, risks weighing it down with compliance costs – a process that tends to push out smaller businesses, as well as inviting scandal and fraud. The tax break looks totally unsustainable and an invitation to unscrupulous companies to manipulate the system.

The Conservatives are planning their counterattack. There is growing talk of 1992 (which this blog has long been banging on about), when a well-funded late campaign destroyed what had seemed to be an inevitable Labour victory. They will focus, probably, on frightening voters about the economy and taxes; their newspaper allies will concentrate on personal attacks on Mr Miliband to undermine his credibility as a prime minister. The Lib Dems are crafting a “centre ground” campaign, no doubt hoping to benefit from the damage the big parties will do to each other.

I have urged my readers not to underestimate the Conservatives. That advice still applies. But my current instinct is the Labour will weather the storm enough to form a minority government. That is when Mr Miliband’s problems will start. The country will face electricity shortages; clever schemes to enforce the living wage will unravel; living standards for the majority will stay under pressure; Labour activists and trade unionists will be on the government’s case to raise benefits and expenditure. The calamity that has struck Nick Clegg and the Lib Dems will visit Labour, for very similar reasons. I understand Labour’s strategy for winning in 2015; how on earth are they going to win in 2020?

One cheer for Ed Miliband

The focus of British politics is now clear. The prospects of the different parties at the General Election due in May 2015 dominates everything. No doubt it is with relief that the political elite and their coterie of journalists and commentators focus on this question, rather than the much more difficult one of how to make this country a better place for its citizens. The defining event of this year’s conference season so far has been Labour leader Ed Miliband’s speech. For good or ill, he seems to have set the political agenda. But does this tell us anything about whether Labour really would do a good job of running the country?

To read the commentaries, Mr Miliband has made a decisive shift to the left. He did this by focusing his ire on big business, and threatening them with government action. There were two signature policies. One was forcing energy companies to freeze their prices while the government reconfigured the regulatory regime to squeeze them more permanently. The second was forcing private sector developers to “use or lose” their land banks to build houses. All this in an attempt to reverse the decline in living standards that the bulk of the population has suffered since the economic downturn started in 2008.

Commentators of the right and centre, such as the Economist’s Bagehot column, interpret this as Labour vacating the decisive “centre ground” of politics, where elections are won and lost. This is the ground which the Liberal Democrats’ Nick Clegg is trying to push his party into, in spite of grumbles by older activists. The Conservatives’ David Cameron is likely to stake his claim there too, and ignore the voices of his party urging him to adopt right wing populism to fend off the threat from Ukip. They will attack Labour’s policies as unworkable, and part of a failed socialist outlook. Mr Cameron will offer tax cuts as a surer route to improving living standards; Mr Clegg will offer tax cuts too, though rather narrower ones, and something about tackling barriers to social mobility (affordable child care, better schools, etc.).

Commentators of the left, like the Guardian’s Jonathan Freedland, do not deny Mr Miliband’s leftward lurch and seem quite content. His new policies are popular with the public, and have lifted Labour’s poll ratings; there may be many more populist left wing policies, bashing bankers and big business that will go down well electorally. With a large chunk of the previous Lib Dem vote going to Labour, and the Conservatives struggling with Ukip, the next election is Labour’s to lose.

But rather than evaluate these calculations at face value, let’s pause and step back for a minute. All this looks like the narcissism of small differences. All three parties remain firmly embedded in much same policy space. Mr Miliband would have made a decisive step to the left if he had outlined a policy of increased public spending, funded by extra taxes. In this way he might be able to halt and even reverse the relentless squeeze on benefits and public services. But he has decided not to; instead his party will have to make something in the region of £26 billion of cuts in the next parliament (a number I have culled from this perceptive article by the Resolution Foundation’s Gavin Kelly in the paywalled FT). He has said nothing about where these cuts, or increased taxes, will fall. The Conservatives would be making a radical shift to the right if they were proposing to make deeper cuts to the state, which they can only do if they cut the NHS (or rather make the public pay for more of its services) and old age pensions. There is no sign of that.

And there is something else. None of the parties is embracing more than gradual or token decentralisation of power from Westminster. Instead they argue over this, that or the other centralised tax, subsidy or regulatory regime. This can be seen in the season’s signature policy ideas. Mr Clegg has announced free school meals for English school infants; all of them, everywhere, because it looks like a clever idea based on a couple of pilot schemes. Mr Miliband wants to bash energy companies through central regulation: but how does this help solve the country’s slow path to reducing carbon emissions? And what on earth is the point of the Conservatives’ tax break for married couples?

But Mr Miliband deserves credit for one thing. He, alone amongst the three party leaders that I can see, has pointed out one of the two central challenges of the British political economy. That is that the benefits of economic growth are bypassing most people. This is nothing new, but economic stagnation is making it hard to gloss over. It arises primarily from technological change, and its effect on manufacturing industry and office work, helped along by the rise of globalisation. The problem isn’t that our tax and benefit system is failing to redistribute wealth, it is that increasingly wages are too low in the first place.

But there Mr Miliband’s insight seems to end. He seems content to blame big “predator” corporations, and offer the hope that better regulation will help. He didn’t even mention the second great challenge, which is that real terms funding for public services and benefits will fall rather than rise in the years ahead. He offers palliatives rather than solutions. Britain’s right and centre are no better.

What is the solution? In my view there are three interrelated elements. Improve the education system so that skills better balance where the jobs are in future. Redesign public services and benefits so that they can be tailored to individual and community needs. Strengthen local networks to counterbalance the effect of the rise of centralised, winner takes all networks. These three require a radical decentralisation of power. How long will it take before our political classes start to realise this?

The unbearable lightness of British politics

The economic crisis in the developed world drags on, posing fundamental political and economic questions. And yet politicians here in Britain argue about not very much. The Labour leader, Ed Miliband, is currently attracting a lot of criticism for his lack of progress. But the real problem is that the political left has run out of ideas, while the Right complacently defends the status quo. This state of affairs will continue until we learn to look at our problems in a radically different way.

Nobody should doubt that capitalism is still in crisis. We have been cheered in Britain by some better economic statistics. But average wages remain stagnant, and are not keeping up with inflation. Some people are successfully adjusting to a reduced standard of living; others are running down savings or borrowing money. Private and public investment remains weak, and any benefits of a slightly stronger economy mainly accrue to a small minority of the better off, or to anybody that owns land and buildings, along with a trickle of unemployed people who are now finding rather poor quality work. Other developed economies, from the US to Europe to Japan seem locked into variations of the same dilemma: either the economy is stagnant, or it grows to the benefit of only a few people.

It is not difficult to see what the underlying problem is. Globalisation and the advance of technology are killing off industries that used to be the backbone of developed world employment, destroying lots of middle income jobs. We hear a lot about manufacturing industry, but the same dynamic applies to office jobs. There is not the same need for secretaries and administrators, with jobs tending to be either highly skilled (managers, technicians and so on) or else in soulless call centres; and some of those call centre jobs are being automated out of existence. There is a desperate hunt for the better paid careers, and many people have to settle for poorer quality jobs. In Marxist terms, the balance of power has shifted decisively towards capital and against labour. The process started as far back as the 1980s, with only temporary relief provided by the generosity of the Chinese who sold the developed world lots goods for less than they were really worth. Changing demographics adds to the difficulties of managing this problem.

Meanwhile a growing elite of capitalists and professionals are doing very well, but are under spending their incomes. More is being saved than invested, creating downward pressure on the economy as a whole. This is more or less how Marx predicted the end of capitalism. So if the traditional left-wing critique of capitalism is proving better grounded than many thought, why isn’t the Left benefiting?

The answer is that the Left have no convincing alternative to the capitalist model which does not destroy living standards. Marx could believe that common ownership of the means of production would do the trick, but we now understand that this is killing the goose that lays the golden egg. The turning point for China economically was its recognition that it needed a rampant capitalist economy to drive it forward, even if they also see the virtues of a massive state sector coexisting with it. Modern people love the benefits of capitalism, and in particular its constantly advancing technology, and constantly changing fashion – even as they struggle with capitalism’s consequences.

So what to do? There are still many on the Left, especially trade unionists, who think that the answer lies in a big public sector. This can be constructed to provide lots of well paid middle ranking jobs and, it is hoped, put market pressure on the private sector to treat their workers better. This strategy may be called “Sweden in the 1960s”, since that was when and where it worked best. But most appreciate that it is unviable. Sweden’s economy collapsed into a nasty mess after the 1960s. The state sector has no incentive to be efficient, and drags everybody’s standard of living down with it. It creates unbearable pressure on the private sector as they try to compete in world markets.  Constant devaluation of the currency might provide some relief, but in the end this leads to hyperinflation and total seizure (think of various South American economies over the years). In Britain the state sector is too large for the current tax burden, so to sustain it requires putting up taxes. This does not look a realistic political prospect.

So what’s left for the Left? Mr Miliband shows a good grasp of the basic problem but has found only lightweight solutions, such as putting moral pressure on big business to behave a bit better. And without any big ideas we end up arguing about not very much. Is the government’s austerity policy slightly too severe? Should we add a little bit of regulation to this or that industry? Or else do we just moan about various symptoms of the malaise, from immigration to the misery inflected on many who rely on state benefits, without offering any constructive alternative?

It’s much easier for the Right at one level. Their sponsors are doing quite well, so they can try to create smokescreens to pretend the problem doesn’t really exist. Some go further to try and suggest that we should place even less restrictions on the capitalist economy – though that line of argument is as discredited as Sweden in the 1960s. But ultimately they will have to confront the same problem: the economy doesn’t work well enough for most of the people most of the time.

And what is the answer to the problems of capitalism? Clearly this isn’t easy. I think we have start looking at our situation in a completely different way. We are stuck on grand policies that can be implemented by governments in London, accruing lots of prestige to national politicians. But this is just sucking power into an elite based in the country’s southeast. Is it an accident that Scotland is now doing relatively better as real power was devolved to Edinburgh? We cannot continue to destroy local networks and hope that people will be better off as a result. This is completely beyond the grasp of our political elite, left or right. But until politicians start to understand that they are part of the problem, not its solution, we are condemned to an unbearable lightness in our political debate.

Labour will subscribe to Tory cuts: the battle for the next General Election warms up

Nobody should underestimate the Labour leadership’s will to win the next British General Election, which should be in May 2015. I have been away for a couple of weeks. Before I left I was wondering what Labour’s response would be to the current government’s public spending review for 2015/2016, which will be announced later this week. It has been clear and unequivocal: they will sign up to the deep cuts in public spending that this review is designed to produce. This is breath-taking. What does it mean for British politics?

The spending review looked like a trap being set by the Conservative and Liberal Democrat coalition for Labour. Ambitious targets for savings were set: but Labour would be left with an awkward choice. Up until now Labour has been quite happy to ride the anti-cuts anger. Public sector workers, and many people relying on benefits, and others in the general ecosystem which they inhabit, are livid. Many workers with young families and mortgages are losing their jobs and facing steep cuts in pay. This anger has been fuelled by a myth: that cutbacks in public expenditure were unnecessary and motivated by Tory ideology, with the treacherous Lib Dems meekly giving in so that they can play with the toys that being in government gives them. This myth seemed to be supported by a whole army of economists saying that the pace of the governments austerity policies was undermining growth and making things worse. The Labour leader Ed Miliband and the Shadow Chancellor Ed Balls did not quite subscribe to this view if you read their words carefully. But they dog-whistled full support. Every cut was opposed angrily; they used the slogan “too far, too fast”, and mercilessly criticised the government for the negligible rate of growth in the economy, which they put down to its austerity policies. There was a studied vagueness about what they would actually do themselves.

But the 2015/16 expenditure review presented a challenge. According to the anti-cuts movement, the best thing would be to reject it out of hand, promise to reverse the cuts in large measure, so as to stimulate the economy and set off a virtuous circle of growth that would restore government finances and get the economy back to where it was in 2008, before the bankers’ sabotage act and global crisis got started. But if Labour did this, or even if they continued with the ducking and weaving, they would be open to a counterattack: Labour will put up your taxes. And the signs are that most people do not accept the anti-cuts narrative, and are hard-pressed financially – so not in generous mood when it comes to tax rises. No doubt the memory of 1992 haunts Labour’s leaders, when Labour lost a very winnable election after the Tories attacked them in the last week with a campaign based on “Labour’s tax bombshell” by hyping up the vaguenesses in Labour’s plans. But signing up to the coalition’s cuts would be hard too. It makes the manufactured anger about their impact difficult to sustain. Many of their supporters will feel betrayed.

But sign up to the coalition’s plans, with a bit of trimming here and there, is exactly what Labour have done. First in a speech by Mr Balls, and then this weekend by Mr Miliband himself. The message in the media has been very clear. I don’t know how it is going down in Labour’s activist base. Polly Toynbee, who often rallies to the anti-cuts cause, seems be showing resigned acceptance, while hoping than the party will come up with other ideas that will motivate the left. It isn’t exactly a U-turn. The narrative is that the economy, after the coalition’s poor management, is now so weak it cannot support more spending. This is weak fare indeed, and only shows that Labour had in reality accepted the bulk of the coalition’s austerity plans, subject to really very minor variations (like a temporary VAT cut).

The political calculation is clear. The angry brigade have nowhere else to go than Labour. Lib Dems may feel vindicated by Labour’s stance, but their previous public sector supporters will still not forgive them, except maybe in hard-fought marginal seats where they are up against the Tories. Britain’s two party electoral system means that elections are won by wooing floating voters. And these seem convinced by the case for austerity, even if, like Ms Toynbee, you blame this on the relentless right-wing press and the TV coverage that tamely follows in its wake.

The battle ground for the 2015 election is getting clearer. It won’t be about whether there should be cuts, but on where they should fall. For somebody like this blogger who accepts the basic logic of austerity economics in the UK, that should take the political debate into interesting and constructive territory. But others will feel disenfranchised and betrayed. Things are warming up.

How is Labour’s economic stimulus meant to work?

ON Monday at lunchtime Labour’s leader Ed Miliband was subjected to a fierce interview by Martha Kearney on the BBC Radio 4’s World at One. The main subject of contention was Labour’s economic policy, and in particular whether the party’s plan for a temporary cut in Value Added Tax would increase government borrowing. Mr Miliband did not want to say this, only that, because it would stimulate growth, it would help bring down government debt in the medium term. This was not an assured performance by Mr Miliband, but beyond that it seemed to me, perhaps unfairly, that he only had a superficial grasp of the economics involved. If so, he shares this superficial understanding with many members of his party, who lap up quotes from economic commentators such as Paul Krugman, and marry it to half-digested economic theory. So how is it meant to work? How can a temporary tax cut reduce government debt?

Let’s start with the Keynesian multiplier, which is widely taught in basic economics, and which I suspect comes to mind to most people here. You really have to do a bit of maths to understand the implications. Suppose you have an economy with a national income of £100bn a year, and an average tax take of 40%. You decide on a 1% stimulus with a temporary tax cut of £1bn. As people receive the extra money, 40% of it goes in tax, and they spend, say 80% of the rest on domestic goods and services (it doesn’t work if people use it to pay off debt or spend it on a foreign made car…). This adds £480m to the economy with extra expenditure straightaway. And this process continues in a virtual but diminishing circle, as that £480m is taxed, spent and so on.  If everything turns out to be mathematically consistent the stimulus adds over £900m to the economy. You have nearly 1% growth! This has cost the taxpayer (added to national debt) of £1bn in the first instance, but a lot of this has come back in extra taxes from the growth.

This is what people half remember when economic experts like Mr Krugman say that stimulus can reduce debt. But there are two problems. First of all, although on my fairly realistic assumptions most of the cost is clawed back, about a quarter of it isn’t. Keynesian stimulus cannot pay for itself at this simple, basic level unless people increase their spending by more than the stimulus itself. And secondly, it is a one-time event, so that you get 1% growth for one year, and then it stops, unless you repeat the giveaway. This tax cut is temporary. When you put taxes back up again, the whole process goes into reverse and the economy shrinks back to where it started. Something very like this happened to the last Labour government’s temporary cut in VAT: a small bounce that was undone when the cut had to be reversed, which, of course, they then blamed on the Coalition.

All this is well known to the Paul Krugmans of this world though, otherwise they wouldn’t be writing economics textbooks and winning Nobel laureates. When they advocate stimulus they are actually talking about something else: the effect of such a stimulus on the national zeitgeist. That 1% lift may make people and businesses happier. Businesses go out and invest more money; people save less, perhaps thinking that their share and property values will go up, and consume more. If this happens then all bets are off; the economy grows further, the government gets more taxes and the stimulus can pay for itself quite quickly and easily. Investment is particularly important; Maynard Keynes’s critical insight was that recessions happen when investments don’t match the amounts people save.

What to say about this? There are two potential snags and an irony. The first snag is that  the zeitgeist is a hard thing to manage. The whole thing can be undone by another crisis from the Eurozone, for example, which might reduce prospects for exports and dent confidence generally; or there could be some other crisis. The second snag is that this model of short-term growth assumes that there is spare capacity in the economy. When people and businesses go out and spend, domestic companies can readily ramp up production, employ new people and so forth. This is usually the case in a recession. But not always. In the 1970s, after the price of oil skyrocketed, the economy had to be restructured in order to grow – which was particularly hard because of the trade unions. Attempts to stimulate the economy simply led to high inflation while doing nothing for unemployment. Today, more flexible and globalised markets seem to have reduced the inflation threat – but stimulus can still be dissipated on imports and asset prices. What of the British economy now? Many commentators think that the British economy should be “rebalanced”, reducing its dependence on financial services and North Sea oil, as well as excessive private consumption fuelled by debt and property prices.

These potential snags to stimulus are why many critics of the government, such as the FT’s Martin Wolf, and many Liberal Democrats, such as the Social Liberal Forum, say that any stimulus should take the form of added public expenditure on investment, in infrastructure and homes. Since these have an inherent value, and help expand the economy’s capacity, there should be much less risk. This is a sensible idea in theory that is a lot less easy in practice. The public sector has a tendency to invest in wasteful projects for political rather than economic reasons.

This is where Labour’s plans are quite distinctive. They talk about temporary tax cuts, and hint at increased current expenditure. This is founded on a belief that there was not much of a problem with the pre-crisis economy, or unsustainable about the growth rates achieved in the years leading up to it. The crisis was simply a problem with the global financial system, and the country’s poor performance since is down to incompetent economic management from the Coalition. This is pretty much what Tony Blair said in his recent piece for the New Statesman. If you believe this then capacity is not at issue, and the zietgeist should be readily easy to fix.

And the irony? Left wing economic commentators like to laugh at the “Voodoo economics” of Laffer curves and self-funding tax cuts advocated by far-right commentators. Paul Krugman talks about their belief in the “confidence fairy”. But the left’s economic beliefs are no less dependent on their own confidence fairy.

Will Labour let the Tories win the 2015 election?

Margaret Thatcher’s death on Monday has distracted attention at rather an interesting moment in British politics. There is a vigorous debate about how Labour should fight the next General Election, which should be in 2015 (one of the very few Lib Dem inspired constitutional changes to get through was one on fixed term parliaments). I have picked this up from two articles. First was an article by Guardian journalist Jonathan Freedland last Saturday: Labour must draw the sting from welfare, or lose in 2015. Mr Freedland is nominally an independent journalist, but this article seemed to be very well coordinated with material coming out from the Labour leadership, including a TV interview with deputy leader Harriet Harman. It sounds their leader’s, Ed Miliband’s, party line. Then came former leader and prime minister Tony Blair in a widely reported article in New Statesman: Labour must search for answers and not merely aspire to be a repository for people’s anger. The link is to a summary, which is all I have read; the full article is in a special Centenary print issue. I don’t think either have identified the right strategy for 2015, though Mr Blair is closer.

Both writers attack a complacent view which seems quite popular in Labour circles, and which is often associated with another Guardian writer, Polly Toynbee (though not by either author, and possibly not fairly). This is that the Conservative led coalition is in a mess, having picked the wrong economic strategy, and heartlessly cut important parts of the British system, such as working age welfare. The Conservatives are very unpopular; public anger is raging. They even face a challenge from the far right, Ukip, which is causing panic and leading them to revive their reputation for being the nasty party. Meanwhile Labour have already dealt a mortal blow to their coalition partners the Liberal Democrats, who face a private battle with oblivion in a few dozen constituencies across the country, and are reduced to irrelevance everywhere else. On this reading, all Labour have to do is to ride the anger and say as little as possible about what they would do in government, beyond the implicit or explicit promise to roll back the Tory cuts. The coalition parties will lose the election without Labour having to try very hard to win it.

But both authors suggest that the middle ground of British politics has shifted, to something much sourer than it was before the crisis. Before Mrs Thatcher’s death, the left had been stoking up the anger over the government’s welfare reforms, and especially some changes on housing benefit that they dubbed “the bedroom tax”. But into this maelstrom stepped the novelist A.N. Wilson and The Daily Mail who suggested that odious killer Mick Philpott was a product of the British benefit system, showing that cuts were needed. And then Chancellor George Osborne joined them, to apoplexy of the left. Labour’s anger is genuine, but it does not seem to be hurting the Conservatives. Opinion polls put Labour on about 40% to the Tories’ 30%. Add in more than 10% for Ukip and the right is level pegging with the left before the fight has really started. Labour are appealing to people who already vote for them, or who live in Northern urban constituencies where their votes are not needed.

The threat to Labour is quite clear, with a parallel in 1992, another election in difficult economic time. The weak economy is causing hardship across the board, and not just amongst those on benefits. If the economy picks up in the next two years, the government will get credit. If, as most people expect, things stay grim, then that sour mood will continue. People don’t buy the argument, popular amongst trade union leaders, that bit of extra government spending will stimulate the economy into a virtuous circle of growth. As in 1992 the Tories will claim that Labour’s plans to restore the cuts will simply make things worse by raising taxes. This will be very hard for Labour to fight if they follow the Polly Toynbee strategy, and they might lose rather than gain seats. A Lib Dem meltdown, predicted gleefully by Labour activists, will simply deliver a full working majority to David Cameron.

What to do? Mr Freedland suggests a programme of radical reforms to welfare, which will inspire the public with fresh thinking against Coalition incompetence. Ideas include moving towards the contributory principle for benefits (linking benefits more tightly to contributions, as many other European countries do), increased support for childcare, guaranteed jobs after a year of unemployment, and so on. These reforms will tackle the crisis of legitimacy that Mr Freedland highlights as the problem with the benefits system. This seemed to chime with what Ms Harman was saying on the television, and which I had read elsewhere from another Shadow Cabinet member.

What Mr Blair is suggesting is not clear, certainly from the article summary. He asks questions rather than provides answers. He does not seem to be going down the radical reform line, though. He suggests things like building more houses (in his case probably by building private sector houses on green belts), more computerisation of government services, and using DNA databases to tackle crime more effectively. Overall this is much closer to what the Coalition is already suggesting. On the economy, he does suggest industrial strategy, but not re-balancing. He even suggests rebuilding the finance sector. But then he does not accept that the British economy was more vulnerable than others to the financial crisis. More pleasing to liberals, he suggests challenging the right on Europe and immigration – though this can be read as justifying his policies when he was last in power.

Mr Freedland’s approach would be a serious mistake. If the Coalition has shown anything, it has shown just how difficult reform is, especially in hard economic times. All reforms create winners and losers. Politically the winners keep quiet, but the losers shout like mad. And reform ideas put together quickly tend to fall apart quickly. Any programe of radical welfare reform would fall apart under the full weight of attack, led by a press pack that still tends to set the political agenda. They will be portrayed as expensive and muddled; and any areas where savings are suggested will be attacked vigorously so that the losers’ voice is heard. It is simply too late to be radical. The country has reform fatigue. Remember the referendum on reforming the electoral system? An idea that seemed quite popular at first fell apart under concerted attack from the right.

Mr Blair is closer to the mark only because he seems to be less radical. But his central idea of trying to restore the reputation of the last Labour government is surely a dead letter. What Labour should be doing is learning from the way he secured a landslide at the 1997 election. He did this by signing up to 95% of the Conservative government’s policies, with a few carefully chosen and well publicised exceptions, while appearing more cohesive and inclusive than his opponents.

Likewise Mr Miliband needs to sign up to the bulk of the welfare reforms, with some token exceptions. Unfortunately reversing the “bedroom tax” would be a poor choice: the change only applies to social housing tenants, so private sector tenants either have to be included at great expense, or else they will protest as to why they are being left out. Personally I would would focus mainly on reducing the costs of childcare at the expense of some pensioner benefits – though the coalition parties might jump on this bandwagon.

But Labour needs to act now if he is to do something like this. The activists will hate it: so they need enough time for the fuss to die down, before they return to their visceral hatred of the Tories for motivation. But I don’t think Mr Miliband will go down that road, though.

David Cameron is not a particularly effective Prime Minister. But he is the most skilled politician amongst the party leaders. He has an excellent instinct for the political middle ground, and he is slowly but surely manoeuvring Labour into a cul-de-sac. Whether he will win a majority in the 2015 election is open to doubt: but I would bet good money on the Tories being the largest party.

 

 

Britain’s ungovernable Conservatives

I can remember when Britain’s Conservative Party was thought to be the country’s natural party of government. This feeling reached a peak after John Major’s shock win in 1992, when the party looked all but unelectable. The journalist Will Hutton wrote a best-seller “The State We’re In” which explained why. The party was deeply embedded into the country’s establishment. The discipline of its membership was legendary. Its hunger for power also made it adept at judicious compromise. It was a well oiled machine to keep an elite in power. The brief intervals of post-war Labour government in 1945, 1964 and 1974 seemed like awkward aberrations. Now, as the party wrestles with today’s vote on same-sex marriage, many observers of the British political scene wonder whether the party will ever secure a majority in the House of Commons after that win in 1992. What went wrong?

The party’s troubles are clearly deep. When David Cameron took over, after the party’s third successive defeat in 2005 it was clear that the party’s image with the public was toxic. Polling showed, the story went, that if the party came out in favour of a particular policy then that was reason enough to turn people against the policy. Mr Cameron’s mission was to re-brand and de-toxify the party, much as Tony Blair did with the Labour Party after that defeat in 1992. It seemed to be working. Mr Cameron embraced liberal causes like environmentalism and the inclusion of gays, while putting the party’s obsessions with Europe into the background. In doing so Mr Cameron put the party’s official position in a place where most Britons would not disagree with it. The party’s enthusiasm for the privatisation of public services was, and is, the only major exception.

He failed to win a majority in 2010, but by embracing coalition with the Liberal Democrats, he seemed burnish the party’s liberal credentials. While the Lib Dems were thrown into existential crisis, it seemed that the Tories were on a stepping stone towards power in their own right. But then people started to discover what the new Conservatives were really like. The problem wasn’t so much the Coalition’s programme of austerity and public service reform – “The Cuts”. These have produced a deafening whining sound from the left of the political spectrum. But these mainly originate from a complacent Labour establishment who had got used to a way of doing things, and it is not resonating with a majority of the British public. It is more of a problem for the Lib Dem element of the coalition than the Conservatives, though the NHS reforms remain a danger to both parties.

The real problem for the Tories comes on just those symbolic issues where Mr Cameron had tried to change the mood music. An obsession with the European Union and calls for a referendum on it have come to the fore. Reform to the House of Lords was firmly squashed, notwithstanding a seeming commitment to it in the party’s 2010 election manifesto. And now same-sex marriage (“equal marriage” to its supporters, “redefinition of marriage” to its opponents, “gay marriage” to the BBC). I must admit that this is an issue I struggle to get worked up about. But most of my friends are for it (though at least one is a passionate opponent), and it fits with my generally progressive outlook on life. Our understanding of what marriage is has changed over the years. But to many people in the country the reform is the last straw in a constant process of the undermining of traditional values. Such people feel that the political system tramples over them regardless, and their frustration makes them angry. They are in a minority, but not a voiceless one. They are particulalry well represented in the ranks of the Conservative Party, and many Tory MPs are taking up their cause.

This leaves three problems for Mr Cameron and his modernising allies. First is that it exposes divisions in his party, and that makes it look less credible as a governing party. Second it shows that whatever Mr Cameron may promise, even if it is in the election manifesto (same-sex marriage wasn’t in the main manifesto, it has to be said, but in separate party publications for the gay community), he cannot deliver on liberal, reforming policies that do not involve privatisation. Third is that there is a risk of defection from the traditional wing of his party in protest, reducing the party’s potential in the electoral ground war, and potentially helping UKIP, which is positioning itself as a vehicle for just such traditionalists. Under the country’s electoral system it is tough enough for the Tories to win outright. Surely it is now impossible?

Of course Mr Blair faced major challenges from Labour traditionalists, but still forged a highly effective political machine that still looks in good shape, even after its heavy defeat in 2010. But Mr Cameron does not command anything like the same loyalty amongst party apparatchics, and above all MPs, that Mr Blair commanded at the equivalent stage in his government. Mr Cameron never attempted Mr Blair’s “Clause 4 moment”, of a deliberately engineered confrontation with his critics to show he was boss.

Is it all lost for Mr Cameron? Not quite. There is always the example of 1992. Then the Tories were able to demonise the Labour Party and its leader sufficiently to scare first the press, and then voters into voting for it in large numbers. Ed Miliband, like Neil Kinnock, Labour’s leader in 1992, does not cut a particularly prime ministerial figure. There may well be an opportunity to stoke fears about tax rises under Labour too. As the General Election approaches Mr Cameron could rally the dissidents. He can still call on rich donors and much of the press will still rally to their cause.

But the Conservatives are no longer the party of the establishment. Their hidden advantages, so strong in the 20th Century, are eroding away. The 2015 election looks like another stalemate.