Learning from the rise of Mrs Thatcher

Mrs ThatcherI have recently finished reading Charles Moore’s excellent first volume of the authorized biography of Margaret Thatcher.  I wanted to read this as I inhabit a bit of a left wing bubble, politically anyway. We project cardboard fantasies onto Tories, as selfish, rich cynics. But we need to understand their true humanity and complexity – and Mrs Thatcher is such an important figure,that she is a good place to start. It is proving timely since some supporters of Labour leadership contender Jeremy Corbyn are suggesting that she offers an interesting precedent. Somebody who achieved power and dominance in spite of despising the political middle ground.

It is, of course, easy to dismiss the comparison of an ambitious and conventional careerist like Mrs Thatcher with the maverick Mr Corbyn, who has discovered serious political ambition late in life.  She had at least had been a cabinet minister, and had some kind of relationship with most of the important people in her party before her bid for power in 1974. Still, she succeeded in spite of rejecting consensus, and in the face of massive scepticism, while having solid grassroots support.

The book covers Mrs Thatcher’s early life up to the conclusion of the Falklands War in 1982, at which point she truly started to dominate politics. It is a fascinating story. Let me offer a few observations.

The first is not relevant to Mr Corbyn’s situation. It is that there was something quite liberal, and indeed Liberal about Mrs Thatcher’s political outlook. Her father had been a Liberal, and a senior local politician. If you had to pick one word that summarised her outlook it was Freedom. She did not believe in a ruling class that was born to rule. She wanted everybody to be able to access what society had to offer – though she assumed that they would have to work for it, rather than let things be handed to them on a plate. She hated trade unions because they underwrote a system that stifled freedom: but she admired the way that they stood up for the weak and voiceless. You just have to remember how stultifying the political consensus of the 1950s, 60s and 70s had become, not to mention the ever present Cold War mentality, to understand how liberal beliefs might drive you to the right rather than the left in those days.

In only two serious ways can I think that Mrs Thatcher’s beliefs conflict which core liberalism as I understand it. One was that she was fiercely nationalistic – although that may be more of a failure of imagination than principle. She swallowed whole a traditional view of English history – which she saw no need to question. Secondly she believed profoundly that people should strive to better the lot of their children – to the point that inheritance of your parents’ assets was a fundamental right. Modern liberals want people to strive for their children, of course, but think of legacies of property and money as a barrier to freedom of opportunity.

It need hardly be said that Mrs Thatcher had no time for the Liberal Party itself – who were often here main opponents in her local seat in Finchley. To her (and her father) Liberals had betrayed Liberalism.

A second point is that her advance from Leader of the Opposition to Prime Minister was precarious. She nearly lost the election in 1979. Her most reliable ally was a deep public distrust of Labour, following years of economic failure – high unemployment, inflation, and awful government finances. Trade union power, showing contempt for elected politicians and the rule of law, was a further cause of public disgust. But she did not have any convincing economic narrative with which to to oppose Labour, and that undermined her public appeal as the election drew close. The previous Conservative government, in which she had served, was widely regarded as a disaster. Her own economic policies were unclear, and to the extent they were formed, were doubted by most of her party.

This, of course, may be one thing giving Corbynistas hope: that Mrs Thatcher won in spite of lacking a clear economic narrative. It runs counter to the Labour centrist narrative that the party will only be electable if it follows the conventional economic wisdom, and much of the Tory economic narrative. But Mrs Thatcher’s lack of economic narrative nearly undid her. And for it to work the Tories will have to look a lot more financially incompetent than they do now. As I have written before, the British economy could certainly go off the rails in the next four years. Growth could fail; another banking crisis could strike. But the problem for the left is that any such new crisis might make the anti-austerity narrative look less credible rather than more so. Indeed, the best argument that can be made for the government’s excessive plans to reduce government expenditure is that they will be a better place to start if the economy at large disappoints.

And the third observation is how long it took for Thatcherism to emerge after she became Prime Minister in 1979. In her initial Cabinet she was outnumbered by sceptics (“the Wets”). The government had to deal with a raging economic crisis – and that absorbed its full attention. Her strategy was what today would be called austerity – cuts in government spending, and some tax rises, to try and bring government finances under control. It was all she could do to keep her Cabinet more or less behind her. This has echoes of the first Coalition years after 2010 – with an important difference: interest rates were sky high in the early 1980s in order to deal with rampant inflation. (And, I would add, the Coalition  Cabinet was considerably more united). At the time this was not a particularly ideological struggle; much of the impetus came from her Chancellor, Sir Geoffrey Howe, who was of the political centre, and with whom she did not see eye to eye. It was more a matter of asserting political control, based on age-old Treasury orthodoxy. And it is striking just how much of the problem of economic management derived from nationalised industries – which included steel, cars and coal – as well as energy and the railways. State control had allowed awful management to take hold, abetted by trade unions who had no conception that economic efficiency should be a political priority.

There is a tendency in the left to look back on the Keynesian consensus years from the 1950s to the 1970s as a bit of a golden age (though I would suspect that Maynard Keynes would turn in his grave to have his name attached to those policies!). The consensus favoured a highly active government, that tended to nationalise large industrial concerns when they got into trouble. But the country stumbled from one economic crisis to another from the 1960s onwards, and after the oil crisis of 1974 economic collapse (hyperinflation as the government was unable to pay its debts) beckoned. If Mrs Thatcher had failed, and been replaced by a government that was less determined to tackle government finances, in the name of Keynesian demand management, then economic collapse of some sort was surely the most likely outcome.

The emerging economic problems of the 2010s and 2020s take an entirely different form. Its symptoms are slow economic growth, an uncontrollable business elite accruing much of the wealth to itself, and the disappearance of stable, middle order jobs. These are trends brought about by changes in technology, the world economy, and demographics. The political right does not have the answers. But neither does the left… though they are both right about some things.

Mrs Thatcher is a hate figure on the left, but it is not an exaggeration to say that she saved Britain from economic collapse, with a lot of the hard work being done in those first, precarious years of power. What emerged was a less equal and less secure society, but one that was overall much more prosperous. And it functioned in a way that the previous one had become unable to – consumption and production were reconciled. This achievement required a combination of steely determination, the support of an inner coterie of determined supporters, and political skill in bringing along people who did not really believe in what she was doing.

And Jeremy Corbyn? There are similarities, but it’s more than hard to see Mr Corbyn and being a Mrs Thatcher of the Left.

A Corbyn win would pose searching questions for the Lib Dems

Clearly the prospect that Jeremy Corbyn might win the Labour leadership election is the most exciting thing in British politics right now. So I will blog about it for the third successive post. This time I want to look at what all this means for the Lib Dems.

According to the rather lazy analysis you often see out there, such a development would be a bonanza for the party. Labour grandee Jack Straw has suggested as much, in a desperate attempt to persuade Labour activists to vote for somebody else. The logic goes something like this. If Mr Corbyn wins, centrist Labour types will be without a political home. They will not be able to bear the leftward lurch implied by an influx of new activists, and, perhaps more sinisterly, the growing influence of trade unions. So, the Lib Dems, being a left of centre party under its new leader, Tim Farron, is natural place to go. It is now exorcised of coalition with the hated Tories – and even that coalition might be seen in a kinder light, now the Tories are unrestrained in government. And this will create an appealing alternative to the Conservatives that would draw floating voters in.

So what would be the political scene if Mr Corbyn won? The left would be cock-a-hoop, and they would have that much-prized thing: momentum. Many people have doubts about the current conventional wisdoms about economic policy – so they might give this new Labour a hearing. This would be bad for the Lib Dems in the short term, as the party would be overshadowed. Disillusioned Labourites are not going to flock to the Lib Dems in the short term either; they will still be in grief for their own party, and may hope that Mr Corbyn can be ousted.

But could that momentum be maintained? The British press, which still sets the media agenda, would be fiercely critical, and it would not take them long to find policy issues that put the new Labour leadership in a bad light. Mr Corbyn has spent his entire political life in the fringes of politics, where saying silly things is rewarded rather than punished. That gives the press plenty of material to work with. Furthermore, there would be a certain amount of chaos in the Labour party, as it argues over a whole range of issues. There are bound to be many disgruntled MPs. Voters may or may not disagree with the party’s new policies, but the real danger is that it starts to look incoherent and incompetent. These voters will not be part of the internet echo-chamber where left-wing activists will convince themselves that they are riding a popular wave – and they may not see the danger until too late.

The Lib Dems would be quite well placed to exploit this, in principle. The Greens’ thunder will have been stolen by Labour’s new direction; Labour will have taken over most of the Greens’ populist agenda. Ukip have lost momentum, with their rather chaotic General Election performance.

But the Lib Dems have two big problems of their own. First the party is very weak. Second it remains divided over its recent history.

The most conspicuous sign of weakness for the Lib Dems is its mere eight MPs, the lowest number for generations. This does not get better on closer examination. There were very few second places in May’s general election, and many lost deposits. The local councillor base has been hollowed out. Ruthless targeting over many years (and from well before the 2010 General Election from when the serious trouble started) has hollowed the party out in the majority of the country. This weakness makes it much harder to exploit any bounce in the party’s wider support. It also undermines the party’s basic credibility. Disillusioned Labourites may be tempted to set up their own party rather than join a weak and flailing one.

This is compounded by the party’s confusion over what it stands for. Its core values are firm enough, but the party’s interpretation of recent history is not. Was Nick Clegg’s leadership, and coalition with the Conservatives, a betrayal of the party’s values that should be expunged, with a suitable purge of those responsible? Just read a few articles in Liberator magazine, or read online comments, and you will see that this is a popular view amongst many in the party, and those who have left the party and could rejoin. Or is that coalition the proudest moment in the party’s recent history, when the party put the country before its own interests, and marred only by a few tactical errors? This view too is widespread, especially amongst those that stuck with the party, and many who have recently joined it. Some kind of reconciliation between these opposing views (that I will call the rejectionists and the coalitionists as a convenient shorthand) has to be engineered or the party will look just as fractious as its Labour competitor.

Interestingly, the outcome of the Labour leadership contest does have some bearing on this contest. However much Lib Dem activists want the party to plough its own furrow, it inevitably moves into the cracks left by the others. A victory for Mr Corbyn would be bad for the rejectionists. It would steal their thunder, and undermine their efforts to turn the Lib Dems into a party of the radical left. To be sure there are big differences between the Lib Dem rejectionists and the Corbynistas. The former are much more wary of state power, and emphasise political reform, especially electoral reform to a much greater extent, rather than the political control of the levers of power. And yet they are both competitors for those who are impatient for change. Meanwhile, of course, a Corbyn victory would give a ready new audience for the coalitionists – for people who are more patient, pragmatic and common sensical about the progress.

On the other hand a victory for for Andy Burnham or Yvette Cooper would be a boost for the rejectionist Lib Dems. They would appeal to disillusioned Labour leftists outside the hard core, while more moderate Labourites would continue to place their hopes in Labour,rather than turning to the Lib Dems. Should a Corbyn leadership collapse, and be replaced by something more mainstream (Chukka Umunna is sometimes mentioned) then this dynamic might also come forward. On the other hand a Corbyn collapse followed by a charismatic new Labour leader (whether or not Mr Umunna fits that bill is debatable) could be the worst outcome for the Lib Dems of both camps.

The Lib Dem leader is treading a careful path between the rejectionists and the coalitionists. And many Lib Dems were perhaps hoping for a period below the media radar when the party could gather itself together and consolidate its identity. In the jargon, the party would rebuild its core, rather than bid for the political centre (i.e. floating voters). Too rapid a collapse of the Labour Party could place unbearable strains on the Lib Dems, both in terms of organisation and the party’s coherence.

But a slow motion Labour collapse could be an opportunity for the Lib Dems. Even so, it will be a major challenge for this badly wounded party to do it justice.

 

Corbynomics: hope, fantasy and shaky foundations

Jeremy Corbyn, the front runner in Labour’s leadership race, is clearly somebody that mainstream politicians and media types underestimate. The standard criticism of him is that he a blast form the past – somebody that wants to take the country back to the failed solutions of the 1970s. No doubt that’s how it looks if you just examine the various things the man has said down the years. But many of his supporters are young and are projecting something quite different onto him.  He has crafted his message to appeal to this group, to look like something much more modern. Today I want to take look at his economic ideas.

These have been set out in greatest detail in his paper The Economy in 2020, published on 22 July. It isn’t hard to see why he is enjoying so much support. He offers the hope of something fresh. He starts by attacking the government’s economic policies, which he characterises as “austerity” in the now familiar language of the left. Thankfully he has shown more sense than to use the word “neoliberal”, putting him ahead of the Green leader, Natalie Bennett, who put forward a strikingly similar prospectus in the May General Election.

“Austerity” is used as a general shorthand for economic liberalism, and in particular the attempt to keep government expenditure and taxation in check – which at present means reducing the scale of government expenditure. It also refers to attempts to reform public services through such policies as privatisation. Instead Mr Corbyn calls for investment to rebalance the economy towards higher paying jobs, though not ones in financial services. He has time for some supportive words for private industry – recognising that private enterprise will have to be part of the growth and investment process. It reads as constructive and hopeful.

This overarching narrative has some macroeconomic credibility. The current British economy is nothing like as strong as the government claims, and many of his criticisms are on the mark. Alas it falls apart on closer scrutiny. I want to quickly look at three aspects in particular: the so-called tax gap of £120bn, corporate subsidies of £93bn, and the idea of “people’s QE”.

But first I must mention a name that keeps popping up, and who ideas seem to be behind much of the document: Richard Murphy, an activist associated with the Tax Justice Movement. There are some striking parallels between Mr Murphy and me: he was born in 1958, he took an economics degree, and he is a Chartered Accountant. The main difference was that his Economics degree was joint Economics and Accountancy (at Southampton) in the 1970s, and mine was full Economics (at UCL) in the 2000s. It is one of the rare occasions when my formal qualifications in economics outrank that of a public policy wonk.

The Tax Gap estimate comes from this paper commissioned by the Public and Commercial Services Union and written by Richard Murphy in 2014. Mr Murphy (like me born in 1958 and a Chartered Accountant) is a prominent campaigner for Tax Justice. I first came across this document when it featured in a 38 Degrees campaign (“it isn’t rocket science”, which suggested that collecting more tax was basically quite easy), and I think its claims are firmly embedded in the hard left mythology. It suggests that the Revenue & Customs vastly underestimates the amount of tax lost through avoidance, evasion and the like – and that the real gap is £120bn and not £35bn (and falling). This is important because it suggests that a huge amount of extra tax could be collected if only politicians were less indulgent of wealthy taxpayers. To give some context, the Lib Dems were criticised in the General election for being speculative when they suggested that £10bn cold be gained by tackling the tax gap (more than the other parties, except the Greens, of course). Mr Corbyn has his eyes on something much grander – and thus funding extra government spending without raising taxes on ordinary working people.

The biggest part of this gap is the untaxed shadow economy, which Mr Murphy says is much bigger than official estimates. I can’t offer an opinion on whether this is true – but I can suggest that this is hardly low hanging fruit, and is by no means confined to fat cats (think small building jobs, domestic cleaners, to say nothing of drug dealers and the smuggling of booze and fags). This does explain a rather tangential reference to cracking down on small business tax evasion though in Mr Corbyn’s document.  It is hard to see how any government could do much more than make a marginal difference without a draconian clampdown on the black and grey economies which would carry a lot of uncomfortable implications right across our society.

Another number that gets an airing is the idea the government subsidises business to the tune of £93bn. The source of that seems to be the Guardian newspaper, and its correspondent Adtiya Chakrabortty (“The 93bn handshake” is their headline). This is unbelievably flaky. The biggest single item is £44bn of corporate tax benefits. This is mainly credits for investment expenditure. Calling this a subsidy is more than a stretch – it is simply putting capital expenditure on a level playing field with revenue expenditure by, in effect, making depreciation tax-deductible on some types of investment. I’m not clear whether the figure includes tax releif for research and development, but that would be entirely consistent with the logic. If Labour is serious about helping manufacturing industry, it will need more of this sort of thing, not less. Another thing thrown into the pot is export credits, which allow British exporters to compete on a level playing field. If George Osborne abolished this the noise from Labour benches would be deafening. Cleaning up old nuclear power stations is in there too. There is something not a little bizarre in on the one hand suggesting that the government should promote investment, and on the other hand attacking all attempts by government to promote private sector investment as corporate welfare that should be stopped.

Next comes the idea that the Bank of England’s Quantitative Easing (QE) programme should focus on public investment in housing and infrastructure and the like – “People’s QE” – rather than buying government and other bonds. This is promoted by Mr Murphy again (his ideas pop up several times – and not all of them are bad), in spite of his lack of economic qualifications. Quite apart form the fact that the Bank of England has ended QE because the monetary conditions no longer apply, it gets the Bank into the unenviable position of evaluating public investment projects.  Getting unelected technocrats to do this sort of thing rather than government ministers (funded by gilts subject to QE) is hardly democratic either. To be fair, Mr Corbyn just says that the idea should be looked at, not that he would do it. But it betrays a very weak understanding of economics. He seems unaware that the Keynesian critique of austerity is weakening all the time, especially now that real wage increases are growing, suggesting that economic slack has been taken up. The Keynesian critique may have had authority in 2010, but 2015 is another matter.

The truth about the modern economy is this: the world has moved on from the easy textbook world of the 1960s, and even the 1990s. Technology has made manufacturing so efficient that there are few jobs in it any more; most white collar jobs have likewise been automated away; we are left with a lot of important jobs (carers, nurses, cleaners, etc.) that cannot be made more productive (and so better paid) through investment programmes. Some things can and should be done: investing in public housing, rail infrastructure and building up renewable energy, for example. But these will not yield the hordes of well-paid jobs that politicians left and right so badly want. Productivity improvement has moved from the workplace to our private lives (think smartphones and search engines). And you can’t tax that. Meanwhile demographic change is adding a further brake to the formal economy. This is the real reason why the economy under the Conservatives is not doing well, not “austerity”. Mr Corbyn is offering 20th Century solutions to a 21st Century problem (as is George Osborne, the Conservative Chancellor, I must add).

Slower growth means that it will be a struggle to raise much more in taxes, and certainly not without increasing taxes on middle income people. That is a hard political sell that Mr Corbyn only hints at (“there will be hard choices” he manages at one point). And it means that the government can’t just keep adding things to public expenditure without public services being unable to keep up with demand. That’s why abolishing student tuition fees is such a bad idea, for example – you only have to look at Scotland, where the state pays for university education, to see that. The universities can’t keep pace with demand, and fewer people from poorer backgrounds go to university than in England as a result.

I believe that there is a way forward from here. It does not come from the current government’s economic liberalism. It comes from strengthening local communities and the small businesses that serve them. It will not necessarily produce lots of conventional economic growth, and it will not produce masses of new tax. But it might produce public services that don’t keep failing; it would stop national and multinational chains sucking the life out of local economies; it would harness the potential of the underemployed.

Some of the ideas Mr Corbyn is promoting might help; he seems to suggest devolution of power to centres away from London. But too many look like national solutions that draw power back to London; others look like a path towards mass surveillance in order to collect more tax. I cannot see that it is any better than what the Tories are doing – and frankly I fear it would be worse.

Mr Corbyn promises hope, but his ideas are built partly on fantasy and definitely on shaky foundations. And that is even before he attempts to convince the public at large.

All the parties are abandoning the centre, but Labour is cutting itself off from it

Notwithstanding my article last week, it looks as if Jeremy Corbyn really is the front runner to win Labour’s leadership contest, after a YouGov poll published this morning.  Also this week Conservative government ministers have been ramping up intemperate rhetoric on immigration and proposing foolish policies to curb it – in what looks like a calculated attempt to hold the far-right Ukip in check. Nobody seems interested in wooing Britain’s centre ground voters.

That YouGov poll, incidentally, is a proper public one, with open methodology. It shows that Mr Corbyn has 53% of the vote, enough to win on the first round. After distributions that would rise to 60% against Andy Burnham – though interestingly it shows that Yvette Cooper would attract disproportionate support from fourth-placed Liz Kendall, and almost enough for her to overhaul Mr Burnham. And yet, as also suggested by my article, she is not as well placed to stop Mr Corbyn – against her he would get 62% after distributions. Mr Corbyn is backed by 67% of trade union sign-ups and 55% of temporary members – and this is giving him a decisive edge.

The idea that political parties should woo centrist voters is scoffed at by Mr Corbyn’s supporters.They either believe that it is possible to work around them with a rainbow coalition of the left, including many who do not vote, or that  momentum for a hard left candidate will build and sweep the pliable voters of the centre in. Evidence for both propositions comes from the SNP’s overwhelming success in Scotland, which followed a sharp tack by that party to the left, and the adoption of “anti-austerity” politics, the current touchstone of the hard left. Of course this shows a typical English failure to understand the politics of their island neighbours. The SNP’s foray to the political left was based on an iron grip on the political centre, and a narrative (all Scottish problems arise from Westminster rule) that appealed to both left and centre. Only last year the SNP were advocating cuts to corporate taxes.

Meanwhile the down-but-not-quite-out Liberal Democrats are also turning away from the centre. This month’s Liberator magazine pours scorn on the previous leadership’s attempt to woo centrist voters. The party must ignore these voters to build up a core vote much bigger than its current 8% of the electorate, the magazine suggests, echoing an attitude that is now widespread in the party. If Labour lurches to the left, Lib Dems hope that this will alienate liberal Labour supporters, allowing it to advance its base. But this is hardly attacking the centre ground.

The Greens and Ukip never were much interested in the political centre. They are attacking the main party bases, left and right (both at once in the case of Ukip).

Who, then, are the political centre? By definition they are not loyal to any particular party, or not loyal for long. They tend to dismiss ideological narratives. Instead they focus on more quotidian issues, such as the economy, public services and tax. And above all they prize competence and stability. They overwhelmingly plumped for Conservatives in England in May’s General Election. They questioned Labour’s economic competence, and especially the idea of a Labour government dependant on SNP support. They did not vote Lib Dem, since they thought this might let Labour in. Also the Lib Dems were thought to lack credibility, after their much publicised tangles over student tuition fees.

And that analysis offers us a clue about what is going on. There is little point in trying to woo these inconstant voters early in the cycle. The early years of a parliament are for shoring up your base. The Conservatives in particular are keeping their powder dry for an attack on the centre in due course. It is not as if centrist voters aren’t sceptical about immigration anyway. The party must weather a bruising EU referendum, which could undermine its reputation for competence. And the economy, upon which the party sets much store, looks a bit too similar to that of the country before the 2007 crisis for comfort. But the party’s managers must be quietly confident.

Even the Lib Dems focus on a liberal core vote does not preclude a bid for centrist voters in key seats when the time comes. They have a big job to do to convince voters that they are still in the game, but mid-term chaos in the main parties might well offer them an opening.

It is Labour that has real reason to worry. It now seems odds-on that Mr Corbyn will take the leadership. The poor political acumen of the party’s soft left has let him in. Firstly it was Ed Miliband’s changing of the rules for electing the party leader, which made it vulnerable to being taken over by the political fringe (centrist supporters are unlikely to be interested enough to take part in such an exercise). Next it was soft left MPs, in particular supporters of Mr Burnham, that let Mr Corbyn onto the ballot. And if Mr Burnham does manage to stop Mr Corbyn (alas Ms Cooper stands less chance), it will be a thoroughly compromised victory. Mr Burnham is already making concessions to the hard left.

It is very hard to see how Labour can make a rapid switch to the centre after this. The hard left narrative is not all nonsense, but idealism trumps all for them – and they are happier railing against abstract nouns rather than addressing the everyday troubles of ordinary working people. Mr Corbyn projects charisma but not competence. And even if he gets ejected from the leadership before the next election, it is hard to see how the party can present a credible face to the country as a serious alternative government.

It is hard to believe that not so long ago (even earlier this year) many thought that the Tory brand was so toxic that they would lose power, possibly for good. But Britain’s incompetent left have found a way to give the Tories new life.