June 2020 – thinking liberal

The two worlds of post-lockdown Britain

On Monday the Prime Minister, Boris Johnson, happily announced a tranche of relaxations of England’s lockdown restrictions, to be timed for 4 July. The public weren’t going to wait, flocking to the country’s beaches to take advantage of a few days of sunshine. I took the first picture here in Broadstairs, Kent on 31 May, thinking it was crowded (we had become used to this beach being deserted), but look at yesterday by comparison. The country seems to be making a dash for normality. Disappointment lies ahead.

The relaxations come after some hefty lobbying by businesses, who are experiencing huge strains. They highlight a legitimate concern, as many jobs are under threat as businesses face the danger of folding. Public finances are under strain too, though by how much and why remains a matter for debate. But the problem is a deadly virus for which there is no vaccine or cure, not overzealous lockdown regulations. So if you don’t want to risk catching the disease, and the prospect of a horrible death, just how safe are you being made to feel? The country is dividing on this question.

I have heard quite a few lobbyists for the hospitality industry on the radio. For the most part they do not inspire confidence. They are anxious to abolish the two-metre social distancing rule, but are reluctant to explain how they can still be safe. Some of them even grumble about the idea that they would have to keep records of all those attending their establishments, even though this is an obvious quid quo pro to relaxing distancing requirements in the high-risk settings that most of them obviously run. One expert offered a list of potential mitigations for reduced distancing: not facing people, masks, reducing time of contact, low noise levels so that people can talk softly. Not much of this helps if you are indoors in a pub or restaurant, although if customers are seated at tables only with members of their isolation group, then at least you won’t be facing others. To be fair some hosts on television are doing a better job of explaining themselves: instead of whinging about the rules they are showing viewers all the precautions they are taking to make people feel safe.

But a lot of people don’t really care. They are fed up with confinement, and note the reduced prevalence of the disease, and therefore the reduced risk of catching it. Many are younger and fitter people who feel less at risk of suffering badly. Many also draw confidence from other countries where restrictions have been relaxed. They miss two aspects of these overseas examples. First is that in the more successful countries they applied relaxation after they had beaten back the disease further than England has, and that even then they have had to identify and manage local outbreaks. And England’s track and trace infrastructure inspires little confidence that it is up to this task. The second is that in other countries that have relaxed (notably in some states of the USA), they are moving headlong into a relapse. Two things about the epidemic strain our intuitive way of understanding the world. First is the time lag between picking up the disease and diagnosing it, then between diagnosis and hospitalisation, and finally between hospitalisation and death. The second is the exponential nature of the spread, and the way a small number moves very rapidly to a big one and so the need to intervene when it feels too early. This is what led to some countries failing to take the disease seriously enough until too late. It is clear that the US President Donald Trump, ever the intuitive leader, struggles with both these things.

But while one, very conspicuous, group are making a headlong dash for normality, another, usually older and more vulnerable, group remain very frightened. They are staying indoors, so remain nearly invisible. But this applies to my household and many others that I know. This is both good and bad news. The good news is that if this group stays out of trouble, then the most vulnerable people will be protected, keeping hospitalisations and death rates down. The bad news is that this large number of often quite high-spending people will not be the free-spending agents needed for a full economic recovery. And if infection rates start to rise, they will become even more scared.

All of which gives an impressive of a government that doesn’t think things through. If it wanted to tempt older people back into shops and other facilities it needed to work a bit harder to reassure them. The words are there but the body-language isn’t. For example the government says that the 2-metre rule is replaced by “one-metre plus”. The plus is meant to suggest alternative mitigation, and yet this has been totally drowned out in the messaging. If it had been combined with a clear directive for people to wear face coverings in virtually all indoor settings, then it might have been easier to convey this. Instead they promote the idea that the risks are reduced so you don’t need precautions like masks; of course they don’t say that, but observing people around me that seems to be what is happening. And the problem about masks is that everybody needs to wear them for it to work. It is no use if just the worried people do.

Still, the government has probably bought itself a month or two before any obvious problems emerge. And then it looks likely to face a twin threat. A faltering economy as the worried sit on their savings while government support schemes, like furlough funding, run their course. And rising infection rates working their way slowly but surely through the system, beyond the country’s capacity to contain it on a local level. I really hope I’m wrong.

Henry Ford’s shadow: from France 1944 to Covid-19

A Sherman tank of the US Third Army in WW2

In September 1944 the US Third Army under General George Patton approached the Eastern French city of Nancy. Its vehicles, notably Sherman tanks, had driven there under their own power after landing in Normandy in July. And not by the most direct route: the army pushed south from Normandy before turning east. This journey of hundreds of miles, with rail networks unavailable, had taken a very low toll on the army’s vehicles, including the Shermans. The Germans were organising a counterattack. But their Panther tanks had to make the trip mostly by rail, subject to Allied air attacks, and a third of their strength broke down while driving the 30 or so miles from the railhead to the jump-off point.

This was a triumph of US engineering and industrial organisation. The Panthers had a much better gun and thicker armour than the Sherman, but that was no use if they couldn’t make it to where they were needed. American industrial superiority was repeated everywhere: air, land and sea. Robust, well-designed weapons were put into combat in overwhelming numbers. The Germans produced clever designs in all these fields, but their artisanal industrial organisation led to unreliability, limited production capacity, and often, as in the case of the Panther, designs that were hard to fix when they went wrong. The Americans outshone their German and Japanese enemies and their British allies. Only the Soviet Union could compare. The Russians could not match the Americans’ production quality or sophistication, but their designs were robust and factory output reached the battlefields in vast numbers. They didn’t need to last long when they got there. Only for lorries did the Soviets crave those vehicles made in Detroit.

It is often assumed that the way the Americans and Russians outproduced their enemies was just a matter of scale and resources. But that is not so: superior industrial organisation was necessary for those nations to respond with the speed that they did to the German and Japanese onslaughts. They also needed strong military organisation and tactics: and both nations also had these, though the German methods continued to outshine both until mid-1944. But the lessons of military organisation were quickly forgotten when the war ended, whereas industrial organisation was needed to win the peace. It is no wonder that the way their industry won the war so dominated public policy in America and the Soviet Union, and in Britain too, as it tried unsuccessfully to emulate American prowess.

And what was the American method, successfully used also by the Russians? It was the production-line, developed in the motor industry by Henry Ford. Its key features were the use of standardised designs (“Any color as long as it is black”), simplified as far as possible, high technical specialism in the workforce, segregating human tasks so that minimal skill was needed, and a highly centralised, hierarchical command and control structure. And above all it celebrated economies of scale, the expectation of which became the standard for business and political elites Small was regarded as necessarily inefficient. It is an approach suited to those with an imperial frame of mind, so it is not hard to see why it was popular with Russia’s Communist leaders, and even in post-imperial but backward-looking Britain. It is interesting that it took such hold in democratic America, but the scale of that country invited imperial thinking too amongst it is business leaders.

But the Henry Ford method has weaknesses. It is slow to respond to change, and becomes very inefficient where a feedback loop is needed between user and supplier, or any area where complexity is built-in. Bottlenecks, delays and queues become routine. Furthermore organisations built around the production-line mindset, especially outside the urgencies of wartime, become ossified, divided into fiefdoms that fail to cooperate. But leaders remain locked into its thinking. When things go wrong, the management response is to tinker, by adding bureaucratic controls that slow things down and promises that lessons have been learned that always disappoint in their results. That the Henry Ford method was failing first became apparent when Japanese manufacturing started to outcompete American and British firms in the 1960s and 70s. At first this was put down to “cheating”: underpaid workers doing excessive hours, and so on. But then managers started to realise that the Japanese had been adapting their manufacturing techniques using an idea referred to as “Total Quality Management” (TQM), which involved much more delegated decision-making, and organisation-undermining cross-departmental teams. This realisation came too late for most of British manufacturing industry, with the motor industry weighed down by mediocre management and bad industrial relations, often driven by demarcation disputes, a common outgrowth of Fordism. The new ideas were beyond the imagination of management and union leaders alike. America embraced the new ideas more successfully, notably by Jac Welch’s General Electric in the early 1990s.

But the world was moving on, as Baumol’s law started to diminish manufacturing industry’s economic importance, just as it had done to agriculture a century before. Service industry became critical, and services are less easy to fit into a standardised mould. At first management thinkers adapted their manufacturing techniques, arguing that services were just another product. But by the mid 1990s thinking had moved on to an idea that was centred on a service mindset, where manufacturing products were seen as just another service. This was Business Process Reengineering (BPR). The user experience became central to business organisation, delegated decision-making critical, and layers of hierarchical management were dismantled. This was catching on just as I was taking responsibility for a mediocrely performing organisation administering savings plans. I used it to reorganise everything, doubling productivity and improving quality of output too (actually, that was linked). This was a heady time in management thinking, with optimistic “both and”, and “win-win” ideas taking hold. In Britain the most eye-catching business using BPR was Virgin Atlantic, offering a superior travelling experience at a reasonable cost. It even infected Tony Blair’s New Labour, who took on the heady optimism of leading business people, with the idea of “Stakeholder Capitalism”. Mr Blair’s subsequent period in office showed that he had no idea about what all this actually meant, however.

But then things turned darker. The rise of the internet was the most eye-catching aspect of this: but there is no reason that this should have undermined BPR thinking. A bigger issue was the rise of cheap labour in Asia, which new technology could help tie into longer supply chains. Meanwhile managers were bewitched by the idea of “Shareholder Value”, which quickly pushed away the fuzzier and more inclusive thinking of Stakeholder Capitalism. This legitimised management and shareholder greed and corporate empire-building.. The customer experience was given lip service but not priority. Ryanair replaced Virgin as the airline success story.

And Henry Ford made a comeback, with a twist. That was that businesses embraced outsourcing (Ford wanted his organisation to do everything itself), which improved communications technology now enabled. But hierarchical management, standardisation, deskilled work (preferably done by robots) and economies of scale reestablished themselves in the way managers thought about organising work. New technology, it was thought, could make up for Fordism’s defects (more recently with high hopes being placed on artificial intelligence). Conservative ministers in Britain accepted this without question as the remade public services by reorganising and outsourcing to firms that embraced the new Fordism.

Which brings us to Covid-19. A lot of the way Britain has organised itself to meet the challenge reflects Henry Ford thinking. This particularly applies to testing, but also to PPE procurement and the contact tracing system, which has been outsourced to one of the usual large-scale suppliers. And the weaknesses of the Henry Ford approach have become evident. Queues, delays, bottlenecks; promises made by management that cannot be kept; bureaucracy being added in to try and make a broken system work better.

But some countries never fell for Henry Ford ideology. Service efficiency is legendary in Switzerland partly because they never embraced large-scale thinking, and they know instinctively how organise and delegate decisions so there are no delays and queues. Germany stuck with its artisanal, delegated approach, with much of its modern industrial prowess driven by medium-sized companies, which Forders would dismiss as being sub-scale. In German Covid contact-tracing is done by small local and professional multi-functional teams who carry out their own tests; in Britain newly recruited tracers helplessly sit by their computers waiting for referrals to come through, while their German counterparts are kept busy, using local knowledge to solve problems. British political and business elites fail to comprehend. It is probably too much to hope that Henry Ford’s ghost will be one of the casualties of Coronavirus.

What are Donald Trump’s chances in November?

Like many Britons who follow politics, I follow US politics enthusiastically. But I don’t like to comment so much on it here. I have no special connection to the US zeitgeist,and it seems to be a bit rude to comment on somebody else’s politics. But we can’t help but be affected by the US, so I feel I must comment from time to time. The big question is whether Donald Trump will be reelected as President this November.

At the start of the year Mr Trump’s position looked strong. The economy was doing well, he was delivering to his base, and all of his potential Democratic opponents had limitations and weaknesses. He easily saw off impeachment, successfully portraying it as a manifestation of partisan politics. Mr Trump’s divisive style never made him a shoo-in in this year’s election, but he was the betting favourite. But then things started to go wrong. The Democrats resolved their selection race with unexpected speed, in favour of Joe Biden, the candidate, apparently, that Mr Trump most feared. And then came the Coronavirus epidemic, which saw Mr Trump conspicuously flailing. This was followed by the Black Lives Matter explosion after the murder of George Floyd, and more presidential flailing. Mr Biden has a steady and growing poll lead both nationally and in the battleground states, a lead that is bigger and steadier than Hillary Clinton achieved at this stage in 2016. But we have over four months to go, and a lot can happen.

To win, what Mr Trump needs to do is to motivate his base, demotivate the Democrats’ base and win over independent voters. The first part of this is going well enough for him. Mr Trump’s base has two main components: his fanbase and anti-liberals. The fanbase consists of less well-educated white people, who have felt excluded by political elites for decades. Mr Trump speaks their language and expresses what they feel. They experience a sort of euphoria when Mr Trump expresses their values from the top of the political system; they are happy to disregard incompetence for the sheer joy of seeing one their own in charge. And with Mr Trump, unlike many other populists, what you see is what you get; there is no guile about him. This increases the bond of trust. The anti-liberals, on the other hand, are not admirers of Mr Trump personally, but they love him because because he is a bastion against the advance of liberal values. They are passionate about such things as stopping abortion and maintaining complete freedom over the ownership of firearms. They don’t believe in a strong Federal state, apart from having strong armed forces, so they aren’t bothered by Mr Trump’s evident incompetence. This group is diverse, but religious groups are prominent. They also include many business owners who dislike government regulation and taxes, and seek opportunities for cosy deals. For this group Mr Trump has delivered on his promises, most notably in the appointment of Supreme Court (and other) justices, but also with tax cuts for companies and the neutering of federal regulation; he has also held the line against gun law reform, in spite of a spate of mass shootings. For the anti-liberals the Democrats pose as great a threat as ever, and there is no sign that their enthusiasm for reelecting Donald Trump is fading. Doubtless Mr Trump’s partisan approach to the Covid crisis and the BLM uprising helps motivate this group too. They are on fire.

How about the Democrats’ base? Their main weakness is their candidate. He’s been around for a long time, and there is lot of grey in his record, not least around claims of sexual harassment. Before the BLM explosion there were signs that younger voters were becoming demotivated by all the questions being raised by his record. But Mr Trump clearly doesn’t get why people are so angry about the Floyd murder. To him this is just an isolated crime, and not evidence of a systemic failure. He doesn’t feel the pain of decades of being fobbed off with talk of progress. In fact his behaviour has given succour to the forces of darkness. He has thus become a channel for anger across the Democrats’ base, and has managed to fire them up.

And how about independents? This is a harder group for people on this side of the Atlantic to read. Mr Trump picked up many independents in 2016, because his campaign to undermine Mrs Clinton’s credibility was so successful, and her campaign to reassure them was so weak. Mr Trump fitted the American model of a successful and admirable businessman much better than the European one, so people there were prepared to give him the benefit of the doubt, while most Europeans had written him off as a nutcase. It is probably this group that is gradually coming over to Mr Biden as Mr Trump showcases his incompetence. But they are doubtless wary of the Democrats too.

So what next? The campaign hasn’t really got started yet. We know that Mr Trump will try to make it about Mr Biden and not himself, by hammering on his weaknesses. He already refers to him as “Sleepy Joe”. But this is surely not as effective as “Crooked Hillary”‘; voters are tired of hyperactive and hyper partisan politics; “sleepy” doesn’t sound so bad. But there are plenty of cracks in Mr Biden’s candidacy, so the attack could work. A further issue is whether the need to keep his base fired up moves Mr Biden into tricky policy territory. The demand to “defund” the police may not be as bad as it sounds, but it sounds like an invitation to criminals.

A big question hangs over the future course of the epidemic. Mr Trump is playing on the idea that the threat was exaggerated and lockdown measures were overdone (by Democrat governors and mayors), and he is supporting the lifting of the lockdown, even though many think this is premature. This builds on the different experiences of the epidemic across America. It has been devastating in big, crowded cities, such as New York and New Orleans, but much less so in less densely populated places. By and large Republican voters’ experience has been much less severe than that of Democrats. So if the disease retreats even as the lockdown is removed, and the economy bounces back, the Republicans will claim vindication while the pain of many cities will be forgotten as they will vote Democrat anyway. And the administration’s financial management of the crisis has been perfectly competent, largely because Mr Trump has been happy to leave that to others, and not disrupt it.

On the other hand, the disease could boomerang, hitting Republican areas hard, and disrupting the economic recovery. This is particularly likely as Autumn approaches and the weather cools: i.e. just as America approaches the vote. This could create a perfect storm for the Republicans. Mr Trump’s plan to hold mass election rallies in defiance of social distancing and mask-wearing looks especially risky.

And that points to something that I think will be the deciding issue against Mr Trump. He has become very dependent on his own judgement. When he was first elected, it was expected by many that he would surround himself with competent people, and let them do most of the work. And that seemed to be what was happening, with the recruitment of many generals to his administration, and with Steve Bannon advising on political strategy. But Mr Trump hates to be managed and he has replaced almost everybody with more compliant people who will go along with his madnesses, with the interesting exceptions of the Treasury and the Federal Reserve. This has made Mr Trump much more likely to make mistakes. Mr Biden, on the other hand, while gaffe-prone, surely knows how to ask for and accept advice.

But four months is an eternity in this crazy year.

Are buoyant stock markets a sign of financial trouble ahead?

I have written before about how well many stock market indices have performed, notwithstanding the pandemic. That good performance has continued, with the US S&P 500 reaching record levels last week. This is puzzling, and might be a sign of a crisis in the making.

What is clear is that few, if any, of the world’s economies are going to shake the crisis off quickly. A rapid partial recovery from the depths of the lockdown is more than plausible, but it is hard to see things getting all the way back to normal. Consumer demand, the main driver of modern economies, looks to be dented for the long term, as many of the public, older people in particular, remain cautious, even if most lockdown restrictions are completely lifted – which they won’t be. You can take a horse to water, but you cannot make it drink. And, of course, a lot businesses are going to fail because of the lockdown, meaning that a lot of people will be put out of work. Meanwhile many businesses and public agencies will suffer a significant loss in productivity as safety measures continue to be in operation. While that might benefit jobs, it implies reduced living standards too, which will also make it hard for businesses to bounce back. The prospect of a vaccine being universally available is distant. The whole world cannot eliminate the virus like New Zealand has done, at the expense of cutting itself off from the rest of the world.

So if the economy is unable to bounce back to where it was in December 2019, why are stocks doing so well, after they fell so far earlier in the year? The obvious answer is that investors have taken leave of their senses, falling for optimistic stories peddled outside the mainstream media. Well I have seen such craziness take hold, back in the late 1990s with the tech boom, but this does not look like it. There must be a more rational explanation. I can think of two, and neither are good news.

The first is that not all companies’ share prices are doing well, and the rise in well-publicised indices is based on large companies who are expected to do well out of the crisis. Companies like Amazon, Microsoft or Alphabet (i.e. Google). When businesses fail, others benefit. The crisis will provide stronger companies with opportunities. The stock market indices are not a representative cross-section of businesses in the economy, but a collection of the bigger ones. But for this to justify such a high level of price gain, it means that investors think these businesses will be able to take advantage of their market dominance to raise prices. In other words, the wreckage left behind by the crisis will lead to widespread price-gouging, which will benefit the companies represented in the indices. This would be bad news because it means that yet another dent in productivity that will reduce living standards of everybody except the lucky. I don’t think this is very likely, but it is plausible that this is what many investors think will happen. There would be parallels with the tech boom of the 1990s if so.

The second possible explanation for high stock prices is an idea I have read in quite a few commentaries. It is that investors “have nowhere else to go” except to put money into shares. In other words, there is a savings glut, and the alternatives to shares look a worse prospect. There is plenty of reason to think that there is a savings glut. Many people are saving more as a result of the crisis, because there are fewer opportunities to spend, while incomes are being propped up by government support schemes. Meanwhile businesses, with a few exceptions like pharmaceutical companies, are cutting investment due to uncertainty. More saving plus reduced investment means a glut. And many people have suggested the world economy has been stuck in a chronic savings glut for the last couple of decades anyway.

The main alternative investment to shares, if you are are looking for a home for trillions rather than mere billions of dollars, is bonds. But interest rates on public debt have been cut to minimal, even negative, levels as part of the monetary response to the crisis. This means almost no prospect of a positive return either from interest payments or capital gains (which would require interest rates to fall even further). Some private companies have bonds offering higher yields (i.e. ratio of interest to price), but that is because of a higher risk of default. These do not look an attractive prospect in the current environment.

Which leaves either keeping the money uninvested in bank accounts, or investing in shares. A lot of people are keeping their money in cash, but this suffers a similar problem to bonds: low interest and no capital gain. Which leaves shares, whose price then rises because demand exceeds supply. That does not necessarily mean that shares offer a better return in the long run. Most investment decisions are not made by people for their own money, but by middle men such as investment managers. They need a good story rather than a sober assessment to justify their decisions. One advantage of shares is that it is very easy to spin a story, and picking crisis winners, as well talking up a rebound, might be just such stories.

But the savings glut explanation is bad news. It is not a stable situation because it implies that demand is being sucked out of the economy. This is one of the standard principles of Economics that is taught in undergraduates’ first year (the so-called Economics 101). It is what caused economic depressions before the economist Maynard Keynes showed that governments could offset this with deficit spending. Governments are indulging in deficit spending to an extent that is unprecedented in peacetime, but the rise in stock markets seems to be showing that they are not doing enough, or rather that their interventions are being parked in savings rather than spent.

How might this play out? The financial system is under a high level of stress. Levels of private and public debt are very high in most of the major economies. Private debt is the most likely breaking point, both in terms of bond default and bank bad debts. This vulnerability plays out in different ways in different countries, but the USA, the EU and China all look vulnerable this time in their different ways. Britain has its own vulnerabilities too, with a high current account deficit, a badly managed epidemic and full departure from the EU about to impact later in the year. This could then lead to a more widespread financial calamity.

The Great Financial Crisis of 2008-2009 was preceded by over a year of unreality, when the nature of the crisis was exposed, but markets were in a sort of stunned disbelief. It was like a supersaturated solution waiting for speck of dust to start a mass crystallisation: the Lehman Brothers collapse was the speck of dust. I was scared enough in 2007 to move my pension fund into index-linked government stock – so I’m not using hindsight here. The situation now is different, but I think the same sort of unreality is present. This will be a very different crisis if it comes.

I don’t think that most countries will suffer a 1930s style depression. Governments will have to intervene big, but they can and look ready to do so, though this will be more complicated in the EU. My prediction is that this will not just take the form of measures to stimulate demand, but interventions to keep businesses going.A lot of wealth will be destroyed. It will be a great moment to be a socialist.

Have I finally succumbed to cabin-fever? I have noticed more than one columnist I respect going a bit off the rails (look at Matthew Parris in The Times this weekend). I will have to leave that to you to judge!

The Liberal Democrats need a new vision, not a new constitution

The British Liberal Democrats suffered a poor election result last December, and it will have to bear the consequences for up to four more years. The party has commissioned a review to ask what went wrong, and to help it set a new course, which was published recently. Now it needs to take on board the report’s recommendations, and the first one above all:

Based on the lives of ordinary people in the country today, create an inspiring, over-arching and compelling vision which can guide the entire Liberal Democrats organisation for the duration of a parliament, ideally longer

The review was chaired by Dorothy Thornhill, former mayor of Watford, and the party’s most successful and effective politician, now retired, alas. Her skills were much in evidence. It is a good read, and the complete report was sent to all members, rather than a select few, with an edited version released publicly much later, as has been the case before. It does not name names, neither does it try to second guess the decision to expedite the election in the first place, where the party played a critical role. And yet it doesn’t pull its punches, describing the election as a “high speed car crash”.

The biggest problem it identifies was a lack of coherence and realism about the party’s aims, and especially muddling whether the party was trying to stop Brexit or win the maximum number of seats. Instead of resolving this, the leadership became entranced by the idea that the party could massively increase its parliamentary representation, resulting in the severe wastage of effort and resources. This was because of some encouraging polling in the summer 2019, after its spectacular performance in elections to the European Parliament. In fact the party’s strategic position became very difficult as soon as Labour came down unequivocally for a Brexit referendum in the autumn. The review is clear that there were in fact only limited opportunities for the party to advance. Fifty or more seats was never on, but increasing representation to twenty seats from twelve maybe was; instead it ended up with just eleven.

Within the “car crash” a lot of organisational dysfunction was on display, of a type seen in the two previous elections in 2015 and 2017. Nobody was sure who was in charge and different parts of the party pushed in different directions, getting in the way of each other. This dysfunction is spelt out in quite a lot of detail in the second section of the report “Summary of Findings”, after initial “Review” section which sets out a clear narrative (the narrative style did upset some people, but it adds a lot to the report’s impact).

So what next? The review after the 2017 election said a lot of the same things, but was sidelined by organisational wrangles. This time it helps a lot that there is a new President (Mark Pack) and Chief Executive (Mike Dixon – an outsider to the party), while a new Leader will be elected with the review already published. The wrangles at the party’s Federal Board, its ruling council, do not seem to be being repeated this time.

Nevertheless there is a powerful temptation for the party use the organisational dysfunction as a jumping off point for a restructure, and in particular for changing the constitution. There have already been some calls for this. There are plenty of obvious targets: the absurd size of the Federal Board, the overlapping remits the various ruling committees, the Polyfilla construction that is the English Party, and so on. But Dorothy in person is very clear that it is the organisational culture that most needs changing, not the structure. People obsess with organisation structure as a displacement activity for dealing with harder problems; I know because I have made this mistake too often myself.

And the report gives pride of place to what that much harder problem is: developing the party’s vision so that it is grounded in the way non-political people live (I dislike the term “ordinary people”; there are no ordinary people in my book). The party talks to itself too much, and has used the idea of a “core vote” strategy to provide camouflage for this. The result has been that the party has limited appeal beyond well-off professionals, at a time when all the other significant parties (Conservatives, Labour and SNP) have succeeded in broadening their appeal across social class. Alongside a core vote strategy the party must develop a powerful appeal for more sceptical voters for on an election by election basis.

One prominent finding of the report is that the party failed to develop its appeal to ethnic minorities. This is true, but the New Statesman’s Stephen Bush makes a good point that the report oversimplifies this. There is no “BAME” community; there are many communities and the other parties have made progress by recognising this and developing appeals to particular minority communities. That is true, but in the case of the Lib Dems I think the BAME issue is part of a wider problem: its neglect of working class communities. Of course the persistent problems of unconscious bias mean that all parties must keep up scrutiny of their performance among BAME communities at all times – so it is right to give it prominence.

Vision is for the party leader to set, and I hope the candidates will duly focus on this, as it is not an easy problem to solve. It needs to combine a powerful appeal to members and core voters based on what the party stands for, and a more triangulated approach that will capitalise on gaps in the political market, which will involve compromises.

I don’t think the party is in too bad a shape on the first part of this. I can be hard to articulate it sometimes, but the common ground among the party’s core support is clear. The main challenge is to make it more inclusive. There is no reason that people from ethnic minorities or working classes shouldn’t feel welcome in this group: liberal values are transcendent. But what of the compromises required to broaden the party’s appeal beyond the core?

First we must talk about Europe. The party has bet so heavily on membership of the European Union that a U-turn would destroy it. It has to say that rejoining the union is an aspiration. But not now. People in the UK want to move on; so do people in the EU. The party needs to stand for a close trading relationship, even if it means compromising on “the level playing field”, though the party might want to take a tougher line on fisheries, with conservation in mind. The case for being closer to the EU needs to be based on the idea that the world is becoming an increasingly hostile place. The United States owes Britain no favours and will always extract a very high price for free trade; China is no less easy; both have developed a tendency to bully weaker powers. Elsewhere the opportunities for trading and political alliances are no less tricky.

Another tricky issue is law and order, human rights and privacy. The party has got up on its high horse about this in the past, but has often failed to make its case to “ordinary” people. The party needs to be more pragmatic, and focus on making sure that criminal justice institutions work effectively and fairly. “Fairness’ has a stronger appeal than “rights”. That leaves plenty of scope to critique the other parties.

But the party must also take risks. The Black Lives Matter campaign may be an example. While Labour under Keir Starmer triangulates fearing the white working class backlash, the Lib Dems can be a lot more robust. Ethnic minority working class people understand very well the need for multiculturalism, and are desperate for Britain’s institutions to be fairer; Lib Dems can be strong on both. I think the party needs to start a period of outreach to ethnic minority working class people; that will require financial incentives from the central party to local parties, who would otherwise gravitate to easier, more middle class places.

What of the conservative white working classes and rural middle classes? There is a big gap in political outlook, clearly, but the party must try avoid the gratuitous insults, which the anti-Brexit campaigning all too often led to.

Well these are some random thoughts. I haven’t offered anything coherent about what I think the new Lib Dem vision should be. Developing it will be hard, and I will keep coming back to the topic. But for now the key message for the party is that it must embrace the hard choices now, and avoid the temptation to spend too much energy on rearranging its internal affairs.

The post-growth economy has arrived. It’s time people accepted that

The idea that economic growth should be the top political priority, after keeping people safe, became established in the 1950s, and has become so imbedded in political thinking that it is now taken for granted. But it’s a bit like Wil E Coyote running over a cliff; we may not realise it yet, but the ground has disappeared from under this notion. We need to focus on different priorities, in rich countries anyway.

What is economic growth? It is the expansion of the money economy through the ever increasing consumption of volumes of paid-for goods and services. It focuses mainly on Gross Domestic Product (GDP), a measure of aggregate income, adjusted for inflation. This (and the related Gross National Product: GNP, more used in the earlier days) only started to be measured consistently in the 1950s. Prior to that economic policy focused more on things like unemployment and the balance of payments, with growth only being an implicit goal. Focus on growth led first to the widespread use of Keynesian demand management within a system of managed exchange rates and capital controls in the 1950s and 60s, and then on the management of interest rates within a world of free capital movements and floating exchange rates, since the 1980s. It is the one element of continuity between these two very different worlds.

Why is there a focus on growth? I think there are two main groups of advocates. The first are public policy expansionists who wanted to secure growing amounts of tax revenues upon which to build the state system, as well as to reduce the need for welfare safety nets. It is probably fair to say that these dominated the earlier growth period.

The second are the rentiers. By rentiers I mean those seeking “economic rent”, or making money without making anything (such as renting out land). The more money there is sloshing around the more opportunities there are for rentiers. These include people with investments, workers and owners in monopolies that overcharge, many senior managers, and so on. These are much more than the top 1% of the wealthiest, and include people with a substantial stake in property (such as owning their own home) or other assets. In other words not just profiteers, but those who want and expect the value of their house to keep going up. The rentiers have been in the driving seat since the 1980s, since post-Keynesian (or Neo-Keynesian) economic policy became general. There is a bit of a paradox here: rentiers make growth harder to achieve, and in fact are one of the causes of slower growth, but they adore the policies designed to promote growth.

The first critics of growth were environmentalists. An early example was E.F. Schumacher in his book “Small is Beautiful”, which made a deep impression on the my parents in the 1970s. Environmentalists pointed out that growth implied the consumption of ever increasing amounts of natural resources, and damage to the environment, and that this was not sustainable. This was not entirely true, as economic activity became more efficient, reducing its impact on the environment. Many of Schumacher’s predictions turned out to be nonsense, and yet when I look back from now to the 1970s I am struct by how much we have destroyed; and then there is the rapidly emerging climate crisis.

A second group of critics might be called “lifestylers”. These people have rejected the need to work ever harder to consume ever larger amounts of stuff. At first these could be dismissed as eccentric hippies – but people who retire early come into this category, and that became a widespread life objective from early on. Since then the expression “work-life balance” has become popular among younger people. The interesting thing about lifestylers is that they don’t usually object to economic growth in principle (they may be rentiers after all), but their economic choices make achieving economic growth harder. They vote against economic growth with their feet.

The third important group of critics are conservatives: those that object to the changes that growth brings, such as the closure of old-fashioned businesses, outsourcing abroad or the growing use of immigrants. While some supporters of Brexit claimed to do so to improve Britain’s growth prospects, the Remainers cut little ice with their arguments that Brexit would slow growth down. Most Brexiteers simply thought that it was a price worth paying to send the immigrants home.

All three groups have been steadily gaining ground, and then into the mix has come the Coronavirus crisis. It is quite sobering to see how much economic activity people regard as “non-essential”, and how rapidly people are happy to reduce consumption when health and wellbeing are at stake. As we climb out of lockdown, we happily pile restriction upon restriction onto businesses to make them safer. There will be an inevitable cost to this, making it an impossibility to get back to the level of GPD prevailing before the crisis. Now even people who favour growth in theory will be unable to accept the price in practice. Furthermore, after the sobering experience of life being turned upside down in weeks, it is likely that people will save more and consume less to improve their financial resilience.

But abandoning growth as an objective means a profound change to the way our political class makes public policy choices. It is not surprising that so many of them are emulating Wil. E Coyote. What are the new priorities?

I put jobs first because that must be the focus of the recovery from the Coronavirus crisis, and it is urgent. It used to be argued that jobs had to follow growth. This isn’t nonsense: job creation schemes not based on sound economic principles will fail the end. But the link between jobs, and especially the sort of jobs that give people security and self-respect, and growth has become a lot weaker. Government interventions need to focus on jobs first, while still considering sustainability. The idea of a government-sponsored job-guarantee scheme is certainly worth a closer look. There are many potential pitfalls in such an idea, but for my money it is more promising than the much-touted idea of Universal Basic Income. It is important to make the point that an economy without growth is not an economy without jobs.

Second in my list is sustainability. This has both environmental and economic senses. Economic sustainability will need to be rethought, especially if people start to consume less and save more. This will mean that much higher levels of government debt will be sustainable. Environmental sustainability should be the main guide public investment. There is a lot of work to do to make our economy environmentally sustainable, but we should not delude ourselves that this will necessarily increase GDP.

Third is inequality. There is a lot of poverty in our society, and if the cake isn’t getting bigger then poverty will only be tackled by making somebody else poorer. This is a notoriously difficult problem, but some countries manage it much better than others. A job guarantee scheme could play an important role. Another important point is to tackle rentiers, through taxes and promoting competition.

And finally in my list (I could go on) is government effectiveness. In a low growth economy, the ability of governments to tax is limited, and a lot of resources will be consumed in addressing inequality. It follows that governments should use their resources more effectively. The public sector is rife with its own class of rentiers, from consultants offering to implement “world-beating” systems that don’t work, to defence contractors using national security to cover up waste, to excessive union power stopping managers from managing. We need to develop a culture of effective, delegated public sector management, accountable to a reworked political system.

Low growth has arrived, however much policymakers may dislike the notion. It is imperative that the political elites of rich countries reorient themselves to the new reality.

The Coalition at 10: keeping nationalism at bay

In hindsight the most important trend in politics over the last decade has been the rise of nationalism – and the backlash against internationalist liberals, inevitably styled an “elite”, as if all political movements were not led by elites. In Britain did the Coalition stood firmly against this trend.

In this third article of three reviewing the Coalition, I will look at its record on the business of politics itself. In the first article I looked at the record on the economy, in the second I looked at public service reform. In my choice of three topics I am leaving quite a lot out. On the environment and energy, the Coalition made a decisive move towards renewable energy, perhaps its biggest single achievement; on civil liberties it rolled back, slightly, the heavy-handed approach of its predecessor; a notable achievement was the implementation of gay marriage; in foreign affairs there was an intervention in Libya alongside the French which met its short-term aims but left a mess; apprenticeships were given a major lift, but further education colleges (i.e. not universities) suffered neglect. There was a rather pointless reform of policing, though whether this, and austerity measures, led, eventually, to a rise in crime is a moot point. I would rather blame the dismantling of so much civic infrastructure run by local authorities, which the Coalition started, but which its successor doubled down on. A rather mixed record then, but perhaps not too bad by the standards of five-year terms.

But what of political reform? How much were we aware in 2010 of the rising tide of populism and nationalism? In 2009 the political establishment was rocked by a scandal over MPs’ expenses. This distilled a growing disillusionment with the way politics was run, after the wave of enthusiasm that greeted the “New Labour” victory in 1997. Politics seemed to be run by an out-of-touch elite of professionals, whose competence was thrown into question by the global financial crisis, which struck Britain particularly hard, and whose rotten moral compass was now exposed.

But the new kids on the block thought they could get beyond that by deposing the old Labour regime and its nannying ways. Liberal Democrats were especially hopeful that the experience of coalition politics would demonstrate a new, more transparent politics, that would help build confidence. Politics was indeed more transparent, but nobody thanked them for it. Indeed the Lib Dems’ entry into government to most people showed the unaccountable elite at work; the Lib Dems seemed to be enjoying their time at the top table too much, feeding the narrative that they were putting their careers before the country. The ambiguities in the electoral coalition that brought the Lib Dems their substantial presence in parliament were exposed cruelly. The party’s popularity was in free fall before a spectacular U-turn on student tuition fees dealt the party a blow from which it still hasn’t recovered.

The weakness of the Lib Dems did for most of the constitutional reforms that the party had hoped to push through. A referendum on adopting the Alternative Vote for parliamentary elections was lost heavily as their Conservative coalition partners mobilised against it, doing long-term damage to the whole prospect of electoral reform. Reform of the House of Lords disappeared as the political establishment cold-shouldered it. The Lib Dems extracted limited revenge by stymying a Conservative project to equalise constituencies to their advantage. This left the Fixed Term Parliament Act, implemented mainly to stabilise the coalition, in which it was mainly successful. This legislation has few friends these days, but it is still there. It’s value was shown last year when it briefly empowered parliament against a mandate-less government.

More positively the Coalition progressed the development of City regions, taking on more devolved powers, and coordinating local councils. This project was led by Lib Dem leader Nick Clegg, and Conservative minister Greg Clark. This was a process started by Labour – but the government limited council’s ability to raise revenue or borrow, which are the key tests for meaningful devolution.

In broader politics Labour started its long journey down the far-left anti-austerity rabbit hole, leaving the field clear for the two most important developments: the rise of Scottish nationalism, and theBrexit movement, led by Ukip. Both would dominate politics for the rest of the decade. The Coalition found itself on the defensive on both counts, but kept both at bay.

In Scotland the Scottish Nationalist Party (SNP) surged to victory in the Scottish elections of 2011. The Coalition accepted this as a mandate for a referendum on Scottish independence. Was this a mistake? It did not help to heal the rift between Scotland and England. I suspect Coalition leaders accepted the SNP government’s moral case; neither party had any appetite for a prolonged battle over whether such a referendum should take place, and in the event the main victim was in fact Labour. The referendum took place in 2014, and the unionists won. But the battle energised the SNP, whose dominance of Scottish politics continues to this day. Many see Scottish independence as an inevitability. I am not so sure, but coherent opposition to the SNP seems to be a long way off.

In due course the battles over Scottish independence would be dwarfed by the Brexit movement. This movement successfully channelled dissatisfaction with the Coalition and its liberal leadership in a way Labour could not, as the previous Labour government was seen as part of the problem. The battle was fought on two fronts. First was within the Conservative Party. While its leader, the prime minister David Cameron, had a strong grip on the parliamentary party (helped by the presence of Lib Dems in coalition), the Brexit movement gathered strength at grassroots level. Second was the rise of Nigel Farage’s Ukip. This quickly replaced the Lib Dems as Britain’s third party in opinion polls, and gnawed away at the Conservatives’ local base. The only way that Mr Cameron had found to keep the movement in check was the promise of an EU referendum, knowing that he could rely on the Lib Dems to veto it. At the same time his chief electoral strategy was to destroy the Lib Dems at the next election. The 2016 referendum was where this strategy ended up.

Looked at with hindsight the Coalition’s battles with nationalism look like a moderately successful rearguard action. They succeeded in delaying their enemies but without any ideas on how to stop them. What if Mr Cameron had narrowly won that referendum in 2016? It is hard to think that British politics would be anything other than very ugly.

Liberals have now developed a much better understanding of the problem: the pressures on small towns and the countryside, of economic growth that bypasses most people. But answers? We have made little progress since Coalition days, having preferred to rally around opposing Brexit. With the nationalist takeover of the Tory party now floundering, and with the old-fashioned leftism of Jeremy Corbyn defeated, this is surely the moment to do better than that. But new liberals will not look back on the Coalition government of 2010 to 2015 as a template.