The Labour leadership race becomes a lot more interesting – but exposes the party’s hollow heart

Jeremy_CorbynApart from one piece shortly after the election I have resisted blogging about Britain’s Labour Party after Ed Miliband’s departure as leader. It felt too much like displacement activity from confronting the predicament of the Liberal Democrats, to say nothing of a depressing turn of world events. I am glad I did so. Because I had not foreseen the turn that the leadership election has just taken.

To start with there seemed be just three serious contenders: Andy Burnham, Yvette Cooper and Liz Kendall. They all stuck to a standard Westminster narrative that Labour needs to move to right to draw back voters that they had lost to Ukip and the Conservatives. These, it was thought, were put off by Labour’s perceived softness on austerity policies. Ms Kendall attracted real momentum amongst the small circle of media commentators because she proposed a sharper move rightwards than the other two. And she was a fresh face, untainted by the the years of Brown and Blair. But neither of the other candidates was exactly left-wing, though Mr Burnham tried to nuance is message a bit to the left to draw in leftist support.

But as nominations closed a fourth candidate was let in: Jeremy Corbyn, a paid up metropolitan leftist who used to be a trade union organiser, before starting a long parliamentary career in 1983 representing Islington North – and whose views have no moved on since. Some Labour MPs nominated him apparently to liven things up a bit rather than because they actually wanted him as leader. There was a precedent for this. Another left-winger, Diane Abbott, was “lent” nominations by other candidates, embarrassed that the field otherwise consisted of white male ex-ministers. Ms Abbott lived up to her token status and did not get very far. No doubt MPs thought the same would happen to Mr Corbyn.

This has turned out not to be the case. Mr Corbyn quickly attracted nominations from many constituency parties, as well as the support of the vast Unite union. A private poll has reportedly shown him actually leading first preference votes at 33%; the same poll showed Ms Kendal nowhere at 4%. Quite why Mr Corbyn proved a more effective candidate than Ms Abbott I cannot say. Ms Abbott is an engaging, intelligent and colourful individual. It may simply reflect the mediocrity of the other candidates. Perhaps it’s good old fashion sex and race bias (the male candidates were well ahead). Maybe Labour grassroots supporters have moved to the left. No matter, Mr Corbyn is free from the conventions and coded messaging of normal Westminster politics, and speaks his mind more clearly than the other candidates, giving him the prize of “authenticity”. And he is unambiguously of the left – attacking austerity, promoting free university tuition, and so on. His appeal to Labour activists and trade unionists is not hard to see. At last somebody is articulating what they are thinking.

Labour’s opponents amongst the Westminster elite can hardly contain their glee at this turn of events. Mr Corbyn is regarded by them as unelectable. Some are urging Tory supporters to join Labour temporarily to vote for him. They may be right about his electability, but that would be to underestimate the significance of this turn of events. The Labour leadership contest has been turned into a real battle of ideas.

This is unusual in such contests. Usually contenders are mindful of the need to unite the party after their election, and so they tend to deal in coded messages. The recent Lib Dem leadership contest was like that. And that was the case with the contest before Mr Corbyn entered it, apart from Ms Kendall, perhaps. This poses a challenge for the middle of the road candidates, Mr Burnham and Ms Cooper. Do they sharpen up their act and challenge the fantasies upon which Mr Corbyn’s campaign is based? Or do they give Labour members another helping of fudge, hoping to pick up  second preference votes of left-leaning members?

If it is the former, it could be good for the party. Unity is prized too much by party leaders; sometimes it is important to have big row and trample over people’s sensitivities. Otherwise conflict is not properly resolved and breaks out at a much less convenient point. This is something that Tony Blair understood very well in the 1990s. He had an easy victory in the leadership contest, but he then took the trouble of rubbing the leftists’ noses in it by changing Clause 4 of the party constitution. Mr Miliband’s focus on party unity simply left lack of clarity and muddle. The Labour leadership contest has a while to run yet. This gives party members plenty of time for the cold hard logic of a move to the political centre to sink in and elect Mr Burnham (still considered the front-runner) or Ms Cooper (for my money a much better choice); but the leftists will at least have had their moment of glory and been beaten in a fair fight.

But there are risks. If Mr Burnham or Ms Cooper wins by means of artful fudging, rather than challenging the left, they will be stuck in the same mire than Mr Miliband left the party in. They will then need to take on the left in some symbolic fight on a policy issue; they may well not have the courage to do so. And it might risk a fatal split.

Or Mr Corbyn might actually win. With a tiny power base in the parliamentary party, and no experience as a front line politician, this is not likely to go well. He might well turn out to be an Iain Duncan Smith or a Ming Campbell, leaders (Conservative and Lib Dem respectively) who were forced out because they couldn’t take the pace. Or else there might be a split in the party and the more “moderate” elements form their own centre party, seeking an alliance with the Lib Dems.

All this looks very good for the Conservatives. There seems to be a hollowness at the heart of Labour, which makes it very hard to bind together the pragmatic wing of the party with the left wing ideologues who provide the footsoldiers, and, through the trade unions, much of its funding. This is leaving the current Tory creed of economic liberalism without any serious opposition, unless you count the vacuous anger of the left. A landslide win in 2020 beckons.

Of course I believe that there is an alternative political and economic narrative that can offer a credible challenge to this conventional wisdom. The Liberal Democrats are closest to understanding it. The Greens are likely to take it up once somebody else starts to promote it. But almost nobody in the Labour Party is looking for it, as they  furiously debate a false choice between economic liberalism and death by tax and bureaucracy.

Is the Euro worth saving?

Anglo-Saxon economists were always sceptical. And so was much of the British establishment, though less so in the early days. But sponsors of the European dream were determined. And at first European Monetary Union defied the sceptics. But now the dreams are vanished and the only people defending the union seem to be those that have face to lose. Is it all over for the Euro?

It is Greece that seems to prove the scheme’s futility. The Greek government cannot repay its debts; its banking system depends on a bankrupt government for solvency and the European Central Bank (ECB) for liquidity. Greece cannot print its own money to inflate its way out of the hole. Instead European institutions and the IMF have to bail it out, and they are demanding conditions that add up to a loss of the Greek government’s sovereignty over its economic policy. Both sides blame the other, and the more the blame game goes on, the more trust and solidarity break down. The Euro is tearing the union apart, when it was supposed to bring Europe’s peoples together.

It doesn’t take hindsight to see what went wrong. Mostly the scheme’s weaknesses were pointed out at the start. Its supporters (who included me) just thought that this time it would be different.

Monetary policy is set at continental level, and yet there isn’t a great deal of economic integration. In order to adjust to local business cycles and local economic shocks, national governments have only a very limited set of tools. And the most important, fiscal policy, is constrained by the Stability & Growth Pact. This was instituted to try and prevent member governments becoming insolvent, a contingency that the zone had no process to deal with. This made it quite unlike a federal system, like the US, the only comparable monetary system that most knew. In the US there is a strong federal level of government, which draws substantial taxes from all parts of the union, and can make big fiscal transfers between the union’s members to compensate for the lack of monetary flexibility.

Funnily enough the problems with this set up did not play out in the way that most critics foresaw.  They thought that different business cycles or local shocks in different parts of the union would be the big problem. This happened – especially when the central economies of Germany and France endured recession, while peripheral economies, such as Spain and Ireland fizzed. But these were not the main cause of the crisis that emerged following the global financial meltdown in 2008.

The first problem was that investors assumed that member governments could not go bust, and that if they got into difficulties somebody would bail them out. As a result, it became much easier for the peripheral governments to borrow, and this allowed them to run their economies with a looser hand than they should. This was most egregious in the case of Greece, who produced misleading economic statistics, which put their government into a completely unsustainable position. And when it was clear Greece could not repay its debts, the system had no set of processes with which to manage the crisis.

Perhaps Portugal and Italy were guilty of something similar without the fraud, though Italy has not needed a bailout. But the other bailout cases (Spain, Ireland, and Cyprus, though I am less confident that Cyprus follows quite the same narrative) the main problem was not government finances, but a reckless private sector that fuelled property bubbles. What added fuel to these bubbles was cross-border flows from elsewhere in the Euro area, and especially German banks. The Euro system had greatly facilitated such flows. When the bubble burst, it brought down the countries’ respective banks, and this in turn draw their governments down with them. Governments couldn’t let the banks go bust, since they controlled local payments systems and economic chaos would have resulted. Like Greece these countries then needed external support and bail-out.

The important point to make about this series of crises was that they were to great extent “endogenous” as economists like to say – they have to do with the way the system itself operated – and not exogenous – the external shocks and uncontrollable factors which most economists thought was the system’s weakness. That suggests that bad systems design was a large part of the problem – and that, in theory, could be fixed. Most suggest that it implies a fully federalised system, with a federal government, supported by federal taxes and federal debt. An alternative route would have two main elements: a national insolvency regime (a bit like US states, but not Puerto Rico, which is on the path to creating a US version of the Greek crisis); and banking reform to produce a more federalised banking system firewalled from member governments.

But either route would leave member governments facing a grim reality. The Euro offers a straitjacket for government finances, and not a liberation. In the fully federalised case, the scope of government responsibilities would be curtailed and handed over to a federal government. In the alternative governments would be heavily restricted by their ability to borrow in financial markets (which would do away with the need for the Stability & Growth Pact). This latter is, in fact, what many supporters of the Euro (including me) envisaged all along (though in my case I completely failed to grasp the difficulties of managing the banking system). It was rather a Thatcherite project. But others thought EMU would be a step along the path towards a federalised Europe. It was the unresolved conflict between these two visions of the Euro that got the system into its current mess.

And this conflict is still unresolved. But the federal vision is losing ground; there simply isn’t the political support for it. That doesn’t stop people in the European Commission from quietly pushing for it though. But those who aren’t convinced by the federal idea, aren’t convinced by the multi-state currency area alternative either. Why opt for a straitjacket? Wouldn’t it be more democratic and easier to say goodbye to monetary union altogether and let each country go its own way with its own currency?

And I don’t have the answer to that. One thing I will say is that the quality of economic commentary in the media is pretty dire. From this you would think that the advantages of having a floating currency make doing anything else foolish. But all Economics students are asked to do an essay on the pros and cons of floating currencies, and frankly it is not that obvious that either route is a winner. As a rule, the smaller and more open the economy, the more there is to be said for a fixed currency regime – which is why the Euro is popular with so many smaller EU members. Floating currencies reduce the effectiveness of fiscal policy, especially in such small and open economies. The rather loose fiscal policy of the Britain’s government in the 2000s caused the exchange rate to be too high, leading to a trade deficit and a hollowing out of British industry the country still have not recovered from. By contrast Germany has been able to maintain its industrial base within the Euro, albeit with some painful restructuring.

And a floating rate does not prevent banking bubbles. Iceland had one in parallel with Ireland, with its own currency. Recovering from the bust best no less painful for Iceland than for Ireland, though arguably not really any worse either.

But setting up a more secure banking system across the Euro area is no small thing, and its feasibility is an unknown. Against this, taking the Euro apart would be a huge undertaking, so there is there is much to say for trying to make it work on a rather less ambitious scope. Inertia is on the side of the Euro. But the starry-eyed enthusiam is gone

 

 

The political isolation of Britain’s working class: liberals should reach out

Conservative Chancellor George Osborne’s Budget last week, his first without the need to negotiate with the Liberal Democrats, was widely hailed as a feat of political brilliance. It has put the opposition Labour Party into disarray. At its centre was a direct attack on Britain’s working poor. Nothing could demonstrate that group’s political weakness better.

Part of the political acuity was the spread of confusion over where the budget pain was to be felt. Mr Osborne, and the Prime Minister, David Cameron, had earlier set out their intention of wooing working class voters to their party. Huge cuts to tax credits, the Budget’s centrepiece, were camouflaged by rises to the minimum wage, to be renamed “living wage”, by more than even Labour had been proposing before the election.

Britain’s tax credit system was implemented by Labour Chancellor Gordon Brown. It is designed to top up the wages of those not earning enough to meet basic needs, in particular the costs of bringing up children.  Various arguments were used to justify this. It was said that companies were paying workers less because they were anticipating the effect of tax credits. The system was created by Labour so as to create a bank of dependent voters. Aspersions were cast on claimants as being shirkers, or feckless, especially poorer people who dare to have larger families (one proposal is to stop support for children after the second). It would be better to pay people more, and to tax them less, than to hand out state aid.

None of this really bears up to scrutiny. The minimum wage and higher tax thresholds are pinpricks on the wider problem for low pay. There was no sign that the public sector, for example, was going to be any more generous in its treatment of lower paid workers, many of which it pays for, directly or indirectly (through outsourcing contracts). Academic research does not support the idea that tax credits lead to lower pay – or at least, not by much. Claimants for tax credits are already working; they are very clearly not part of the army of shirkers, who, so far as they actually exist, claim direct state benefits. With an ageing population it is far from clear that the country needs fewer children with working parents – and poverty can adversely affect the progress of those children, reducing their chances of playing a full and active part in the economy.

This was nicely illustrated the Economist’s Bagehot column this week. He (Jeremy Cliffe) visited a local estate in south London (not all that far from where I live, as it happens), and talked to some of Mr Osborne’s proposed victims. He found a number of working women, with a diverse range of heritages, facing up to a difficult predicament with dignity. At the school where I am governor, such families demand increasing levels of support if their children are to keep pace with those from more fortunate families. We are lucky that the proportion of such families is manageable: but their needs will grow; our funding will not.

What our society is confronting is one of the most important issues it faces. It is the disappearance of mid-level blue and white collar jobs, and their replacement by less secure and less well-paid ones. These new jobs are overwhelmingly in service industries – carers, cleaners, call centre operatives, security guards, and so on.  This change is overwhelmingly due to new technology – but it has been helped along the way by globalisation. These new jobs often do not pay enough to allow their workers to fully participate in society – especially if they have children.

But it is not at all clear what the solution is. Two traditional answers do not look promising. The first is to improve productivity. And yet in these jobs it hard to see how this can be done without increasing general alienation. In any economy some jobs lend themselves to advances in productivity (think factories) and other don’t (think hairdressers). As the former become more productive, the proportion of workers in the second group increases. This is a phenomenon known as “Baumol’s disease” by economists – and it is a large part of what is going on here. The economy is stratifying between a small number of highly productive jobs, and a large number of relatively unproductive ones.  The former can lift up general levels of pay for everybody – but only so far. Improving productivity may simply help an elite of better off workers, without doing much for everybody else.

The second traditional answer is to increase job protection to improve the bargaining power of those in poorly paid jobs. This is the route favoured in such countries as France. It tends to lead to either or both of two things: higher unemployment or a growing army of temporary workers with fewer rights.

We are left with three routes that look inadequate, but must still be pursued. The first is redistribution through tax, benefits and freely available public services. Our tax credit system is a key element of this. The fact that its cost has escalated well beyond the scale originally envisaged simply shows that the problem it is trying to fix has grown. The answer is as surely to be higher taxes and not reduced benefits. The second route is universal education, and initiatives to ensure that children from poorer backgrounds get more support. This gives more people access to better paid jobs, and makes the job market less easy to stratify. Progress has been made on this, but it remains under pressure from lack of finance. The reduction of tax credits associated with children will be a step in the wrong direction.

And third is the strengthening of local communities and local economies. This may not make the economy much more productive in the traditional economic sense of creating more goods and services to consume, but it serves to humanise society and to tackle the exclusion that is the biggest cost of poverty. Tax credits have no role to play in this. They are a giant, soulless centralised system controlled by rules made by bureaucrats and politicians far, far away. They only help by improving incentives to work, and participate in communities that way, rather than dependency on straight benefits – which is corrosive of communities. But nothing the current government is doing, or the political elite is thinking about, is advancing this third, important approach. It does not follow from grand initiatives that make big political careers.

And the sad thing is to see how politically marginalised the modern working class has become. Our old picture is of white men, working in factories and belonging to unions. But this strata of working class is disappearing. Instead we have a growing army of male and female workers from diverse ethnic and cultural backgrounds. They are not unionised, and split into multiple communities. They often do not vote. The Labour Party, the traditional sponsors of the working classes, is now more interested in chasing their more engaged and better off cousins in what is left of the traditional working classes and in the middle classes (“Middle England” as I have called it). Middle England is not very sympathetic to the plight of the new working class. This has weakened the party’s opposition to Mr Osborne’s budget – though thankfully three of the four prospective leaders see that their stop-gap leader Harriet Harman has gone too far in suggesting that Labour will not oppose the cuts to tax credits.

Liberals, I believe, must stand firm behind tax credits, accepting tax rises to support them if need be. We should also support education policies to ensure the full participation of children from poorer families. But the real hope lies in reinvigorating local communities. We should remember that this is not just a middle class thing. The Liberal Democrats in particular have been forced back into a middle class ghetto, and I suspect that many find this a comfortable, if small, place to be. But the real need for liberal solutions is amongst the country’s new working class, and that is an important area for outreach, based on community politics.

 

To build a core vote the Lib Dems will need to change culture.

After a series of catastrophic election results, the Liberal Democrats 80-20
are indulging in some deep thinking about the party’s future. The one silver lining from the party’s disasters is that it is left with the nearest it will ever get to a blank slate on which to rewrite what the party is.

Into this debate comes an important pamphlet. The 20% strategy: building a core vote for the Liberal Democrats by former Cambridge MP David Howarth, and inveterate blogger Mark Pack. I would urge anybody interested in the party’s future direction to read it. The jumping-off point is familiar to anybody that has followed the party’s internal debates. Critics of the party’s leadership (especially under Nick Clegg) suggest that the party neglected the build-up of a core of loyal supporters who would vote for the party come what may. This core now stands at something like 5%, and is much lower than that enjoyed by the Conservatives and Labour, or the SNP in Scotland, and is being challenged by the Greens. Instead the party chased the floating voters of the “centre ground”. But instead of articles sounding off in Liberator magazine, this pamphlet is altogether more serious. It starts with a real attempt to look at evidence, and moves on to a concrete set of proposals.

The authors believe that the party is held together by shared values, rather than class identity or nationalism. These values are shared by about 35% of the country – those who display openness, tolerance and internationalism. That 35% figure comes from a polling answer to a question about immigration. From this the authors reckon that a 20% core vote is feasible. There is some interesting analysis of that 35%. It leans left, tends to be female and is ethnically diverse. It isn’t hard to see how the party’s appearance of being white, male and in coalition with the Conservatives got in the way of building that vote.

So what to do? I would urge readers to read the paper – there are many facets to their action plan. They want the party to formally adopt a core-vote strategy, and to establish a national campaigning infrastructure to focus on this, to complement efforts to build the local government base, and winning parliamentary seats. This national level of campaigning, led by an elected Deputy Leader, would build up the party’s vote for proportional voting elections, of increasing importance to the party, and provide a home for supporters not lucky enough to live in one of the areas where the party is active locally. This national campaigning would focus on issues that demonstrate the party’s values – go to places that other parties cannot. Paddy Ashdown’s stand on Hong Kong and Yugoslavia are quoted as past examples of such campaigning.

I can see this paper and its proposals being very popular in the party. They make a lot of sense. There is something for everybody. I particularly like its realistic assessment of local parties in areas where the party is weak. So often the party’s campaigners have glib answers to the challenges. “Just set up a target ward and grow from there,” they say. I am happy to support the paper myself.

But it is all too easy. The authors point out that a core vote strategy is hard, and that the party has failed in its many past attempts. That tells me that something big has to change; a lot of received wisdom has to be put on the scrapheap, and a lot people in the party are not going to like it. It is not just a matter of adding another strand of campaigning, and then tweaking the party’s internal processes here and there. The danger is that everybody will assume that all the changes in behaviour apply to other people, and they will continue to do what they have always done, with a bit of judicious relabelling.

But succeed in cultural change such a big change you need to have a flaming row, and annoy some people a lot. If need be such a row has to be provoked artificially. The one successful political transformation achieved in recent times in Britain was by Tony Blair, Gordon Brown and Peter Mandelson to the Labour Party in the 1990s. They theatrically replaced Clause 4 of the Party’s constitution to show they were serious – rather than just ignoring it. Contrast this with David Cameron’s attempt to transform the Conservatives, where he was careful to avoid such rows – with the result that the party never really changed (or not not in the direction he favoured).  Only now are there signs that he and George Osborne are ready to make  genuine cultural change for the party, towards economic liberalism, with EU referendum being the chosen field of conflict. Even worse was Ed Miliband’s attempt to move the Labour Party to the left while maintaining party unity, which left the party in a terminal muddle. So if a cultural change requires a degree of conflict, where will conflict need to be invited if the Lib Dems are to make a success of a core vote strategy?

The first place is in what the pamphlet calls the three pillars of campaigning: local, parliamentary and national-core vote. In their vision these three happily coexist. But they also compete. In the Kennedy years the party brilliantly built up its parliamentary base – but at the expense of brave national campaigns to demonstrate core values. The exception was the the party’s stand on the Iraq War; but Charles Kennedy had to push for that in teeth of advice that rocking the boat would not be good for the party. Parliamentary and local government campaigns depend on winning over floating and tactical voters (“It’s a two horse race” and a bar chart are almost compulsory in Lib Dem election literature). Strong national campaigning is likely to upset those voters and the activists trying to woo them. The party is obsessed with winning electoral contests; that obsession must be loosened if a core vote strategy is to take root. It must recognise the idea of good losers – candidates who did not come first but built up members and long term voters.  This concept is so alien to the party’s campaigners that they will not take it seriously. This is why the idea of these values campaigns being led by an elected official with a separate mandate (whether or not Deputy Leader) is a critical element of the overall plan.

So campaigning is likely to provoke conflict, but it is not an easy place to have a theatrical row to demonstrate that the party really has changed its spots. That may arise from political strategy. Political strategy is about how the party intends to use its assets, especially seats in various representative bodies, to further its aims. For a liberal party that must mean working with other parties – rather than throwing rotten tomatoes from the fringes. To date such political strategy has been left to the leadership, and not spelled out clearly to electors and debated amongst the wider membership. At parliamentary level the declared policy is to work with the largest of the main parties to form a coalition in a hung parliament. But it matters a lot to voters and members which party or parties the the Lib Dems choose to work with. That is one reason why their vote tends to drain away in election campaigns when a hung parliament looks likely. In this year’s election the party’s stand contrasted with the Greens, the SNP and Plaid Cymru, all of whom said the would not work with the Conservatives.

But the party’s campaigners hate to take sides – they see that it will upset groups of voters they are wooing, and so make winning marginal seats that much more difficult. When the question was put to the two leadership contenders at the London hustings, neither said that the party should change its position of working with either of the main parties. That surely has to change. It makes the party look opportunistic and transactional – only interested in the status of power, rather than principles. This was the most wounding criticism of the party while it was in coalition. The party, after debate and consultation with members, will need to say that it will not work with a Conservative-led government (the party may accept Tories as junior partners…). In due course we might contemplate electoral pacts in order to promote an agreed programme of political reform. Labour is the competition; the Tories are the enemy. And I say that as somebody from the right of the party that loathes the Labour party, and has more sympathy with the Conservatives than most.

I do want the Liberal Democrats to want to be a clear and effective political voice for the 30% of so of the electorate that is open, tolerant and internationalist. I also want it to champion reforms to politics, public services and economic management that place sustainability and wellbeing at their heart, rather than money and  vested interests. David Howarth and Mark Pack point to some useful next steps. Necessary, perhaps, but not sufficient.

 

 

 

 

Greek crisis: the problem is loss of trust

The leaders of Greece’s Syriza government are clever people. They include university academics, well versed in modern economics, including game theory and the theory of negotiations. After yesterday’s decisive No vote in the referendum on settlement terms, these negotiators now feel they have a strong hand. I don’t share their optimism.

Unless you believe the conspiracy theories that Syriza’s real aim is to create a Venezuela in the Mediterranean, they appear to think that their EU counterparts and the IMF will be forced to negotiate because the consequences of not doing so are dire. What they seek are two things. First is that the level of government debt be reduced through forgiveness. The second is that the Greek government has a free, or freer, hand to follow an economic policy of its choosing, supported by fresh funding, primarily in the form of support for the Greek banking system by the European central Bank (ECB).

On the face of it neither of these requests is all that unreasonable. The moral case for debt forgiveness is a sound one. In the modern age more responsibility needs to be pinned on creditors to lend responsibly, and to suffer losses otherwise. The lending made to Greece before the crisis was not responsible, although misinformation from the Greek government contributed. This moral case is softened but still stands after two things. The Greek debt has already been substantially restructured so that the country’s interest rate burden is proportionately less than even Germany’s; the net present value of Greece’s debt is not nearly as high as you might assume for its nominal size. And now the debt has been taken over mostly by government agencies; the private sector banks that originally lent the money have mostly been paid off, after significant losses were forced on them.

And as for economic policy, the nominal Greek aim is to set up a virtuous circle of increasing demand that will help the economy to recover, so that its banks can repay the ECB, and that other lending becomes more sustainable. There is a familiar, Keynesian demand management logic to this. I think this is why so many respectable economists (especially based far away in the US)  support the Greek government’s standpoint. There is also a powerful argument about democracy – surely a democratic Greek government should choose its own path to a sustainable economy? The sight of so many unelected functionaries dictating terms to the Greek government has angered not just Greek citizens. I have seen many comments this morning about how the Greek referendum vote was a blow for democracy. The People have spoken!

So what’s the problem? International leaders are masters of fudge and pragmatism. Surely some kind of face-saving formula can be found that will be better than the consequences of a collapse of the Greek banking system? This is now a clear and present danger. Greeks having been withdrawing deposits from their banks, making the system insolvent. Since this looks like a temporary problem, the ECB has been prepared to prop the system up with emergency funding, awaiting the return of those deposits once a new deal has been struck. But last week this support was cut off, as the confidence of European governments was shaken about the ability to do any deal, when the Greek government called the referendum. With the referendum done the outgoing Greek Finance Minister, Yanis Varoufakis, suggested that this funding would return while a new and more reasonable deal was in prospect. Mr Varoufakis, who had taken to lecturing his European colleagues on basic economics, even resigned to make such a deal easier to negotiate.

But all negotiations are built on trust. You have to believe that your counterpart will stick to their side of the deal. And this has always been the problem with Greece and its creditors. What these creditors fear is that the Greek government do not put their economy on the path to true sustainability, and that it and the country’s banks will continue to need injections of foreign money without any real prospect of these being repaid. And this further support will have to supplied or underwritten by fellow European governments. There is little feeling of solidarity with the Greeks from other European electorates. Better off countries, like Germany, Finland and the Netherlands are outraged about the prospect of more taxpayers’ money being sent to countries that they see as feckless. Many east European governments, like Slovakia or Lithuania, are poorer than the Greeks overall, and see no reason to let the Greeks off; in some cases they have been forced to endure harsher austerity regimes than the Greeks were. Governments in other countries that have been subject to bailouts, Spain and Portugal in particular, do not want to give an easy victory to Syriza, lest it encourage similar movements in their own countries.

And why isn’t the Greek economy sustainable? This is a familiar combination of corruption, clientalism and ineffective government. Tax collection is inefficient; many benefits are too generous; there are too many meaningless publicly funded jobs. Many Greeks are entrepreneurial and hard working, but overall the economy does not pay its way – consumption is sustained by net imports. To create something more sustainable would require a programme of reforms, most of which would be politically unpopular. They would also suck demand out of the economy in the short term, i.e. they involve what has become known as “austerity”. Some theoretical economists, like Joe Stiglitz and Paul Krugman, seem to think that economic reform programmes can be designed without austerity. But this requires a favourable context and an efficient government – which does not apply here. The commonest way for such reforms to be imposed is through the government following a programme designed by outsiders, such as the IMF. Or else it is the threat of such an intervention that forces governments to act. These outsiders become convenient scapegoats, but in the longer term the reforms may be popular, as they deliver a healthier economy.

But the hidden background to the current crisis is that the Syriza government has not offered any convincing programme of reforms, while reversing reforms enacted by its predecessor. You wouldn’t guess this from listening to their smooth-talking spokespeople on the international media. But the Syriza movement contains many with more extreme, anti-foreigner views, limiting the government’s ability to act. The IMF in particular have found their plans utterly unconvincing. Politically they seem happy to go after rich people to tax them more. But rich people’s money is a notoriously elusive quarry; and the government is unwilling to take on any other reform with a political cost.

So what are the European governments to do? They are the critical parties on whom a deal depends. They have been humiliated by the referendum. Their electorates are telling them to not throw good money after bad. Their expert advisers suggest the Greek offers of reform are unconvincing, which means that the crisis will simply repeat itself. Over the years they have increasingly embraced an idea that had been unthinkable: that countries may be able to drop out of the Eurozone. The political costs of a negotiating failure have never been lower.

So what might happen? This depends in some measure on how well-prepared the Greek government is for this moment. If they have in their back pocket a credible compromise deal that saves some face for the European governments, we might pull back from the brink. Mr Varoufakis’s resignation is a good start, it has to be said.

What are the ingredients of such a deal? The Greek banking system must be at its heart. The banks must be recapitalised using external capital. They need to be insulated from the Greek government – in other words the money supplied by outsiders shouldn’t be simply channelled into government debt. Something needs to be offered to reduce the principal of older debts – though perhaps the interest bill can be kept intact. The Greek government can then be left to work its own way out of its short-term economic problems.

Such a deal would point towards the sort of reforms that might make the Euro more sustainable. Separating the banking system from government, with a more centralised regulatory and ultimately deposit insurance scheme. A resolution system for insolvent governments that means debts can get written down quickly. More nominal freedom for government fiscal policy – with discipline forced by bond markets, not EU agencies.

Such a deal would be a way forward. But it still needs trust. Alternatively the Greeks will have to create a quasi-currency of their own to keep their banks afloat – a first step towards the Euro exit. I am not optimistic.

 

Heathrow is a big test for David Cameron’s leadership

The election is done with, so now it is safe for the Airport Commission to report on options for expanding airport capacity in England’s South East. They have duly proposed that another runway be built at Heathrow airport.

Personally I was a bit surprised. I had expected the Commission to recommend expanding Gatwick. An article in the FT a while back led me to think that its Chair, Howard Davies, favoured the expansion of point to point services, which allow greater levels of competition, over the conventional arguments for the economies of hub airports, which favour big operators. But if he felt that way he was overwhelmed by conventional economic arguments that pointed to expanding the biggest airport, while skating lightly over the pollution and noise arguments that arise from this airport’s proximity to the main London conurbation.

I am emotionally very anti Heathrow airport. Living under its flightpath I find the noise of planes coming into land irksome, especially when they thunder over before 6am. I hate the way it ruins such beautiful places as Kew Gardens. I hate it as a passenger, as it is hard to get to by public transport or car, and when you arrive it is just too big. Every step in your journey before take-off or after touchdown takes longer than it should, and the whole enterprise is managed with the lack of imagination we expect from major corporate operators who know that you have no choice. Gatwick is a delight by comparison, especially since it was put under independent management. And I resent the history broken promises from the airport’s operators after each previous bid to expand. Which in turn undermines many of the promised safeguards proposed by the Commission. Heathrow’s lobbyists know how to dismantle such promises one at a time; their victory in this battle would give them immense sway.

But I have to admit that I’m not on top of the business arguments in favour of Heathrow’s expansion. And I have to question how much we can keep shooting ourselves in the foot, in conventional economic terms, while trying to maintain the tax base to support the level of public services and benefits as the population ages. Through gritted teeth I will admit that there may be case to be made for expanding this horrid airport.

But our Prime Minister, David Cameron, and his Chancellor George Osborne, should entertain none of these doubts. They have a conventional economic liberal approach to the economy. The Commission’s logic should make perfect sense to them, and it is exactly the sort of opportunity to invest for growth that the country badly needs in their world-view. It means the country is “open for business” in a commonly-used phrase. As such it is much more solidly based than the distinctly shaky HS2, the proposed high speed rail line from London to Birmingham and beyond. The only thing against it is the politics.

A number of their Conservative colleagues are passionately opposed to Heathrow expansion. These include the current London Mayor, Boris Johnson, and the prospective mayor Zac Goldsmith, who has threatened a by-election. These opponents all have seats in the west and southwest of London, where the party did well in May’s General Election. And in 2009 Mr Cameron himself said, “Ni ifs, no buts, no third runway.” But, as the FT’s columnist Janan Ganesh points out, Mr Cameron’s honeymoon is going to end soon anyway. Why not end it in a manner of his choosing, and on an issue that he feels is right? The quote was before a different election, and against a different proposal; and anyway he will be stepping down before the next election. The Lib Dems, who will oppose, have been reduced to a tiny rump in parliament; the Greens only have one MP. MPs from the the SNP, Plaid Cymru, and the Northern Irish parties are unlikely to show much interest either way. Massive lobbying by Heathrow’s backers will ensure that most of the Tory party stays true, and that any Labour opposition will be divided – indeed their first official response has been to support Heathrow expansion. This is something he can push through. If he acts decisively the whole thing will be a fait-accompli by the time of the General Election in 2020. Even in southwest London it will surely be trumped by other issues by then.

Will he have the nerve? Opponents of Heathrow expansion will hope he doesn’t.

The European dream slowly unravels

I am one of nature’s political optimists. But 2015 is one of those years where it is all going wrong. The Lib Dem near wipe out in this year’s UK General Election, for one thing. The rise of Islamic State is another – along with the spread of vicious Islamophobia promoted by such outfits as Britain First. Meanwhile state after state in the Middle East and Africa is failing, with vicious dictatorships taking hold in other countries. This gives Israeli hardliners the cover they need advance their own brand of apartheid, and the ghettoisation of Gaza. Any attempt at finding a humane middle way is undermined by extremists of one sort or another, in country after country.

And now, as Gideon Rachman points out in yesterday’s FT, the European dream is dying before our eyes. The idea of ever closer European union was one of the formative ones in my own politics. In 1975 I was a 17-year old that was definitely ready to vote in that year’s British referendum on Europe. I’m not sure why it should have caught my imagination so – I grew up in postwar prosperity, where the World War was just an interesting piece of history. I suppose I found British society so staid and constricting that I wished for its institutions to be subsumed into something much more modern and exciting. I meet many people of my age that feel the same way though.

But apart from opening out British society and commerce, the EU represented a path towards civilised governance and prosperity for the undemocratic countries on its fringes. Greece was the first country to take the path of throwing off dictatorship and coming in to the mothership of Europe. 35 years on and the achievements look hollow. Greece took on the trappings of a well-managed European democracy but did not take it to heart. It remained run by a rich elite which did as it pleased, while bribing the rest of society with generous pensions and meaningless public sector jobs. They became artful in keeping that show on the road by extracting grants and loans from the rest of the union at the same time as disregarding rules they did not like. They even managed to join the Euro, reducing borrowing costs, and allowing the fiction of a properly functioning European state to continue. But sooner or later the music had to stop. And when it did the foundations of the European project looked shallow. There is an absence of trust and solidarity.

The Greeks themselves, or at least those that govern them, seem in denial about the sort of reforms that will be needed to get them on the path to prosperity. They claim to be victims, condemned as to doom-spiral of “austerity”, with many Anglo-Saxon economic commentators (Noble Laureates Paul Krugman and Joseph Stiglitz among them) cheering them on. But dig a bit deeper and we find that words such as “austerity” and “reform” have been abused so that a lot of the dialogue is at cross purposes. The Syriza government wants to reform some aspects of the Greek state, but sees no problem with those aspects that I have referred to as “bribery”: maintaining ineffective public sector jobs and unaffordable state benefits, such as pensions.This leads to the suspicion, especially amongst Germans, that all the Greek government want to do is to keep the old, failed way of running the state on the road, lurching from bailout to bailout, using moral blackmail each time.

The Germans, of course, are hardly blameless. Their banks kept the Greek show on the road, in the apparent anticipation that their government would bail them out if things went wrong. That expectation proved sound enough – most of the bailout money went to them, and practically nothing towards providing the investment the Greeks so badly need. The Greek government’s moral case is not entirely hollow – but their combative approach to negotiation is destroying trust. No wonder that British Eurosceptics urge the UK government to emulate such tactics in their dealings with the EU! Even now the Greek Prime Minister, Alexis Tsipras, suggests that a No vote in the forthcoming referendum is just a step in the negotiation, not a real moment of decision. Those European leaders who have been trying to fudge things to get a deal, like Claude Juncker, the President of the EU Commission, feel betrayed.

The prospect of Greece dropping out of the Euro and then the EU is steadily growing. This would be a calamity for Greeks, and raises the prospect of yet another failed state. As more than one commentator has suggested, if the Greek ruling elites had what ti takes to run an independent monetary policy, they would not have got into this mess in the first place. It would mark a big moment for the EU too. Its first major defeat. But it has limited powers; it cannot make an unwilling partner reform itself.

And old Europhiles like me must wake up and acknowledge the truth behind that. Our dream cannot be fulfilled. The EU is a confederation, not a federal state. It cannot bind its members by force of arms, as the United Stares did when some of its members tried to secede over 150 years ago.

The question now is whether the EU can survive a Greek exit, or will it be the start of a general process of disintegration. Greece is not the only country to be a cause for concern. The other bailout cases -Spain, Portugal and Ireland – were always more serious about reform and integration, and I do not see these as being of immediate concern. Cyprus, with its cultural ties to Greece, may be different. But the future integration of Hungary, Romania and Bulgaria are far from secure.  At least they are not members of the Euro.

Greece seems to be the lesson that the EU learns by. After its entry to the Euro, the EU became much stricter about allowing further new members. After its flawed bailout, which let many private sector investors off the hook, it was much stricter with Cyprus.

But what is emerging is a different Europe. One where much less solidarity is expected. And one with an Exit door. It is a system of rules and standards that facilitate free trade, environmental cooperation and good governance – but one where it if you fail you are out. Integration is not necessarily in one direction. The union will no longer be ever closer.

Into this sad situation the British Prime Minister David Cameron enters with his attempt at British renegotiation, leading to a referendum. This may seem to be the last thing that Europe needs. But Mr Cameron’s negotiating skills are far more advanced than Mr Tsipras’s, and he is showing much more application than hitherto. This cloud offers a silver lining. It may define a looser union, but if the British public votes to stay in it will offer a counter-narrative to the slow disintegration that is happening elsewhere. Such is what is left of my European dream.

Should I apologise for supporting the Euro?

The this week’s FT Janan Ganesh suggests that those who supported Britain’s entry to the Euro back in the late 1990s and early 2000s should own up to to their error and apologise for it. He feels that the arrogance of that generation of Europhiles is undermining the pro EU case as we face a referendum on membership. Well he won’t have me in mind. I am not a prominent politician; I wasn’t even blogging in those days. But I did have an opinion – and that was that that the country should be part of the Euro – though not at the exchange rate then on offer (about 65p per Euro). Should I hang my head in shame?

In fact this also seems to be a rather desperate line of attack by the Eurosceptics, who are at last realising to their horror that they are being out-manoeuvred. They want to discredit the whole pro-Europe cause. In today’s FT , one its other writers, Martin Sandbu, comes out with a robust defence of British entry to the Euro. He suggests that if the UK had been part of the Euro economic disaster would have been averted, because the European approach to fiscal and monetary policy would have been more pragmatically British. I have also heard a that idea suggested by a commentator from within the Euro zone, though I can’t remember who.

I’m not entirely convinced. But it at least raises the big question. It is treated as entirely self evident that the Euro is a disaster, and that British membership would have made things worse for the country. But both these are counterfactuals. We don’t know what would have happened if the Euro had never got off the ground, or if Britain had been a member.

Let’s consider the first of these. When the Euro was being formed the economies of Italy, Greece and Portugal were in real trouble. Their governments were losing the confidence of the markets; stagflation followed by hyperinflation beckoned. The Euro lifted these economies – before joining the governments were forced to bring fiscal policy under control; after joining interest rates fell dramatically. But these countries failed to deal with deeper seated problems, and eventually the chickens had to come home to roost. Membership of the Euro delayed the denouement rather than caused it. Indeed it gave these countries an opportunity to head off disaster which they failed to take. Contrast this, for example, to Belgium, also considered a bit of a basket case before the Euro, whose economy now prospers, relatively speaking at least. And for each of the other members of the  Euro that ran into trouble something similar can be said. Ireland suffered the consequences of a reckless expansion of its financial system not unlike that of Iceland, outside the zone. Iceland’s crash was at least as painful as Ireland’s. Their problems reflect underlying economic weaknesses that governments failed to tackle. The signs were there. Indeed no members inside the zone seem to want to return to life outside it, with the possible exception of Germany (and Finland perhaps).

The ambiguity of Germans is understandable. The interesting thing about that country though is that they were the only, or at least the first, country in the zone to understand the implications of membership for economic management. In the early days they realised they were uncompetitive, and embarked on a programme of “real” devaluation. This was a combination of holding pay rates down and economic reforms to improve productivity. The reluctance of other countries to embrace this style of economic management is the main failure of the Euro project.

And what of the second counterfactual? What if the UK had joined? Well the first thing to be said is that the country did not do so well out of the zone. The financial crash of 2008 was deeper, and the recovery slower, than the major Eurozone economies. Britain suffered a persistent current account deficit, supported by an unsustainable exchange rate. We were in a not dissimilar space to countries like Spain and Ireland, going through a financial boom offering the illusion of wealth while not enough was being done to fix the fundamentals. It is not so self-evident that things would have been worse inside the zone.

Or perhaps not. I would like to think inside the Euro the UK would have been locked into an exchange rate that suited exporting industries (like Germany after its reform/adjustment programme) and not so subject to financial shenanigans. That would have left the economy in a stronger position after the bust. But such an exchange rate wasSterling Euro X ratesnot on offer. The chart above shows the average exchange rate between the Euro and Sterling for each year of the currency (source: stastica.com). My view is (and was at the time) that the rate of 65p was high (or too low in terms of the graph). It was distorted by excessive government spending and a booming financial sector – there was a substantial current account deficit to show that it was unsustainable. It did not drop to a more realistic level until 2007-2008. That was too late. There was no chance that the government would have followed Germany’s example in conducting reforms to improve the real exchange rate – not while everything was rosy on the surface.

So If Britain had joined the Euro at its start or early in its existence, then the exchange rate would have been too high. Which would have made the adjustment period after the crash even more difficult. I’m not going to apologise for this because I understood that at the time (or that’s how I remember it!).

But there is a bigger issue that I will have to own up to. The design and operation of the Euro zone was flawed. There are two sustainable ways of running such a common currency area. One is part of an explicitly federal system of government, which allows substantial fiscal transfers between its members and a robust system of federal political control to match.  In this system members bail each other out if they get into trouble.To judge from most commentary, you would think that this is the only way to run the zone – and that because the European polity is not ready for such a federal system, then it will never work. But there is an alternative, where each member is not so tied to the others. Each country is left to run its affairs as it sees fit, and if it can’t pay its debts, it goes bust. It requires a sovereign insolvency regime. Nobody bails failing states out.

This latter arrangement is what the Germans wanted, and it is what most Britons that supported membership wanted too. But Euro-federalists in Brussels and the southern states saw the currency as a step towards federalism. The Germans didn’t help matters by insisting on  system of fiscal rules for members – the “Stability & Growth Pact” – which is only necessary if you are heading for a federal arrangement. The idea that the system was in fact of the federal type was implied by the fact that government bond rates for the different members were almost identical for much of the Euro’s life before the crisis. This was a bad sign – and yet most European leaders though it was a good one. When crisis approached European leaders were complacent. And when things went wrong, there was muddle and confusion. This problem is still not resolved.

And here I have to own up. While I saw some of the signs, I did not appreciate the full implications of this ambiguity. I thought it was a problem that could be solved by evolution from within.

I still believe that. But the politics of EU membership in Britain are toxic enough as it is. It is better that the country is not part of the tortuous politics of the Eurozone. That is why I accept the consensus that Britain probably never will be be part of  the Euro zone. Or not until firstly the zone finds a new and sustainable equilibrium, and secondly that Britain sinks into an economic mire that destroys its self-confidence as an independent nation. Both are possibilities.

Meanwhile I am not a fan of an independent Sterling. It has a way of distracting the political elite from dealing with deep-seated economic issues, like our current account deficit, our inefficient underlying economy and our over-dependence on volatile financial flows. But, it has to be admitted, that, with the exception of Germany, the Eurozone members were equally blind to the self-same issues. I apologise for not appreciating that enough.

 

Taking community politics to the next level. Who should be the next Lib Dem leader?

2015-06-17 21.20.17Last Wednesday I attended the London hustings for the two candidates to be the next leader of Britain’s Liberal Democrats. It was a well-attended event, with up to 800 people there (not 1,200 as some have reported, though – that was the number that registered in advance). As my life still hasn’t got back to normal after my return from holiday and having the builders in, I have delayed my considered response. But here it is at last!

The two candidates are Tim Farron, MP for Westmoreland and Lonsdale since 2005, and Norman Lamb, MP for North Norfolk since 2001. Their similarities are quite striking. I find it convenient to consider most Lib Dems to be one of three camps – though all three have a strong set of shared attitudes and values, which allows constructive dialogue between them. First there are the Economic Liberals, sometimes referred to as Orange Bookers. They are part of the Westminster mainstream, with an inclination to market-based solutions, or maximising individual choice, as they might put it. This group includes the outgoing leader Nick Clegg, and it dominated the Liberal Democrat presence in the coalition government. Then there are the Social Liberals (not to be confused with social liberals, who are free and easy about other people’s private morality). These are also a mainstream strand, but they have more faith in centralised state-based initiatives, and centrally defined rights to access to state services and benefits. In the current environment this group tends to be quite conservative, objecting to most attempts to reform state spending. The former party leader, the late Charles Kennedy, can be thought of as part of this group. But both Tim and Norman are part of the third group: Community Politicians. These were important to the party’s early growth, but had been swept aside by the party as its presence in Westminster grew. They emphasise localism, and their mantra is empowering local people and communities. They see empowerment as giving people a say in decisions that affect them, rather than promoting market choice or legal rights. It is easy to see why those swept up by Westminster politics feel that this is tedious. Other Lib Dems took up local campaigning with enthusiasm, and spent a lot of time on constituency case work, referring to this as “community politics” – but they never grasped the empowerment part of the philosophy.

But it was clear from the hustings, and their track record, that both Tim and Norman are not amongst these superficial community politicians. That will make the next period of the party’s existence more interesting. But the philosophy has its limits. It isn’t well understood by the Westminster crowd of civil servants and media types – who keep trying to bring things back to nationally run services or nationally defined rights – things that leave Westminster in control. It is very hard to drive through national reforms to facilitate local empowerment. The party has not developed clear templates for doing so, nor for communicating its ideas, even to its own membership.

Also in many places Community Politics no longer provides an adequate way forward for the party electorally, if it ever did. That includes my part of London, where there is no meaningful local community to work with – or the communities that exist do not conform to electoral boundaries (i.e. people have a more dispersed and mobile circle of friends and colleagues).  Besides the party now has a bit of a credibility problem – it is seen as just another political party, out to get an advantage over its opponents rather than actually help people.

But there is a crying need for new approaches to economic management, to public services and to the conduct of politics. And I believe that Community Politics is the best to start in the search for these new ideas – its distance from standard Westminster thinking is a help. That makes the party well paced to lead the battle of ideas,  while Conservatives, Labour and Greens flog their respective dead horses. This is, after all, what the party has done before from a position of political weakness: think of Beveridge and Keynes in 1945 (much good that did the party electorally).  Also, it was the approach taken by former leader Jo Grimond to lift the party from an even deeper hole than its current one in the 1960s. At the hustings, both Tim and Norman called for the development of just such new thinking.

So how to tell them apart? Tim is younger and, I would say, more energetic. The strain on the campaign trail seemed to be telling a bit on Norman – he clutched a can of Red Bull. Tim is also a good performer; he is more rhetorical, and often comes up with a telling turn of phrase and a quick joke. At a time when the party needs to energise its grassroots, he looks more up for the job. It is no wonder that he is usually considered the favourite. And he has been working for much longer to build his profile across the party membership, as party President, and at Conference.

And yet I have my doubts. It may just be a sign of being in the party too long, but I find the rhetoric grates. I don’t want to be pumped for yet another futile charge at the barricades. I want hope. I want the confidence that we are not heading up the same old garden path. And here I worry. Tim seems to respond to his audience rather than thinking things through – somebody whose words will run ahead of his achievements. Indeed, he seems more interested in the quantity of new ideas, rather than their quality and consistency – he fizzes with them. I fear that he will drop into easy protest politics, rather than taking the much harder road of developing community politics into a convincing national narrative. He seems more interested in ideas as a means to achieve engagement, rather than actually changing the way we do things.

I have much more confidence in Norman on that score. He is much more considered and willing to think things through. As an effective health minister he has experience of ministerial office in the most challenging of public services. There he championed mental health and personal budgets – two themes that will be important in future public service reform. His policy of getting the police and mental health professionals to work together to deal with people that have mental health problems shows exactly the right approach to public policy – getting multiple public services to organise solutions based on the needs of actual people, rather than abstract symptoms. But will he be as good as Tim in the outreach to and energising of the membership?

There are two red herrings in the chatter about leadership. First, which was a theme in the hustings, is that Norman was a loyal member of the  coalition government, voting for policies that Liberal Democrats disagreed with. This compares with Tim Farron’s more rebellious record, which included voting against the increase in tuition fees (which I respect him for, incidentally). I don’t think this says anything useful about either candidate. Some say that Norman is tainted by the coalition – especially when you add that Norman was Nick Clegg’s Parliamentary Private Secretary at one point. And yet Tim is quick to praise the party’s achievements in coalition and Nick’s moving speech defending his record on the day after the election. You can’t have it both ways.

The second red herring is some rather nasty chattering about the fact that Tim is a practising Christian, and that this has given him some awkwardness on such iconic social liberal issues as gay marriage and abortion. I really am worried about this secular puritanism that is present in the membership. The party must embrace cosmopolitanism – and that means taking a more understanding attitude over such dilemmas. You don’t have to be a bigot to have doubts about gay marriage – even if it helps. Tim is a liberal to his core and he will not impose his rather different perspectives on social liberal issues on the rest of us. End of story.

At the moment I am backing Norman. I think he has a better chance of promoting the new thinking on public policy that is the party’s most important task. But I would please ask his activists to back off from emphasizing his record on issues of personal conscience. This is not the right way to improve the party’s diversity.

Charles Kennedy’s difficult legacy for Liberal Democrats

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Charles Kennedy’s tragic death occurred while I was on holiday. Charles_Kennedy_2009That was reason enough for my silence on this blog. But also, I wanted to pen a more critical appraisal of his time as leader of the Liberal Democrats. Such was the esteem in which he was held, and such the shock of his death, that any hint of criticism, especially from within the Lib Dem family, would not have gone down the right way. I hope that things are now a bit more settled.

But first I must pay my own tribute to Charles Kennedy. What impresses me most about his politics, looking back on it, is the absence of tribal rancour. When the SDP was formed in 1981, part of its idealism was the wish to move beyond the tribal nature of British politics. tribalism means the imperative of politicians to paint their opponents as evil and corrupted. Of course this tribal hatred serves to cover weaknesses and divisions in your own side. It stifles true political debate. Our party generally has failed to live up to this ideal – but Charles was an exception. And that was one the reasons that he was so widely liked, across the political spectrum and by the general public. For this achievement, I hold his memory in huge respect. I also enjoyed his quick, self-deprecating humour, and the firmness of his core political convictions.

And on another issue I feel the need to speak out. Charles’s critics on the left have suggested that his stand on the Iraq War was reluctant, and in one case “fraudulent”. And indeed to many anti-war campaigners, he did appear reluctant initially. But such campaigners have little idea of the pressures put on the man by the mainstream political establishment at the time. His advisers were pointing to some kind of meaningless triangulation which would allow him to be on both sides at once. And when he did finally make his stand, criticism from within the establishment was fierce – for a respectable political party not to be fully behind the troops in a war was considered the height of bad form. Charles deserves all the credit he is given on the issue.

My issue with Charles was with his leadership, from 1999 to early 2006. This may seem a bit strange. The two elections he fought in 2001 and 2005 were successful for the party – increasing its number of MPs. We know that this is not to be taken for granted. I had two issues. The first was that he seemed a bit “lazy” – not as active engaging with the party’s activists as he should have been. This may have been related to his illness, of course. But amongst many activists he was seen as “one of them” – part of the the out of touch and cosy Westminster establishment, seen by some as overly compliant to corporate lobbying. Nick Clegg, his effective successor (the intervening leadership of Ming Campbell did not last long) was much better on this score, though he got little credit from the activists.

But a much greater problem for me was the way the party’s policies evolved, especially at general elections, on his watch. This has been characterised as “being to the left of Labour” – and indeed one left-wing Labour MP, Brian Sedgemoor, did defect to the party. As Tony Blair’s New Labour adopted a series of policies described as “neoliberal” or “centrist”, depending on your point of view, there was a gap in the political market amongst former Labour supporters. Charles Kennedy’s Lib Dems benefited a lot from this. But to me the policies appeared not so much left-wing, but muddled and incoherent. It seemed to be wish list of things designed to appeal to these new supporters. We started offering lots of “free” things – university education, personal care for the elderly. Policies that were designed to address real gaps in the way the country was run, local income tax or political reform generally, were progressively downplayed. I actually though the party’s 2005 election manifesto was a disgrace. The impression was not unlike that of the Green Party in this year’s election. The Greens seem to have lost interest in global warming and the environment, in order to bang on about the evils of austerity, and offer free everything from the state. That too has done their initial electoral standing no harm.

This proved popular for a time, but led to the question of what it was, exactly, that the Liberal Democrats were for. For Charles’s predecessor, Paddy Ashdown, the party stood for political reform firstly, and improving education after that. He saw that the way to do this was to work with Labour, preferably in coalition. But to Charles such a stance got in the way of picking up Labour voters. He quickly dropped Paddy’s regular meetings with Labour – though these were hardly popular from most of the Labour side. And the party picked up a ragbag of policies that would be nearly impossible to accomplish in coalition, with Labour or anybody else.

The problems became apparent in 2010 when the party had the opportunity to form coalition with the Conservatives, without the real choice of working with Labour. Such a coalition looked like treachery to these newer Lib Dem supporters, and they quickly deserted the party. And although Nick Clegg had made the party’s policies much more coalition-friendly, he had not succeeded in dropping the policy on free university tuition. Indeed a pledge not to increase tuition fees was the centrepiece of many constituency campaigns in 2010, encouraged by the central campaigns department. Such a pledge could not survive coalition, and the party’s reversal came to symbolise its insincerity in its bid for political influence. No doubt Charles foresaw these outcomes of his own legacy – and he opposed the coalition with the Conservatives. A coalition with Labour, had it been feasible, would hardly have been easier, though.

Which only takes the question back to what, on earth, is the party for? If it can’t actually achieve political power, what is the point? The party must wrestle with that question now.  But the temptation will be to sidestep it. The prospect of power seems so distant now that many will like the idea of returning to Charles’s protest politics. I think that fails on two counts. Firstly it risks taking the party through the same old cycle. And secondly the Greens have stolen a march on it, and don’t have the party’s newly acquired baggage.

I think Paddy had it right. The party stands for liberal values (which, incidentally, Charles did care a lot about) in a way that the other parties do not. The party wants to change the political system in a liberal direction, especially with more devolution of political power, and more checks on the executive. I also think that the party should be at the forefront of developing new ideas of economics and public services based on more distributed power. We need to develop and sell implementable policies on these issues. And we need to work with Labour and the Greens where we can.  I am not clear on where the SNP or Plaid Cymru fit into the picture, though. The party needs to channel frustration with the political system, and the slowness of Labour to embrace genuine political and economic reform.

Charles Kennedy was a great man, and his loss is indescribably sad. We should remember the many lovely things he brought to British politics. But the Liberal Democrats should not attempt to repeat his political strategy.