That speech: just a ripple on the surface of British politics?

Last week I commented on David Cameron’s speech on Britain and the EU, where he promised an in-out referendum, following a “renegotiation” if the Conservatives win the next General Election in 2015. For some days after I though this was a decisive moment in British politics, in which Mr Cameron seized the initiative, and the Labour leader, Ed Miliband, lost his chance to win the next election. A week on, the dust has settled and the news is dominated by other stories. Was is such a decisive moment, or a mere ripple, a failing prime minister making a promise he can’t deliver?

The weekend polls show no decisive shift, with the coalition parties trending up a tad, but Labour still comfortably ahead, following a trend already evident before the speech. One poll seemed to show a big advance by the Conservatives at the expense of UKIP – but on further examination it looks as if this has more to do with polling methodology than people changing their voting preferences. Mr Miliband’s calculation appears to be that the main issue for British politics is the economy, and so the best thing to do is to change the subject back to this issue. His line that the speech hurts the economy because it creates uncertainty, that old argument against any form of decisive leadership, seems to be carrying weight with the British public, according to a further poll published by The Independent – though this also showed Tory support rising. And in the ephemeral world of British political commentary that should be enough to say that this is just a small tactical victory for Mr Cameron, making his party less vulnerable to UKIP, and not much more. But I think two big things have changed, and a big problem has opened up.

Firstly, Mr Miliband has made a serious strategic error, even if its significance will not show up much before 2015. His strategy should be to focus the political debate onto a small number of subjects and overwhelm the opposition there. This is a strategy I have called “the same, only different” following a 20th Century advertising campaign for a product I have long forgotten. It was used by Tony Blair’s New Labour to devastating effect in 1997. Basically you shadow your opponent’s policies in almost every detail except for a small number carefully chosen issues, plus a big investment in mood music to make your party appear more caring and more competent. I remember the exasperation of Tories; whenever they came up with a new policy to try and get an edge on Labour, Labour promptly adopted it as their own. It prevented the other side from changing the agenda. This seems to have been what Mr Miliband is trying to do, albeit without actually committing to any policies just yet (again following Mr Blair’s example). He is not creating sharp policy differences with the government, and making the main focus of his attack the economy. He is trying to create the right mood music by painting the government as by turns gratuitously nasty, and shambolic and incompetant. This strategy was slowly paying off.

But Mr Cameron has hit Labour below the waterline. He has created a clear area of policy difference, where he is probably more in tune with the British public than Mr Miliband, and one in which he can guarantee coverage from Britain’s still-important press. But also the issue makes Mr Miliband look weak, indecisive and un-prime ministerial. That could be fatal. What Mr Miliband actually should have done was welcomed Mr Cameron’s speech and adopted his policies as his own. That would have taken the wind totally out of the Tory sails.

The second way that Mr Cameron’s move may be decisive is that it may have turned the advancing tide of British Euroscepticism, while at the same time unifying his bitterly Eurosceptic party. I have read Mr Cameron’s speech, and the most striking thing about it is how Europhile it is. He has well understood the arguments for Britain staying in, and put them forward. Britons are a suspicious, conservative bunch as the 2011 AV referendum showed. Leaving the EU would be a big step into the unknown, and the more people think about it, the more nervous they are likely to become. And yet the sceptics are happy because they have their precious in-out referendum.

Mr Cameron’s speech was a genuine act of decisive political leadership. There are risks, but there always are. There is also a risk that the EU needs to take forward a treaty change that we are forced to put to a referendum that is then lost. This risk has now been sidestepped, because we now have the opportunity to package it up with more popular changes and put it too an in-out referendum.

But there is a big problem with Mr Cameron’s speech, which I did not pick up last week. Aside from its tactical genius, it is intellectually vacuous. Its economics is based on a fatuous understanding of international competition and the fear of Europe falling behind the developing economies. Its analysis of how the EU needs to be changed is hot air with no concrete proposals. A single market without harmonised rules may sound good, but what does it mean in practice? I really don’t understand how this wishful vision breaks down into nitty-gritty negotiating points. Mr Cameron badly need somebody with intellectual heft to lead the negotiation – the job the Lord Cockfield did for Mrs Thatcher in developing the original European Single Market in 1992. The risk is that he will make no headway in the negotiations, and waste an opportunity to improve both Britain’s role with the EU, and the stability of the EU itself. That’s the big problem the speech opens up.

Growth: the deeper questions

Today first estimates of the UK’s final quarter GDP show that the economy shrank by 0.3%. There will be a lot of posturing around this but it doesn’t mean that much. GDP is not a direct measure of wellbeing (unlike unemployment, for example), and it isn’t that clear how one quarter’s statistics have a bearing on people’s day to day lives. Besides these early estimates are not very reliable. Still these GDP figures do prompt some wider questions.

The first is about short-term economic strategy. A large number of government critics, loosely referred to as “Keynesians” though no professional economist would accept that label, say that a series of poor GDP returns reflect a failure of economic management. Firstly that cutting government expenditure reduces demand, which has a multiplier effect to shrink the economy as a whole. Second that the government should in fact be doing the opposite: using fiscal policy to use the same multiplier effect to boost the economy at large. I don’t intend to discuss this much further today, except to make this point. These arguments have weight because the UK economy is in recession, with high unemployment. This means, or should mean, that there is slack. Slack is usually inefficient, especially when unemployment is involved, and evidence that the slack is being taken up would come from better GDP growth figures. But what people are talking about is a short-term effect: once the slack is taken up the economy bumps into more substantive constraints and “Keynesian” stimulus would have undesirable effects, such as inflation or an unsustainable trade deficit. But what are the prospects for growth in the longer term, and does it matter?

There is now quite widespread pessimism about the long term prospects for growth in the UK and other developed economies. Mostly this is ephemeral. People assume that current trends simply continue; a few quarters of stronger growth and the mood will lift, even if this says nothing about longer term prospects. But more serious questions are being posed. Mostly these are based on demographics – the aging of the baby boom generation – and an allegedly slowing pace of innovation. The Economist had an interesting article on the latter a couple of weeks ago. This explained the reasons why people are becoming pessimistic – but then pointed to reasons for counterbalancing optimism. I think The Economist is right as far it goes: innovation picks up in some areas just as it slows in others. But they miss an important wider question about the role of economics itself. They too easily assume that innovation will lead to increased productivity and this to growth, in accordance with conventional economics. I think this may be breaking down.

Try to think about this in terms of three ways in which economic wellbeing advances. First is the conventional consumption which dominates economists’ thought. People consume more goods and services, and the economy is able to deliver these because productivity rises. Second is the consumption of what I would describe as personal goods and services. This superficially resembles the first sort of consumption, but the very nature of these goods and services is that productivity cannot grow. Think about personal therapy – shorter sessions or sharing sessions with more people undermines the product we want to buy. Another example is status goods – often the whole point is to show status by buying goods or services that are produced at low productivity. And finally people may opt out of the conventional economy altogether: take time off, pursue hobbies and so on.

So what if people direct their energies (and use innovation) to consuming personal goods and/or opting out, rather than consuming conventional goods? Economic wellbeing advances but GDP growth does not; in the case of opting out, GDP actually shrinks. Economists tend to be very dismissive of this, and try to assume their way out the problem: in particular that than economy advances on all three fronts at once, so that conventional consumption is representative of the whole. This has worked well enough for the “opt out” option: I am assured that there is good evidence that leisure increases alongside consumption, not in opposition to it. But there is a logical problem with the advance of personal goods, and economists have a name for it: Baumol’s disease, after the economist who pointed it out. The more productivity advances on conventional goods, the higher share of the economy is taken up with personal goods – and you have to work that much harder to improve productivity on conventional goods to achieve the same level of growth. Economists may have named it, but they still usually ignore it and its implications. They usually just have a quick moan that we should spend more energy trying to improve the productivity of services (the problem is usually defined in terms of agriculture, manufacturing and services – with what I am calling personal goods being part of services).

But I think the whole balance is shifting. There are limits to the extent that people will want to improve wellbeing by simply consuming more mass-produced goods and services. An increasing proportion of the population has reached that limit (I certainly have), instead increasing leisure or buying “quality” (lower productivity) goods. And look at innovation. I consider my smartphone to be a fantastic technical advance that has improved my life a lot. But has it helped the conventional economy by helping me to produce more services for other people to consume? It hasn’t. Quite apart from the demographic issue, which is real enough (and you could say this is actually the same thing, with people choosing more leisure by retiring for longer and consuming more personal services through hospital and other care), the rate of conventional economic growth is slowing in the developed world.

Does it matter? After all economic wellbeing may still progress. Unfortunately there are two reasons that it may: debt and taxes. These two lie at the very heart and purpose of the conventional economy. Debt and credit tend to get washed away in a high growth economy – but it will get increasingly difficult for people, businesses and governments to service past debts in a low growth environment. And a lot of the personal services that take up a higher and higher proportion of our economy (like health) are funded through taxes, as well as support for leisure (pensions) – and yet if the conventional economy does not grow this will bulk larger.

Debt and taxes. These issues are destined to dominate developed world politics in the century to come.

Cameron may yet win his gamble on the EU

This morning the British Prime Minister David Cameron gave his long awaited speech on the European Union. I didn’t listen to it, or read it, so you won’t get any light on the nuances of his argument here. I’m interested in the political dynamics, which, as usual, do not depend on exactly what he said. From the BBC report his speech was fairly much as the last two weeks’ briefing had suggested. We wants to “renegotiate” Britain’s terms of membership, and then offer the British public an in/out referendum, after the next General Election, by the end of 2017. Mr Cameron’s political reputation is mixed. He showed brilliant footwork when he first took over leadership of the Conservative Party, but rather fluffed the 2010 General Election with his incomprehensible idea of the “the Big Society”. He restored his reputation with the assured manner in which he put together the Coalition government with the Liberal Democrats. After that he seemed lack vision and grasp. Will today’s move restore his reputation? It might.

A couple of weeks ago I thought he was onto a hiding to nothing, and in the process of leading his party to defeat at the next election, set for 2015. Various shades of Euroscepticism seem to define the rank and file of the Conservative Party, right up to Parliamentary level. It seems impossible to satisfy them. On the other hand assorted Europhiles (in deed rather than word in most cases) amongst the deeply conservative British establishment don’t want to rock the boat.  He risks isolation and an almighty mess. His own view seems to be that the UK is better off inside the EU, but it would be really nice if its institutions were less intrusive.

But Mr Cameron has two things going for him. First is that his personal view on the matter probably represents what most of the British public thinks: a very grumpy “well yes I suppose so” to the EU. From this he should be able to build a bond of trust, unlike other participants in the debate, whose firm views one way or the other are not shared by the public. And second, Mr Cameron is a vital swing voter in the debate. It is highly unlikely that either side can win a referendum without his support. The smart thing for the various players here and abroad is to build bridges with him, rather than try to isolate and vilify him. This could put him into the driving seat.

Things are now starting to get very interesting.  In spite of the very long time they have been given to develop a party line, the Labour opposition is completely at sea. They are trying to paint a picture of a PM beholden to his backbenchers, and who, by creating uncertainty, is making things worse for the national interest. This is desperately unconvincing.  The British public probably rather agree with what their PM is saying, while Labour are merely offering obfuscation and procrastination.  Uncertainty over Britain’s future in the EU is already a fact of life.

Meanwhile, those who are in favour of the UK staying in the EU are at long last starting to stir. Their silence to date has been one of the main frustrations of the public discussion so far. The Eurosceptics have had the field pretty much to themselves, unchallenged. What these EU supporters – from outside and inside the country – have to say is pretty ugly, it has to be said. They aren’t trying to sell the EU as a positive vision. They are stoking fears about what life would be like outside. Real Europhiles, like me, really dislike this negative stuff, a lot of which is intellectually unconvincing. But elections are won on the ugly stuff – just look at the 2011 referendum on a fairly minor tweak to Britian’s electoral system, which was portrayed as the end to life as we know it. The Eurosceptic arguments are being given much greater scrutiny, and many will wilt.

The big problem for Mr Cameron is how the “renegotiation” will work out.  I use quotation marks because ever since Harold Wilson used it in the 1970s (in my formative political years) I have felt it to be an sham concept, used by armchair commentators. Either you enter into an honest negotiation about matters that need fixing, or you are going back on your promises; you should be honest about which it is. The difficulty is that our existing treaty terms are a carefully balanced whole, and if you change one bit it unbalances others.  The favourite Eurosceptic idea of opting out of the social standards bits we don’t like, and then use this to give British businesses a competitive edge over their foreign rivals, has a rather obvious flaw as a negotiating stance.  What’s in it for them?  The country’s European partners would mainly rather have us in than out, and we do have a trade deficit with them, but this does not add up to a strong negotiating position. Mr Cameron might simply do what Mr Wilson did: get a few token concessions and try to big them up. That would be risky for Mr Cameron’s reputation, though he might still win.

But Mr Cameron has set quite a long time frame for his negotiation. In that time it is quite likely that the EU will want to alter its treaties to make the Eurozone more stable. Under Britain’s “referendum lock” legislation this could trigger the need for approval by referendum in the UK anyway. If Mr Cameron can tie these treaty changes into his “renegotiation”, and then use his in/out referendum to endorse it as a package, then he does have something to negotiate with – and can paint himself as doing the EU a favour. The transfer of powers between EU institutions and the UK might actually be two-way traffic. If he pulls that stunt off, his political legacy will be secure, in my book anyway.

They Came to a City: what happened to wartime Utopianism?

they_came_to_a_city_01Last week we we saw the film of J.B. Priestley’s They Came to a City shown by the BFI as part of their season of Ealing Studios films.  As entertainment the film lacked a certain something, but as a political and historical document it is of real interest.  It reflects the wartime desire of many Britons to build a better society once the war was over – as a sort of quid pro quo for pulling together as part of the war effort.  Does this have anything to say to us now?

The film, made in 1944 from a play produced in 1942, transports nine people drawn from across British society to a Utopian city, where life follows the Priestley’s distinctly socialist vision of the way life should be.  We don’t see the city itself, merely the reactions of these individuals to it: they are offered the choice of staying or returning to current society.

The film only offers hints of what this ideal society is.  Back in the 1940s people probably had a better idea about it than we do now.  It is an egalitarian society where people are focused on well-being rather than possessions, cooperate rather than compete and “do an honest job for the community for what the community thinks we’re worth,” to quote a later Priestley work.  People are happy, and capitalism, or its prewar incarnation, is banished.

The three working class characters, including the two principals, all like this vision and want to stay – or promote its ideals in the real world.  The capitalist plutocrat hates it: he is told that what he does for a living is criminal there.  Two of the three aristocrats also reject the city, for similarly predictable reasons: the male character giving a little speech about how he didn’t really like to have to deal with people at all.  The middle class couple is split.  The bank manager husband is keen to throw off the oppressive stupidity of his organisation; his rather neurotic wife is horrified: she wants a garden and children of her own, and doesn’t want to mix with “common” people.

The film is making two distinct points here.  First is that many people want this ideal society but are convinced that it is impossible or impractical to achieve, and so do not strive for it.  It is important to inspire such people with the hope that it is possible: which is what the thought experiment of the city does, and gives rise to film’s messianic conclusion.  The second is that the ideal society will be disliked by many people, and not just those at the top of society.  At all levels people pin their hopes on a vision based on the way society is: material possessions, status and so forth, and so resist changes to the way society works.  The opposite is also true, of course: some of the upper echelons of society will be as anxious for liberation as anybody else, represented in this film by the upper class daughter who breaks from her mother to stay in the city.

How does this look now?  The first reaction is to think that all the hopes have come to nothing, and that we are reduced to the cynicism that Priestley was so anxious to combat.  Putocrats flaunt their wealth; capitalist competition drives most of the economy; people remain obsessed with possessions and status.  Utopianism is dismissed as impractical.  You can imagine Priestley preaching to us today with the same fervour.

But that’s a glass half empty view.  Since 1945 much of the socialist vision has come to pass.  Social security, the National Health Service and free education are now all accepted foundations of modern society.  The proportion of economic activity not driven by competition: government administration and services mainly, is much higher than the pre-war level.  Even a shadowy idea of competition within the NHS is bitterly contested, with most people instinctively against.  Class distinctions may be persistent, but they are a faint shadow of what they were.  The overwhelming majority of Britons would identify with the (rather articulate) working class characters in this film, who seem distinctly middle class to us.  The aristocracy is an irrelevance.  The middle class characters look hopelessly outdated.  Apart from the working class characters only the plutocrat remains of our time – and he is a figure of humble origins made good.  And poverty of the sort taken for granted before the war has been largely banished – and people are much happier in all sorts of ways.

But it is not our way to reflect on these gains.  However close we get to utopia it always seems an infinite distance away.

Taxing multinationals – after the sound and fury we need solutions that work

Multinationals like Starbucks, Amazon and Google has been on the wrong end of publicity in recent weeks here in the UK.  They don’t seem to be paying very much corporate tax, in spite of well established and successful commercial operations here.  But there is something missing from the debate: nobody seems to be offering much of a solution to the problem of taxing multinationals.  There’s a lot of sound and fury, but it all ends in a bit of a whimper.  We can do better than that – but only by adopting policies the government’s Conservative members will be deeply uncomfortable with.

The problem is easy to see.  If a multinational makes something in one place and sells it in another (to take the simplest possible description of a multinational supply chain), then it has the opportunity to apportion profits to more then one place…and to manipulate this to where tax rates are lowest.  This has always been so, but with an increasing proportion of costs being attributable to soft things like intellectual property, this is getting much easier to do.  The traditional way of fairly attributing profit is through establishing a fair “transfer price” for goods or services as they move between countries along the chain – based on open market value.  The idea of open market value has always existed more in theory than practice, and the process often ends up in endless bickering between the company and the tax authorities of the various countries it operates in.  And in the end the results are often hard to justify.  What are the alternatives?  There are two main approaches.

The first approach is to reduce corporate tax rates to make the issue irrelevant, and along the way to make your own jurisdiction very attractive to investors.  This is not as crazy as it sounds, and has quite a respectable intellectual pedigree.  Companies aren’t people, and ultimately taxation is about people.  Taxes are charged whenever people try to extract money from a company, through salaries, dividends and what have you.  Money that is left in companies is reinvested, and taxing it merely reduces the amount available for reinvestment.  This is an example of the idea that tax should be based on expenditure rather than income and capital.  It encourages saving and investment, and most of the time economists think that economies would be healthier if more resources were invested rather than consumed.

This line of reasoning was very popular in the late 20th century, but has since lost much of its appeal, except amongst the very rich.  Something has gone wrong with the savings and investment cycle.  The amount of constructive, worthwhile investment that comes out of savings is not what economists used to think.  A lot disappears into various forms of financial engineering that fatten up an overpaid finance industry and not much else, inflating selected asset values into unsustainable bubbles along the way.  Overall savings, especially by the very rich, seem to be a drag on an economy – often requiring “negative savings” from government deficits to keep the economy on track.  This process was described by Maynard Keynes in the 1930s and it is still true today.

Low capital taxes, including company taxes, simply seem to exacerbate a growing gap between the very wealthy and everybody else, without generating the needed investment. Profit taxes have a particular attraction: they are economically efficient and do no distort ordinary business decisions, outside the allocation of capital.

So what’s the alternative approach to taxing multinational businesses?  This is what we should be talking about a lot more: the top down apportionment of profits.  Under this system you establish a business’s worldwide profits, and then apportion it to national jurisdictions by a formula which measures activity: a combination of sales, employees, pay or suchlike.  Those jurisdictions can then decide what rate they want to charge.

The idea of top-down apportionment has been developed for some time by US states for allocating profits between the states of that country.  In the 1980s California tried to extend the idea to global operations, but was forced to back down, mainly after furious international lobbying from our own British government.  There is a nice irony if American companies are now runiing rings rounds us British.

But that example shows the idea’s main weakness: it needs international cooperation to get going.  It helps if all countries are doing it, and using the same formula.  There is an obvious first step for the British government though: to agree and apply such a system to the European Union.  I don’t think there would be much difficulty in mobilising the other EU countries; Ireland, a traditional advocate of tax sovereignty, is not in a particularly strong bargaining position these days, and we can let them keep their low rates.  Once the EU has an agreed system for recognising and apportioning profits, we would then need a treaty with the US.  Since that country is already a wide practitioner, there is good reason to hope for progress there too.  With the EU and US on board, a global critical mass starts to build.

But Britian’s coalition government does not seem to be thinking along these lines.  For its Conservative members, no doubt doing deals on tax with the EU is anathema.  Instead they are happy to quietly go down the first route and cutting business taxes, in spite of little evidence that this is stimulating investment.  Of the Liberal Democrats, however, I had expected better.

The imperial illusion of macroeconomics

Once again the UK Chancellor of the Exchequer’s Autumn statement has provoked a storm of claim and counterclaim among economics commentators.  The particular breed of expert whose voice is loudest is the macroeconomist.  They have a lot of important things to say.  And yet their analysis is often superficial.  We end up talking about the wrong things.

There is a magnificent imperial power about macroeconomics.  It looks at economies in aggregate, and develops a broad sweep.  It deals with national income, growth rates, productivity, inflation, unemployment – all concepts that are represented by neat numbers.  Their policy instruments are referred to as fiscal and monetary policy – policies that are meant to influence these aggregates in a fairly direct way, and which

For me, the metaphor of imperial rulers to represent these experts has strong appeal.  It conveys the right sense of arrogance.  I conjure up pictures of imperial aides to the Russian Czar (or his Soviet successors) implementing arbitrary policies to be implemented across their domain.  They deal in the big picture – and refuse to hear the special pleading of provincial representatives.  Of course things don’t work out in every detail, they say, but the reach and sweep of their rule means that much more good than harm is done.

Macroeconomists themselves no doubt would prefer an analogy with classical 19th century scientists.  They did not concern themselves with the movement of individual atoms, but derived physical laws that worked at a higher level.  In aggregate the behaviour of atoms and people are predictable.

The idea that leaders deal with big strategic matters, and leave the details to their underlings is an old one, that has enduring appeal.  It enhances the egos of the leaders. It doesn’t work, though.  The best leaders find themselves having to command both the strategic sweep and the tiny detail.  The Russian Czars came acropper.  And the theroties of 19th century scientists turned out to have much less value than they thought in the real world.

This is true of macroeconomics too.  In the first couple of years of taking an Economics degree, you learn about macroeconomic models – about the use of fiscal and monetary policy to guide the aggregate movements of an economy.  It is tremendous fun – but by the third year you really should be growing out of it.  In the end economies are driven by what is happening at the level of individual people and businesses – and as people are highly adapable, and behaviours change – never mind the evolution of technology – what works one year may not the next.  Unfortubately too many economists can’t seem to get past the imperial illusion.

Take the current furure over the British economy.  It’s full of growth rates, deficit levels – and demands for this and that on fiscal and monetary policy.  Two elements of the macroeconomist’s stock in trade are prominent: international comparisons (the British growth rate is less than Germany’s, etc.) and comparisons with the past, going all the way back to the Great Depression of the 1930s.  And the analysis usually stops there – few attempt to pick apart the differences and similarities that these comparisons invite.

And yet there are a number of big changes taking place in the British and world economies that are bound to affect the choices open to our policymakers.  These get superficial coverage, if at all.  Here are a few:

  1. Finance’s role in the economy is diminishing, as we understand that much of its alleged value is illusory.  This means that a sector that appeared to be highly productive in macroeconomic terms is shrinking.  That is not a bad thing – but people seem to be screaming blue murder when the national income figures suffer the inevitable outcome.
  2. Likewise the benefits of North Sea oil are fading – another statistically highly productive sector shrinks, though this one has more underlying substance.
  3. Banks’ lending practices are changing, as credit to private individuals becomes less easy, and loans to property developers more difficult.  This is inherently a good thing, as it helps get the economy onto a sustainable path – but it is playing havoc with the macroeconomic statistics.
  4. The gains from globalisation are going into reverse.  For years in Britain the prices of imported goods fell or stayed the same while wages and domestic prices rose steadily at 3-4%.  These “gains from trade” added a lot to the feel-good factor and growth before the crisis- even though we whinged about loss of manufacturing and overseas call centres.  Now import prices are rising steadily while pay remains frozen.  These gains from trade were not permanent, bankable changes – but reversible.  This is nothing to do with protectionism, by the way, but arises from the perfectly predictable workings of the economic law of comparative advantage.
  5. Meanwhile “additive manufacturing” and other technology changes mean that fundamental technological change is alive and well, bringing both new opportunities and continued obsolesence – but of quite unknown impact on conventional economic measurements.

I could go on.  These factors, and others, should be very much part of the discussion.  They invalidate historical and international comparisons – until and unless we dig a lot deeper.  To me the wider message is that we can’t simply wind the clock back to where we were in 2007, and it is not self-evident that a sustainable growth rate of 2% or even 1% can be regained just a lifiting levels of confidence a bit.  Therefore using fiscal policy to stoke up aggregate demand may simply bring short-term relief followed by an even bigger crisis.  Increasing government sponsored investment is almost certanly a good idea, but it matters where this goes.  But neither the government’s critics, nor even its defenders seem interested in such details.

In an excellent article in this week’s FT, Sebastian Mallaby shows how macroeconomic success leads to microeconomic complacency, which in turn leads to breakdown.  The developed world has just gone down this route.  Now the BRICs are doing it.  China shows no sign of dealing with the baleful influence of its state owned enterprise; India is content to let curruption and inadequate infrastructure go unaddressed; Russia sees no reason to change its contempt for the rule of law; and Brazil’s government is releuctant to take on vested interests.  All these economies are now slowing.

Meanwhile, back in the developed world you would have thought that we had been cured of macroeconomic complacency.  And yet almost nobody seems prepared to take on the deeper issues that lie behind the crisis and any solution to it.

European elections: saving the Lib Dems from wipeout

Winner Lib Dem Golden Dozen Blogs – 9 December 2012

The Liberal Democrats have just selected their candidates for elections to the European Parliament in June 2014.  These elections are important to the party – it takes itself seriously as a player in this forum, and it contributes a lot to the party’s strength and depth nationally.  But the party faces a wipe-out.  It needs some radical thinking to have a chance of avoiding such a fate.

The problems start with the party’s low opinion poll standing.  The typical 9-10% is not enough to get the party representation in any of the regional constituencies, except the South East, under the PR system that is used.  But it is worse than that.  The party has always underperformed in these elections.  Its usual campaigning methods are worse than useless.  The party’s appalling showing in the London 2012 elections is a much better guide: closer to 5-6%.  Complete wipe-out.  How to save the party?

The first point is that the party needs to acknowledge the root causes of its campaigning weakness in this type of election.  The party’s electoral successes in local and Westminster elections have been achieved using campaigns that focus on three things in particular: identifying local issues that stir the passions of floating voters, a ruthless third party squeeze (“Labour can’t win here, etc”), and identifying voters and getting to them to the polling stations.  All three are useless in Euro elections – and yet they are so deeply embedded in Lib Dem campaigners’ thinking that they infect everything the party does.  The party fails to put over a message that motivates voters, and since canvassing covers such a small proportion of the potential electors (and usually they are based on other sorts of elections anyway), the polling day knock up has very little impact on the result.

Unfortunately, it gets worse.  The party’s Euro candidates tend not to be, shall we say, the party’s most inspiring campaigners. They are very interested in the goings of the European Union.  This makes them well qualified to be Euro MPs – and indeed the party punches well above its weight there.  But they are not good at finding messages that connect with voters.  Even when they think they have found a killer, like using European arrest warrants to catch terrorists and paedophiles, this in practice has little resonance with the public.

So the party’s normal messages and techniques are ineffective, and the Euro candidates struggle to find an alternative.  In the last election I remember delivering piles of tabloid newspapers that were clearly going to have little or no effect.  Motivating the activists is a real problem, never mind the voters.

So what to do?  The basic strategy is quite clear, and has been talked about for some time.  Find enough voters who feel positive about the EU’s role in Britian’s future to turn up and vote to reach about 15-20% of the vote share.  No other significant party is rallying that vote.  The Labour Party is trying get these voters by default, but without prejudicing its chances with the more sceptical majority.  The Tories don’t seem to think these voters even exist.

Next, how can effective campaign be mounted?  What will be needed is poster and Internet advertising, mass direct mail based on promising demographics, and a good freepost (the single leaflet delivered for free by the post office).  This is supported by an online and social media campaign.  All this activity, combined with the right messaging, will draw in media attention.  Almost no need for local activists to do much legwork – they can get on with their local campaigns.  This will cost a lot of money – so the first priority will be to raise it.

The party is getting better at fundraising, but many party activists have little idea about how it works.  Donors, rich and not so rich, need to be motivated in a very similar way to ordinary voters.  They need to be inspired by the campaign’s messages, and think they might catch on with the wider public. You don’t raise the funds first, then decide on the campaign’s messages; it is the other way round.  So the work on messaging needs to start now.

Here is my humble suggestion.  The campaign theme should be “Save Europe!”.  No doubt this can be improved on, but note the key features.  First and foremost it is pitched as a response to a threat.  People are more motivated by response to threats than positive ideas, and motivation is critical.  The “No” campaign for the AV referendum was highly successful as it pitched AV as a threat to the status quo.  So is pulling out of the EU a threat to the status quo.  The party can be progressive and conservative at the same time!  Further is the idea of “Europe” – vague and big.  The idea is to appeal to people with an international consciousness.  There is a double meaning: first to save Britain from leaving the EU, and second for the country to play its full part in solving a continental crisis that will affect us anyway.

How to build on this idea to make the threat seem real?  “Save jobs” and “Save the Environment” should be the focus.  Messing around with EU membership is a clear threat to jobs – and indeed one of the main appeals will be to businessmen who fear for the future of Britian’s relationship with the EU.  The environment allows the party to play on its international outlook.  Indeed it is an appealing idea to use an Earth from space picture with Europe visible on the surface as a campaign logo.  It also sets the party up for some skirmishing that may be needed with the Greens.  And it contrasts with Ukip’s outlook.

Ukip are the rising starts of Euro elections, which frightens the two main parties.  But if the Lib Dems are after core voters rather than floaters then Ukip’s strength is an opportunity.  It helps define the party: “We are the party which is against everything Ukip is for.”  The more they know about Ukip, the more they know about us.  The party should indulge in some relentless negative campaigning against Ukip – including how they have behaved in the European Parliament – though not straying into accusations of racism.

So you get the general idea.  The best next step would be to appoint a national organiser to work on messaging and strategy.  This needs to be somebody comfortable with challenging the Lib Dem conventional wisdom on campaigning, but with a degree of political realism (contrast some of the Yes to AV campaign types).  Though much of the campaigning needs to be done in the regional constituencies, a lot of the design effort can be done nationally – and the Internet and media campaign needs to be led nationally too.

I do hope the party wakes up to the danger and tries to a bit radical!

Leveson: the messy truth about regulating the press

The big story in Britian’s media this week has been the publication of the Leveson Report into the press.  This comes from Lord Justice Leveson’s extensive inquiries into abuses perpetrated by Britain’s newspapers.  The newspapers, of course, have been anxious to get their answer in, starting days before the report was actually published.  But bloggers have been diving in as well.  I have neither read the report, nor all this commentary in detail.  But stepping back, I find something rather striking.  Mostly the arguments are made on grounds of high principle.  If only life were that easy.

Critics focus on the report’s recommendation that a new regulatory regime for the press should have “statutory underpinning”.  This is taken to mean state regulation, and even state licensing of news publications.  And this in turn runs against the sacred principle of freedom of speech and freedom of the press.  So supporters of the report’s recommendations are attacking a free press.  This argument is pushed by the usual suspects in the press itself.  But not just them.  There is Lib Dem blogger Stephen Tall, for example, supported by the Facebook site Vote Clegg Get Clegg.

Most Lib Dems, though, support their leader Nick Clegg’s backing of the report.  For them the sacred liberal principle is the protection of the weak against the unaccountable power of the press.  Pres self-regulation has been tried so many times and found wanting that something stronger is required, they say.  “Do it for Milly Dowler,” they say referring to one of the most egregious episodes of press abuse.  They think the promise by newspapers that this time it will different is just a cynical ploy, so that they drift back to their old ways when the dust settles.  They have form after all.

I was planning to take sides in this debate – and in support of the report’s full recommendations.  Most of the arguments against are pretty specious.  I don’t think freedom of the press is being attacked in any meaningful way.  The accountability of the press to its readers, who may always refuse to buy newspapers, doesn’t work either.  Unfortunately the readers are part of the problem.  And the idea that we shouldn’t attempt to regulate the press because the scheme ignores the internet is a classic red herring.  Behind this lies my intense dislike of the baleful influence of many newspaper publishers on political debate, to say nothing of the cynical disregard they have members for the public.

The fact is that running a liberal society is a balancing act, much though we like to think of it as being the upholding of high principle.  Freedom leads to abuse: people will always try to use it for the purposes of harming others.  There have to be laws and regulations to limit the damage – but it is rarely clear exactly where the line should be drawn.  But it is clear that we all have to put up with a certain amount of abuse if the regulatory framework is to do more good than harm.

This is painful.  I find this especially so in the case of politics.  The British press consistently puts about lies and half-truths in order to further their sponsors’ own political agendas – or simply because it encourages people to buy papers.  This overwhelmingly favours political conservatives.  But there really isn’t much that can be done about this.  Regulation of broadcast media is quite successful – but the press is quite a different matter.  Regulation, if we have it, must focus on the rights and privacy of ordinary members of the public – and not politics.

It follows that any regulatory solution has to be a messy compromise, whose effectiveness turns on tiresome details.  Trying to derive your views by basing them on high principles doesn’t work.  The Prime Minister, David Cameron, opposes the “statutory underpinning”.  This is no doubt a political calculation, as the Conservative Party depends heavily on the press to do a lot of its dirty work – the sort of negative campaigning that would be done by paid advertising in the US.  But one point he made did strike a chord.  He said that any law to implement the recommendations would be highly complicated, and probably not worth the trouble.

He may be right.  The power of the press is fading.  Newspaper circulations are falling.  Old fashioned press barons are slowly being replaced by faceless, calculating corporate types.  People rely on newspapers less and less.  They are being replaced by a combination of broadcast media and internet outlets.  That brings its own problems.  No doubt the press’s behaviour has helped to hasten its demise.  What is good for short term sales can damage long term results, like sliced bread or lager.

That’s probably for the best.  But please, liberals, don’t pretend that this debate is all about sacred principles.

The gorilla of London’s government

The elephant in the room, referring to an issue everybody can see but won’t talk about, is one of our most irritating cliches – almost as bad the perfect storm, used to mean trouble on more than one front.  So I am employing the elephant’s slightly less tired cousin, the gorilla, in a shameless atempt to get a more interesting headline.  I want to talk about the politically unmentionable fact of London’s local government: its borough system is not fit for purpose.

Local government in London is the responsibility of 32 Boroughs, plus the oddity of the City of London.  These boroughs were created in a reorganisation of London’s government in 1963.  They were amalgamations of a series of much smaller boroughs, and were civil service creations, designed to carefully balance income from rates, the taxes then charged on both business and residential properties – and which funded a large part of each borough’s activities.  Inner London districts, like Vauxhall, were paired with leafier areas like Streatham.  There was little or no attempt made at geographical coherence.  They were more or less random collections of London’s villages, with boundaries often ignoring even these (Balham is split between Wandsworth and Lambeth, for example; Wimbledon between Wandsworth and Merton, and so on).

Geographically incoherent and designed for a defunct system of local taxes: not a promising start.  But that is not the main problem.  Fifty years after their creation they are clearly much too small to deliver most of their services efficiently.  I have had the same conversation with a number of different people working with local government in a number of different parts of London.  They all agree that the boroughs are much to small to be effective, especially in the areas of social services and education – but also in general administration. But politicians won’t talk about it.

Two problems are coming together.  First is critical mass and economies of scale: there is excessive duplication at senior and administrative levels, and loss of flexibility in the deployment of staff.  Then there is geographical incoherence: problems often cross boundaries.  I can see this clearly in the area that I have most to do with: education.  Even at primary school level: there is a crisis of lack of primary places locally; it is worst at the borough’s boundaries – and yet officials are loath to consider new schools where a lot of pupils will come from another borough.  The problem gets worse at secondary level – and it is an absolute joke at tertiary – where the colleges boroughs are responsible for service much bigger areas than a single borough.

The efficiency argument is getting a little bit of political attention.  The government is encouraging boroughs to merge departments with neighbours.  This is being advanced by the tri-borough arrangement of Westminster, Kensington & Chelsea, and Hammersmith & Fulham.  But this is ad-hoc and awkward, since the councils themselves are being left intact.

But as well as the boroughs being too small, they are too big.  A local sense of place is already quite weak in London.  Such as it is works by “village”, whose boundaries can be hard to see, but which each have a distinctive centre, often based on an ancient village that was once rural.  The borough feels remote and arbitrary by comparison – with residents often feeling that their area is neglected by councillors and officials.

Too big and too small at once.  Perhaps there is little surprise that politicians are staying clear of the issue.  But it is worth thinking about how it might be organised more sensibly.  I want to do this in the opposite way to a classic civil servant: from the bottom up.  This starts with the villages.  These need to be defined as the basic unit of local government.

My starting point for identifying local villages would be the good old postal districts.  These were designed in 1917 by the Post Office, without regard to parish or civil boundaries.  But they seem to have known what they were doing, and it is easy to attribute a village name to each district (SW11 = Battersea; N1 = Islington, and so on).  They have also become a badge of identity in their own right.  This won’t always work, and they get a bit dodgy around the edges, but think this gives a broadly viable size.  One thing that should be disregarded is current ward boundaries.  Wards are designed to be of even population size within a borough – which means they disregard commonly understood village boundaries.

These village should then be grouped into a smaller number of boroughs.  Geographical coherence is probably not a realistic objective here – though it makes sense to broadly accept the Thames as a boundary.  There should be no fetish about exactly equal size, however.  How many?  There are two current models.  There are six NHS PCT clusters.  This would be the radical version, and sort feels like the five boroughs of New York.  The less radical alternative would be the 14 constituencies of the Greater London Assembly.  This feels like a better balance between Greater London overall, and and the villages.

So how would the two tiers work?  The heavy lifting, including all contracts of employment should be at borough level.  The main function of the village level would be scrutiny and coordination.  But the villages should lead on the critical area of planning.  Things like licences for pubs should be decided at this level.  Following the example of what goes on outside London, residents could elect councillors at both levels: principal local authorities and local town or parish councils.

But amongst those that have worked with such things there is almost no enthusiasm for separate town council elections.  The general level of political apathy may make it difficult to sustain in many areas – and it is a recipe for friction and conflict.  A much better idea is for the principal councillors to do both jobs.  The borough would form village committees of the councillors elected in each village.  This is the neighbourhood committee system which operates successfully in Liberal Democrat boroughs such as Kingston.  This places some constraints on  size.  You would need, say, a minimum of six or seven councillors elected in each village.  Let’s say there were 120 to 150 villages across London: that would maybe 1,000 councillors.  With only six boroughs you would have an average of about 170 councillors in the principal authority.  With 14 you would have a more manageable 70 or so.  The best way of electing the councils would be one multi-member ward per village, elected by proportional representation (STV or party list).  You would simply vary the number of councillors in accordance with the population, without the need to keep reviewing boundaries.

Well that’s enough to start with.  I haven’t even mentioned taxes and debts. But the point now should be to start talking about it.  Surely this would be a more efficient and effective way of running the capital?  It needs to get on the political agenda.  Probably the next step would be for a think tank to take the idea on, and then start drawing in politicians from across the political spectrum.  Time to talk to the gorilla.

The hollowness at the heart of the Church of England

“We have some explaining to do,” said Rowan Williams, the outgoing Archbishop of Canterbury, after the General Synod of the Church of England failed to endorse the ordination of women by the requisite majority.  That is certainly true.  Many English citizens, practising Christians and not, and in total despair about whole purpose and meaning of the church.

One thing struck me immediately about Dr Williams’s televised statement.  After saying the Church had some explaining to do, he went on to point out the reasons why he thought women should be admitted as bishops.  They were all pragmatic, having to do with the need to reflect the wider values of society, and its ability to influence those values.  This was a bit of a shock.  I had thought that religious bodies made such decisions on the basis of high principle.  If it is the right thing to do in Christian terms, then do it.  Or not.  The Roman Catholics, at least, show much greater clarity in such things.  They heroically plough on against the values of wider society because they believe that is God’s path.  The CofE’s path bespeaks a certain hollowness at its heart.

It also shows something about the toll arguments about the role of women, and indeed gays, has taken on the institution.  I was brought up in a Church of England household, was confirmed and a regular churchgoer until I was 21 (in 1979).  At university I was a member the Christian Union, though not entirely signing up to the full Evangelical credo – I never could take the literal truth of the Bible, for example.

In the 1970s arguments about women priests raged.  My mother, a senior clergyman’s daughter and brought up on a cathedral close, was a passionate supporter of women’s ordination, and the whole family followed her.  But there were antis at our rather anglo catholic (at the time described as “high church”) local parish.  I remember arguing furiously with our curate – he held the view that it was impossible for a woman to be a priest since the Christian image of God is male.

This was an instance of the anglo catholic view.  This line of thinking places huge emphasis on the church’s traditions and history, and thinks that sweeping them away drains the faith of meaning.  They have rather ambiguous feelings about the Church of Rome – but they feel that the Church of England’s ultimate destiny should be to reunite with it.  This group is fading in its importance.  It has failed to capture the imagination of the young.  It has been fatally undermined by the defection of so many of its adherents to the Roman Catholic church.  The Romans have maintained a more dynamic balance between tradition and modernity, and are fundamentally more appealing to the traditionally minded.  The more mystical and less intellectually tyrannical Orthodox church also appeals.

The most important part of the blocking minority in the Church of England is now a group that describes itself as “conservative evangelicals”.  I know very little about this group.  The evangelicals that I knew at university were different and more mainstream – a group from whom the next Archbishop of Canterbury, Justin Welby, is drawn.  I have seen them described as inspired by American thinking – and their use of the word “conservative” to describe themselves rather lends support to this.  It isn’t a hurrah-word here, even among conservatives.   They are sceptical of many ancient church traditions, and treat the Bible as their main source of authority.  They seem have a strong, nostalgic and paternalistic outlook.  They do not object to women bishops as such – they just do not want to be in a position where their congregations have to accept one.

What is this institution over which these factions are arguing?  It is deeply embedded into English life and the unwritten British constitution.  Most English use it to mark the big life events of birth, marriage and death.  It is the source of pretty words and beautiful old churches.  They lustily sing Christmas carols and sigh at children’s nativity plays.  The CofE is deeply identified with the country’s lingering identity with the Christian faith.  It is a bastion of civic society, as church members carry out social work in the wider community, and even reach out to those of other faiths.  The English have mainly stopped going to church but they would no more abolish the Church of England than they would the Queen or the first-past-the-post voting system, other traditions that have long lost their intellectual coherence.

But for practising Christians this is hollow.  The ultimate purpose of the Church should be to bring people into the faith, and here it has failed.  Now it is failing even to define what that faith consists of, as it comes a loose association of incompatible understandings.

The hope among some, such as Dr Williams, was that there was enough common ground for these disparate groups to sustain a joint community – and then use the platform provided by the Church’s national status to draw more people in.

I don’t find this such a silly idea.  I think at the heart of the Christian gospel is  a wonderful set of ideas that are still capable of drawing people in – myself included.  Love, forgiveness, redemption, equality, embracing the disadvantaged.  They are as fresh today as when Jesus first preached them.  If only practising Christians could agree to talk about just these in public, and agree to differ on everything else.

But no.  Christians are obsessed with abortion, gays, the ordination of women, the literal truth of the Bible, heaven, hell and a host of other peripheral things where the church’s teaching fails to resonate with our modern understanding of how the Universe is.  The Church of England has lost so much time and energy talking about such things that they have no energy left for anything else.

Personally I think it would be right for Parliament to save the Church from its constitutional mess – and then hope that the new Archbishop, who shows some signs of promise, starts to put some meaning back into its hollow heart.