Politicians pay the price for the recession

11 05 2009

Since the recession began, it has felt to me as if economics was coming into line with politics. What does this mean? Since the collapse of the left in the 80s the sphere of ideological disputation in political life has diminished consistently. Politics in the UK has come to be defined as a narrow contest between parties who disagree on very little and who conduct their politics via market research led focus groups. The idea of politics as a place where there is a battle of leadership to determine what direction the country should be going in has faded away. Instead, we have an increasingly personality led and cliquish political class which has shifted to the margins of what most people feel is important in their lives.

Over the past ten years, political leaders, Gordon Brown especially, made a virtue of their support for the expansion of financial services, the housing bubble and the vast increase of credit based consumption . The absence of any alternative to this approach did not matter as long as the bubbles kept inflating.  Brown was able to claim that he had brought an end to boom and bust, although unfortunately as we now know the boom was built on the expansion of credit, paid for by the Chinese and others.  Growth did not happen because the UK had developed a new productive economy, but because the Chinese and other productive developing countries could not find a domestic use for their profits.

The collapse of the financial bubble revealed that the UK economy had not been built on solid ground, rather, as Tony Blair has since admitted, Labour was lucky. Its rule coincided with the availability of cheap credit. The narrowness and introverted character of our political life combined with a blind faith in the market,  encouraged a lack of proper examination of what lay behind the financial and housing bubbles.

Politicians here and elsewhere reacted with shock and disbelief when the recession began.  For a long time they could not believe that their faith in the explosion of financial services could have been wrong. When they did begin to react they tried to avert attention from their own complicity in what had happened by trying to pin the blame on greedy bankers.  This should have been the time to launch into a proper debate about what went wrong and to try to work out a new approach to the economy. Instead, having blamed ‘greed’ for the recession they set themselves up perfectly for their current humiliations over their expenses.

Now we are in a very dire state. We have a political class which is lacking in ideas and credibility. We have an economy which has lost its driving force. What can we do about these problems? These and other issues will be at the core of the discussion at the Battle for The Economy next weekend.





Putting the no in innovation

8 05 2009

A dispiriting article in today’s Financial Times sums up much of what is wrong with the government’s approach to investment in innovation. In the last budget it was announced that £750 million would be set aside for a Strategic Investment Fund. This was presented as financial support for a new kind of positive ‘industrial activist’ strategy.

Leaving aside for the moment that one third of this money is set aside for low carbon business opportunities (see my previous blog  on this), there is obvious merit in funnelling funds into technology start-ups, even if the amount available, which is to cover a two-year period, is very small. The problem is that this fund was announced without any proper planning or discussion.  The Ministry which is supposed to adminster this fund was only told about it a few days before the announcement.

So we have an investment fund with no clear goals or any mechanism for distributing the money. As the report says, people are queuing up for access to this cash, and it is encouraging that there appears to be a strong demand for new investment. But the lack of clarity about what it is for or how it is to be administered throws doubt on how quickly it will be put to good use.

We are in a deep recession and any new technology investment would be a good thing, but the slapdash way this has been done betrays a lack of urgency in addressing the situation. This was summed up by the unnamed official who said there was no rush as they had 2 years to phase in the spending.





Innovation and inspiration

6 05 2009

A good article by Anjana Ajuha emphasises that innovation in science and technology is by its nature unpredictable.  She states that research should not be too narrowly constrained to the supposed needs of the economy.  The article further criticises Lord Drayson, the Science and Innovation Minister, for suggesting that spending on scientific research in the UK should be focused on climate change technologies and medical research.

Innovation to guidelines

"I'll be happy to give you innovative thinking. What are the guidelines?"

Ajuha cites as a better example the approach of the Gates Foundation who are funding research into finding a cure for malaria. The Gates Foundation is funding unorthodox ideas, including some wacky ones like giving mosquitoes a head cold so they cannot smell their potential victims.

While I agree with her general sentiment that stuffing innovation down narrow pipes is likely to be counterproductive, since discoveries often happen when scientists are looking for something else, I think she is missing the main point.  The work that the Gates Foundation is trying to do is inspiring because it has set itself the task of tackling and solving a huge problem, malaria, that kills millions of people each year. It is extremely well funded out of Bill Gates’ own personal fortune and that of another billionaire, Warren Buffet.

I suggest that the reason Ms Ajuha finds Lord Drayson so uninspiring in comparison is because there is no set objective which can capture our imagination.  In the absence of a goal that can inspire us, why should resources be set aside on a scale which can transform our society?  The best historical example of this is the Kennedy Moon Programme  which contains within it both ambition and an ability to galvanise the best minds of a nation.

The way that this should work is that we, through our politicians, should set a goal for what we want to achieve. The State then has a role in channelling resources and enabling legislation to make things happen. Real creativity comes from the combination of a goal with the resources available to make it happen. There would then be nothing wrong in choosing, for example, to make the UK a world leader in medical research, but it has to be because we want it, not because a government minister has decreed that is what we should do.





Say no to the politics of austerity

1 05 2009

Conservative leader David Cameron at a party conference, after delivering his 'age of austerity' speech

David Cameron has now formally identified his party as the party of austerity. He went even further in his speech to the Conservative Party Spring Conference by claiming that we are now in an ‘age of austerity’. He has identified four things that an incoming Tory government would do:

First, a return to traditional public spending control. Second, a new culture of thrift in government. Third, curing our big social problems, not just treating them. And fourth, imagination and innovation as we harness the opportunities of technology to transform the way public services are delivered.

Open season has been called on public spending. Politicians and media commentators have begun a feeding frenzy about which bits of the public services need to be cut first. There are calls for public sector pay cuts, ending public sector pensions, cancelling Trident and so on. 

But there are two things to consider here. Firstly, why are we suddenly in an ‘age of austerity’? We are in a recession, no doubt. But recessions come to an end. Why are we not in ‘age of economic opportunity’ or ‘potential economic growth’. After all, technology and science are taking us into new and ever more productive ways of making things and communicating ideas. The instinct of our political leaders to don the hair shirt at the first opportunity shows their own lack of confidence in creating a positive vision for our society.

Secondly, we need to take a step back and consider what we really want the state to do and what it would best be left out of before launching into a ‘cut this, cut that ‘ debate based on the prejudices of whichever commentator we are listening to.  Politicians are left floundering at present because they have got used to delivering policies based on focus groups rather than on any politicial vision for our society.  In a crisis such as the one we face leadership is necessary to lift people out of a narrow focus on the here and now.  The instinct of Cameron and others is to race for the lowest common denominator, hence the ‘age of austerity’. 

There is no doubt that a review of public spending priorities would be a good thing, there are some state activities which we could well do without. Take the new Independent Safeguarding Authority which at the cost of £84 million will  safety check 11 million adults who have contact with children thus exacerbating mistrust between adults and children even more than is the case now.

The question of the role of the state is one of the key issues we will be debating at the May 16 Battle for the Economy Conference.