Why vote? Part 2

4 05 2010

So,why vote on Thursday? It certainly cannot be because of any belief that any of the parties, or any combination of them in coalitions or minority governments, has a plan to reinvigorate either the economy specifically or UK society in general. This blog is grounded in materialism and does not believe that society can be progressed outside of continued dynamic economic growth. Discussion of how to generate more economic growth has been almost entirely absent from the pre-election debates, either on television or off it. All of the parties are mired in the low expectations of sustainable development and general pessimism about the prospects of our economy becoming dynamic again.

I therefore find myself caught in a no man’s land as far as the big economic issues are concerned. Unlike the Conservatives I do think that the state has a big role to play in helping to modernise the infrastructure of society like the transport system and  the power supply, in creating an education and training regime which is suitable for a modern society and in creating favourable conditions for the development and encouragement of new industries. The market cannot, and really never has, provided these basics of modern life.

Unlike Labour I do not believe that the state should be interfering in or managing the minutiae of our daily lives. The whole apparatus of the therapeutic state should be dismantled and we should be allowed to manage our own relationships with each other, within our families and outside of them, with minimal state interference. If those aspects of public spending were taken away it would make for a far better society.

The Liberals are a kind of anti-party at present which I cannot take at all seriously. There is nothing in their economic policy anyway which makes them stand out from the other parties.

Whatever happens at this election it should be clear that we are in a transitional state, away from traditional party politics but towards what is not yet clear. There have been some valiant efforts to inject more political debate into the election campaign, from the Institute of Ideas, Spiked, Big Potatoes and To the Point amongst others, most of whose take on modern politics I agree with. Experimentation along these lines must continue in order to help the birth of whatever new political movement will replace the old.

On the basis of all of the above, principled abstention from this election would be an entirely respectable position to take. However, there is in my view one reason to vote and one reason only. Whatever the result of the election, this country faces a very difficult future. Within a very short period after the election the next government will be forced to take radical steps to keep the economy moving. None of the parties has created a mandate for tackling the problems we face. In this situation the least worst scenario is to have a majority government which at least can be held to account for whatever it decides to do. Minority governments and coalitions will try to evade responsibility and load it onto the shoulders of others.

We need to be able to hold our government firmly to account for what happens over the next few years. New Labour is exhausted and the Liberals not serious. Neither has any chance of forming a majority government. For that reason, and that alone , the best result of this desperate election will be a victory for a majority Conservative government. I am not a Tory by instinct or tradition, but that is what we should vote for on Thursday.

Ten questions to ask your candidates about the UK economy

12 04 2010

According to the papers today, the election focus of the main parties this week will move away from the economy and on to domestic issues. Apparently last week’s spat over 1% increase in national insurance is what the parties think constitutes a debate on the economy. If you are thinking, given  the deep problems facing the UK economy, that this is a totally inadequate level of debate on the economy then you are right. And this is what you should do about it….

If any electioneers come to your door ask them as many of the questions below as you can get in. The links in each question refer to a discussion of the topic in other parts of this website.

1. The UK economy is slowly but surely slipping down the international rankings of economic size. Do you think it is possible to reverse the UK’s relative economic decline? If so how?

2. The recession appears to be over, do you believe we are inevitably now in for a long period of austerity?

3. The whole idea that economic growth is a good thing has come in for a lot of criticism, from Greens and others. Are you in favour of economic growth as an objective, or should we all permanently tighten our belts for the good of the planet?

4. For the past ten years the financial sector has been the motor of the UK economy. Do you see this continuing,if not what will take its place?

5. Is it necessary or indeed possible for the UK to revive its manufacturing industries, or should we focus on growing our services business, which already makes up 75% of the economy ? 

6.The UK manifestly needs a better transport and communications infrastructure in order to operate effectively. What should any government do to make sure that, for example, our railways, roads , energy or broadband provision, are world class? Or is this all just a job for the market?

7.  Most of the plans for job creation laid out by the main parties are based largely on supply side reforms, such as encouraging the sick to go back to work. Should government be doing more on the demand side as well, through, for example, creating favourable environments for successful forward looking industries such as bioscience,through support in taxation, policies, enterprise zones, science parks, the kind of educational and training policies we pursue etc.

8. There has been a very risk averse public response in this country to some cutting edge scientific developments, such as GM food, nuclear power and some pharmaceutical and medical breakthroughs. What would your approach to public fears around these types of issues be? Do you think government should be leading public opinion in these kind of issues or following it?

9. Should the UK be investing more in space travel?

10. What do you see as the cause of the economic crisis, greedy bankers, greedy people or the over reliance on the finance sector?

The ‘battle of the economists’-sound and fury signifying nothing

22 02 2010

It has been said that the politics of academia is the most vicious and bitter form of politics, because the stakes are so low. The phrase comes to mind when considering the exchange of views between different groups of economists this week. First a group of twenty wrote a letter to the Sunday Times arguing that fiscal tightening, or cuts in public spending as it really is, should start sooner rather than later. This was jumped on by the Tories as proof that Labour was threatening the long term credit worthiness of the UK. Then today two groups of economists, headed by lord Skidelsky and Lord Layard, had letters published in the Financial Times refuting the first group. Skidelsky and Layard argued that early fiscal tightening would lead to a plunge back into recession. This argument is interpreted as support for Labour.

The onset of the recession has left the economics profession effectively discredited. The numbers of economists who predicted the recession were so small that they are the stopped clock part of the economics profession. If you predict recession for long enough then you will eventually be right. Neither the free market economists or the neo Keynesians have any remaining intellectual credibility.

This intellectual paralysis has contributed to a situation in which serious global analysis of the causes of the recession has been inadequate. Most discussions have focused on the symptoms of the crisis, such as the credit bubble, rather than the causes. As a result the current position of most economists on recovery is to cross their fingers and hope for the best.

The current ‘controversy’ over fiscal tightening revolves in effect around whether the small cuts now proposed by the Tories for the next financial year, around £2 billion-a lot of money for you and me but a drop in the ocean for the UK economy, should go ahead or not. That this relatively tiny amount should be so controversial indicates how limited the debate about the UK economy really is. What is even worse is that the wider discussion of the future has been boiled down to how far and how fast public spending should be cut.

In reality all the participants in this discussion know that even if it was desitrable that large cuts in public spending should take place over the next year or two it is not a realistic option. It would require a huge effort of political will of which there is no evidence that it exists. Everybody understands that it ios only the massive supprt given to the economy through support for the banks and through pubblic spending which is keeping the UK economy afloat.

The main underlying worry in all of this is that there is no plan to get the UK economy back to growth. As the Financial Times commented on the spat between economists, there is no alternative to continued state support for the economy. It argued that major cuts now, which nobody is suggesting anyway, would lead to a further contraction of the economy,

It is not clear what forces could offset such a contraction. Easier monetary policy would be of limited use: domestic credit growth is not a route to sustainable recovery and exports are unreliable. At a time when most of the world wants to export its way out of trouble, who is going to buy all those British goods?

In other words the only option on the horizon is to wait for help from the world economy, which is essentially ‘unreliable’.

The dispute between economists is significant only because of its insignificance. The identification of  one side with Labour and the other with the Tories shows just how narrow the differences between the parties are on the central question of the economy.

A version of this article also appeared on Spiked


2010-the year of living uncertainly

12 01 2010

Welcome to 2010, a year which is pregnant with doubt and uncertainty. The western world has moved from the certainty of recession to a fear and acceptance of stagnation, the ‘flat is the new up’ mentality derided by Martin Sorrell. In the UK we have a general election contested by three parties which is shaping up like a contest between weak boxers. Every time they land a punch on each other they weaken their opponent without strengthening themselves.

There is a general mood of cynicism and disgust towards the political process which means that whichever party or parties win the election then nothing can really change. Mick Hume has accurately summed up the state of modern politics as dominated by;

..the politics of fear, with many apocalyptic warnings, but little analysis of the underlying causes; the politics of behaviour, with attempts to blame the crisis of the system on the greed of individuals; and the politics of low expectations, with efforts to persuade us that the most we can hope for in the future is no/low growth in a stable/stagnant capitalism on a life-support machine of state intervention.

We  have reached the end of a political cycle which began with the collapse of communism in 1989. Just to remind ourselves, the collapse of the Soviet Union created an initial surge of optimism that history had ended with the triumph of western liberal democracy.  In the East new democracies arose. In the west the third way concensus politics of Bill Clinton, adopted by Blair and others, replaced class based politics. It is very hard now to remember the enthusiasm which accompanied the election of Blair’ s New Labour in 1997. Many people welcomed what they saw as a decisive break with the past and the opening of a new chapter in history. We can now see that the idea of a new era of peaceful and stable capitalism which dominated the twenty years since the end of communism has come to a political dead end.

The upcoming defeat of Gordon Brown in the general election here will mark the final eclipse of New Labourism in the UK. What we are left with is a severely confused and disoriented western elite which is struggling to tackle the major changes taking place in the world. During the credit fuelled  boom years of the noughties the absence of any clear economic and political blueprint for the future did not matter so much as it does now. The best that any politician can do now is to try to navigate the future without a map. On the economic front there is just as much confusion. While there are some commentators who wish to paint a rosy picture the general view is one of foreboding. The underlying problems facing western capitalism, which have been extensively debated in this blog over the past year, have not even begun to be addressed. The lack of a plan means they will fall back on restraint and cutbacks in public spending rather than bold policies for economic growth.

Elsewhere the triumph of liberal democracy is looking very hollow. The most dynamic economies in the world now pay lip service to democracy in general if at all. The recession has played its part in deepening the crisis of western politics by accelerating  both a shift in global power eastwards and by undermining the western model of (supposedly) free markets plus democracy.

All of this means that the stakes are even higher for anybody who can come up with a better idea of how to run things. The depths of cynicism amongst the elite and the general populace will prove a huge barrier to any ideas of change, but there are always some people who will not want to give in to these  widespread negative sentiments. Uncertainty can be a good thing if it leads to broader questioning and wider debate. There are those, such as Martin Wolf, who accept that we have reached a ‘hinge in history’. Whether this leads to a turn for the better or the worse is up to us.

We need real growth not sustainable growth

3 12 2009
It is not clear how the UK will earn its living in the years to come        Financial Times  3/12/2009
A new survey of the state of the UK’s economy has drawn a bleak, if not surprising , picture of the weaknesses of the UK economy as we begin to come out of the recession. The survey, carried by the FT today and over the next few days, reveals that despite all the claims of New Labour to have turned the UK economy into something more dynamic the truth is that the long-term trends of sluggish growth and the disappearance of manufacturing have if anything gone faster under New Labour than before:
  • Growth since 1997 has averaged just over 2%, slightly less than in the previous 20 years
  • Manufacturing has shrunk from 20% of the economy in 1997 to 12% now
  • The growth areas of the UK economy have been business and financial services, real estate and public services-all financed directly or indirectly from the proceeds of the financial bubble.
  • Around 2/3 of jobs created under New Labour have been in the public sector-which bodes badly for employment prospects if public spending is cut
To add to the ominous character of this survey a timely piece of new research by two academics at Kent University has looked at the experience of recessions around the world over the period 1960-2000 and concludes that deep recessions such as the one we are currently experiencing have profoundly negative impacts on productivity for years after the recessions are over. 

Our main findings show that, cumulatively, from the last year of the recession up to fours years after, recessions have significant negative productivity effects. These effects, however, arise as a combination of different mechanisms. Recessions tend to increase the level of frontier TFP (technology growth and efficiency) but decrease the rate of technical progress. The combination of these two effects is a fall in frontier productivity relative to the one that would have prevailed without a recession. Recessions also increase significantly technical inefficiency in the economy. Finally, deep and long-lasting recessions tend to have larger impacts on productivity, although the mechanisms differ from standard recessions.

 There are key debates to be had still about to what extent the UK needs to restore manufacturing as opposed to services, and also whether cuts in public spending are necessary and in what areas. However, one thing is crystal clear, that whatever route the UK has to take to recover a growth dynamic it is going to be very hard work. The dawning recognition that this is the case, and the absence of any coherent plan to achieve it,  must be one reason at least why those arguing for a more sustainable (ie environmentally focused ) economy are influential today. For a clear explanation of what the sustainable economists have in mind for us this new report spells it out. 
   The traditional function of investment, framed around increasing labour productivity, is likely to diminish in importance. Innovation will still be vital, but it will need to be targeted more carefully towards sustainability goals. Specifically, investments will need to focus on resource productivity, renewable energy, clean technology, green business, climate adaptation and ecosystem enhancement. These are precisely the kind of targets that emerge from the consensus around a global Green New Deal. Foregoing consumption growth seems inevitable if we are to sustain this enhanced need for ecological investment. 

 The necessity of ‘foregoing consumption growth’ in favour of saving the planet is, in this context, a convenient way of also avoiding the issue of tackling the stagnation of advanced economies such as the UK’s. The question of how to create a turn around in the UK economy should not get sidetracked by the sustainable growth lobby. The solution to all our problems, including environmental ones, involves greater control over our environment, through scientific and technological breakthroughs and through greater productivity of labour, which creates more human time to focus on new challenges rather than slogging away at the old ones. 

Mandelson’s ‘industrial activism’ to boost innovation-too little too late

14 10 2009

images[3]I am finding it increasingly difficult not to like Peter. He is a key fixer in a long tradition of manipulative politicians going back to Francis Walsingham under Elizabeth the First. There is an element of pantomime about him, somebody the public likes to boo or hiss when he appears on the stage. He has chosen to throw his weight behind the project to stop Labour sinking without trace. There is something quixotic and admirable about this, whatever one thinks of Labour.

 Listening to him speak at this event yesterday it became clear that he is converted to a policy of ‘industrial activism’, that is the government taking a leading role in the nurturing and development of innovation and investement. This new initiative on bioscience looks on the surface like a good idea. It is important for the state to use its resources and authority to enable economic development as I have argued before on these pages.

The problem with Labour’s  current attempts to move from financial to real engineering is that they are too little too late. The sums of money being made available by the state for assistance to new businesses and innovation are tiny relative to the scale of the problem. Nor is this just a problem at the  state level. As a society the UK has little appetite for risk. As Mandelson pointed out in his speech, investment in research and development in the UK is lower than for many of the UK’s competitors.

Labour has come late to industrial activism. For most of the past twelve years the main focus of government activity has been on boosting spending on health and education. This extra spending was financed largely by the expansion of financial services and an increase in debt, in other words through spending the money that Chinese people have been earning.

At least in part, the focus on health and education was in response to market research which indicated that these were the areas that people in the UK were most concerned about. It is all very well for governments to respond to the wishes of its electorate. To some extent this is both inevitable and desirable. However there is another part of government responsibility which Labour has largely evaded, that of leadership. There are key areas of the UK economy which have required investment and support, such as nuclear power stations, better roads, investment in GM and other new technologies, which the government backed off from because they were unpopular. Rather than trying to win the arguments for these various key projects the government caved in, often ordering lengthy inquiries and further tests rather than risk making itself unpopular.

The Stevenage bioscience project which Mandelson announced yesterday is aimed at boosting the development of the UK’s drug industry. Yet the pharmaceutical industry has been vilified over the years in many quarters and its products, such as the MMR vaccine, held up as public dangers. When Blair was confronted with this vilification he famously declined to say whether he would give his son the MMR vaccine, thus encouraging those who irrationally opposed its use.

The UK government going forward has to take a more activist role in planning the shape of the UK economy. Its role has to encompass persuasion and leadership to convince an often sceptical public of the long term benefits of innovation in energy, technology and science.

If G Brown saved the world why can’t he save himself

29 09 2009

images[8]What an ungrateful nation we are. New Labour has poured billions into public services over the past ten years. More recently, Gordon Brown claims to have saved the world during the financial crisis by bailing out banks and cutting VAT. Yet Labour is trailing in the polls and its Conference is a dire affair, devoid of politics, deserted by the lobbyists, destitute of any idea of how to stop the tailspin the party is in. It would be a hard hearted person who could not take pleasure in that.

Many blame Brown’s personality for all this. His dour demeanour and inability to communicate effectively are turning people off. Yet if we examine Labour’s record it is easy to see why this is a political problem of Labourism rather than the fault of one individual-however unattractive he may be.

Over the past ten years Labour had a tremendous amount of luck, as Tony Blair now admits. It took advantage of the huge global growth in financial services, based in the City of London. The City was a successful financial centre because of the ‘light touch ‘ regulation begun by Margaret Thatcher and encouraged by Brown himself. This is the same ‘light touch’ , by the way, now blamed by many for the crisis itself.

The boom in the City enabled Labour to extract huge amounts of tax which it spent on public services, particularly the NHS and education. During the same period Labour ceased to be a political movement in any traditional sense . It cut itself off from its traditional working class  roots in societyand became instead a narrow managerial clique.

Labour’s continued popularity became largely based on its ability to continue to fund the expansion of public sector jobs and services. The problem with this is twofold. Firstly, it assumed a continuing growth in the main source of the the UK’s wealth, the financial sector. After the financial crisis that is no longer assured.

Secondly, Labour’s relationship with the UK population was based upon the successful delivery of services. Yet there is still widespread dissatisfaction with health and education provision and a general sense that the money has not been well spent. There is a broader isue behind this which is to do with the way in which we have become a mass of service consumers rather than an active and engaged polity. This is the flipside of the way that Labour has become detached from society.

The decline of Labour as a representative political party has created a kind of politics based on consumer satisfaction surveys and market research. The Tories are ready to carry this on so we should not expect very much change even if there is a change of government. The Tories are also hamstrung by the fact that they will not have the same ready access to tax revenues that Labour had.

Labour was lucky, now its luck has run out. From an economic point of view the biggest mistake made during this period was to spend the windfall from the City on consumer services rather than investing in upgrading the UK’s infrastructure on a wider scale. Better roads, railways and more nuclear power stations amongst other things would have left a longer lasting legacy.