Wednesday, 22 February 2012

The Poll Tax, or Iraq?

The Poll tax, it helped to bring down Margaret Thatcher and was widely seen as totemic of the political catastrophe which can result from pushing a deeply unpopular policy too far. Little wonder that Ed Miliband has chosen to employ it to strike a contrast between the Health and Social Care Bill and the closing years of the last Tory Government. With division over Europe and economic woes at home, it must be sorely tempting to invoke the images which drove voters to Tony Blair and Gordon Brown in the 90s. But as tempting as that is, there just might be a parallel closer at hand.

When we look back at the 2003 Iraq war there are many features which stand out. At the time many experts outside the government were very clear in their view that the invasion would be illegal under international law.The Government in turn refuted this, turning to their chief lawyer to deploy an elegant but flimsy justification. The public were resolute in their opposition, with polls and protests gracing papers and television screens for all to see, and for years-- indeed even to the present day-- many have never forgiven the man in charge for his role in the debacle.

The public hated the Iraq war, not simply because they disagreed with it, but because the majority were clearly against it, they were ignored, and when they were acknowledged, it was to be told that "While I understand why other people might take a different view, I think if they saw the evidence we saw then, they'd understand" (to paraphrase). They felt not only that their views were ignored and trampled on, but that they were then handled like difficult children asking questions of their betters.

I know many people would be alarmed that I might compare the Iraq war and its many tens of thousands of deaths to the current political battle over the NHS, but to the average voter the NHS is actually a far more sensitive, far more personal issue. And David Cameron has adopted precisely that method: he is ignoring the clear wishes of the majority, he is ignoring the experts and listening only to those who tell him what he wants to hear, and he repeatedly defends himself by blaming the communication, not the content.

That could be true in principle, policy and legislation are complex and the average person is too busy to unravel the intricate realities of public policy. What remains is that Cameron has locked himself into the classic Macbeth policy position: “I am in blood stepped in so far that should I wade no more, Returning were as tedious as go o'er.” He has determined to press ahead *despite* the resistance. This can sometimes work, as changes in policy lead to shifting political and social norms, and people lose sight of the change, though some might say that after so many u-turns, this was a strange time to hold steady.

Tony Blair held steady on Iraq, no doubt believing he would be vindicated in the end, but its shadow proved long and deep, and it followed Labour even after the 2010 defeat,  reappearing in the 2011 Labour Party Conference where Blair drew boos from some present, which in turn drew a great deal of comment from some not present. By contrast Cameron and his increasingly glum front-bench neighbour Nick Clegg cannot draw comfort from economic success or broader popularity as Labour did in 2005, instead the healthcare disaster has compounded an already devastating series of political  realities. Worse, it is in direct violation of the mandate on which they were elected and Cameron's much-cheered pledge that there would be no top-down re-organisations under him.

Instead this legislation stands to sweep away efforts to detoxify the Tory brand, compound any lingering distrust of their intentions towards the NHS, all the while presenting the Prime Minister as the leader of a small cabal at the top of society determined to exercise political power to push through changes to a beloved national institution against both the professionals and the public at large. His abject isolation, his increasing defensiveness and his patronising attempts to pacify entirely reasonable public fears have increasingly made him seem out of touch and weak in a way that nothing before this had. Cameron's usual talent-- undeniably extraordinary-- for turning bad situations to his advantage, has finally met its match here, just as Tony Blair's affable charm did with Iraq.

Loss of trust and loss of connection to the voter have long term effects, they are extremely difficult to shake off. And for an example of that, Labour does not need to look to 1990. This is part of what Bagehot referred to in his 'The English Constitution' in noting the capacity of public mood and opinion to play as large a role in shaping policy between elections as during elections; opposition to political projects such as this are a key strength of meaningful democracy. Any politician who thinks they are not for turning has to be very careful they aren't marching off a cliff, because the electorate will not tolerate being flouted.

Saturday, 4 February 2012

Why the Macroeconomics Matter More - Labour must develop an unambiguous alternative and the language to support it.

"It’s the economy, stupid", I can no longer remember a time when this illustrious if tired king of cliches did not irk me. It’s just a shame it so aptly sums up an ageless truth about politics: to families on the margin, for whom job or income loss can mean losing the home, losing their capacity to cope with stress, losing their family cohesion and, just possibly, losing patience with politicians, economics really does matter.

For this reason I found it hard to welcome the spectacle of Ed Balls boldly setting forth the cuts Labour can’t promise to oppose in 2015, while his party remains cagey on the question of 'details' of its alternative on the basis that, after all, parties in opposition cannot be expected to draw up manifestos years in advance. Meanwhile, gleeful whispering of pre-distribution has grown louder as Labour insiders have sought a new ethos which somehow solves the problems that matter to its constituents without seeming in-credible to money-markets. Indeed the Fabian New Year conference was firmly concerned with how to improve social justice without spending money.

Of course capitalism requires reform. All three parties agree on that. Even the Conservatives nominally agree to that point. In fact, just like getting rid of government waste, or reducing bureaucracy, reforming capitalism is always and has always been on the agenda. The alternative, after all, is to assert that during the boom times there was no need to tackle vertical integration in the energy sector, or grotesquely concentrated markets dominated by a few overpoweringly oligopsonistic and oligopolistic firms. There is always a need to tackle market failures-- this is true precisely because there are so many persistent failures in our system. Like waste it's always ideal to aim to tackle it, and like bureaucracy there are always so many pressing reasons you can't.

The problem with concentrating on this is threefold: First, Cameron can easily position himself on these issues, and whether or not you, I or the Great British public think he’s credible or sincere, it does have the effect of watering down Labour’s position. Doubly so without radical and unambiguous propositions laid out and argued seriously. Secondly, pre-distribution is just a way of re-allocating costs from a debt-strapped public sector to an incredibly indebted private sector. That is to say, it isn’t an immediate solution to anything on its own. It certainly ignores the reality that pre-distribution assumes distribution, but daycare centres, benefits, education, etc, are not so easily replaced. Making these things work better for the money is a lovely idea, but the work of serious-minded people armed with mountains of data and theory, not political slogans.

Mainly, though, the Labour party-- led in this matter by Ed Balls-- believe in Keynesianism, and their analysis is clearly that the simultaneous deleveraging of households, the private sector and the public sector will lead to slumping demand characterised by a downwards spiral in employment, wages and GDP growth. The argument is that increasing debt coupled with disinflation/deflation pressures and reduced tax take is not preferable to increasing debt coupled with increased tax take, and wage-inflation. Ed Balls made it fairly plain he believes this.

There is of course also the small matter of hysteresis, and the impacts on poverty, inequality and the consequent risk of a lost generation.

On the other hand monetary policy is controlled by the BoE, not the ECB, and the US, Japan and others provide good evidence that interest rates are unlikely to cataclysmically soar if we spend more-- indeed, we *are* spending more under the austerity plans, which have proven so credible that they have failed to achieve their only objective--, not least as the flight to safety leads money to favour countries with control over monetary policy, well structured long term debt, good (potential) GDP growth prospects and comparatively low risk of a liquidity crisis. All of which apply to us, despite our absurdly over-leveraged banking sector (which Scotland apparently wants quite a lot of).

Private debt is a serious problem. For households the options are bleak. Interest rates cannot get any lower, realistically, and wages aren’t getting much higher. Prices on the other hand have not ceased to rise throughout the whole crisis period. Companies can and will downsize, they can put off investment and reduce stocks to reflect the anticipated low demand environment. Banks can lend less, and given the bleak prospects for the economy, may feel the risks are too great to justify lending in any case. The households of the less well off, however, don’t generally have a lot of spare assets lying around to sell, and can’t easily reduce their costs. Defaults and constrained spending, even on important things, are very much the risk they face.

There are, after all, two ways debt levels can be reduced. They can be reduced in value by wage-inflation and GDP growth, or by waves of defaults which will cripple the banks. Without private investment or consumption however, there are only so many places growth can come from, and exports, given the situation with our closest trading partners, is not what we might hope it to be.

In this context investment tax credits make sense and the reduction in corporation tax does not: cash rich firms have no reason or desire to invest until demand for their goods and services seems likely to rise again, and a reduced tax take from them doesn’t boost the economy very much. Meanwhile the Government has an excellent opportunity to use it's extraordinarily cheap money to make significant investments in infrastructure and training with both long and short term benefits.

The austerity programme, which has so far barely taken off (Osborne has instead contented himself to talk down the economy aggressively) will, if Labour’s views on this are right, inevitably lead to greater unemployment and bleaker prospects for the private sector as well as all the corresponding social ills that always follow on from periods of protracted unemployment and poverty. Critically, it will also increase the welfare bill and reduce the tax take. Every person who loses a job reduces the tax revenues and increases welfare costs significantly, as well as spending less in the economy.

If this is so, and if Labour is sincere in its convictions it must think it is so, then two things are of paramount importance: There must be an unambiguous, unequivocal representation of a clear alternative by the Opposition. Anything less would be failing its duty as an opposition party to present the british public with a cogent set of alternatives on which to vote and exert pressure. Second, Labour has nothing to gain and everything to lose by accepting the austerity framework and attempting to be ‘credible’ in conservative eyes.

Labour will never appear credible from that perspective, people who want to believe Labour was profligate will go on believing it, people who want others to believe it will go on saying it. Meanwhile, the marginal voter, the swing voter, will be more open minded on the basis of the realities they experience on a daily basis, and core Labour voters who are increasingly being damaged and left behind by this Government will be either  disenchanted or mobilised and spurred on by what Labour does and says over these next three years.

To conflate (intentionally or otherwise) the opposition's position with that of the Government will be to attract no sympathy, whether Plan A works or not. At best Labour can hope to be ignored. To make a strong, clear argument against it is an undeniable risk. It goes against much conventional wisdom and it could take Labour out of power for another generation. But to operate in politics on the basis of risks, and not on the basis of convictions and the common good is to surrender your reason for being there. Further, without a clear alternative strongly and unreservedly expressed, Labour may benefit little from a downturn in the economy despite manifest government failures to meet their own goals.

Governments have frequently survived economic mismanagement in history. Until a serious and totemic crisis voters tend to skew in favour of the devil they know. To capitalise, Labour must be clear, cogent and correct. And that has to be the political priority right now. Clearing up capitalism is a great project, and undoubtedly popular, but it is a long term project shared by all parties to some extent. Labour cannot rely on it.

Quick notes on executive pay

A short list of 'issues' in setting pay and rating performance:

1) Causal relationship. To what extent were gains due to leadership, vs:

i) general price movements
ii) shocks and macroeconomic events / policy
iii) market environment
iv) leverage
v) unrelated productivity boosts (such as by employees and initiatives below senior level)
vi) luck / variability / direction of long term economic cycles / factory fires and gremlin infestations.
vii) technological / systems improvement of universal character, not specific to the leadership of one firm.
viii) other

2) Medium to Long term fungibility.

i) to what degree, as per causality above, are the skills involved proven to be valuable? And thus hard to replace.
ii) to what extent does market concentration reduce the total stock of people with the necessary experience to take on such a position?
iii) is there sufficient scrutiny to ensure that difficulty replacing individual does not allow for dangerous risk-taking?

3) International competition.

i) What alternatives are there for motivating good, high skill work besides pecuniary remunation?
ii) To what extent would individuals wish to relocate elsewhere on the basis of pleasure derived from living in this country / difficulty involved in living elsewhere?
iii) How replacable are they, taking account of a rigorous examination of all factors, including relevant scientific studies?
iv) To what extent can / should taxation be tightened up to reduce tax avoidance etc?
v) To what extent can international agreements be reached on this point?

Finally, there is a serious question, in the longer term, about the degree to which national democracy should be hampered by the petulance of the wealthy few in industries which we may not wish to be dependent on more generally. If doctors threaten to leave, we have a problem. Whereas those running RBS could have been replaced with a media studies undergrad and potentially have had less damaging consequences for the economy.

The issue of concentration is enormous, though only briefly mentioned. A small number of firms dominating a market will mean fewer experienced individuals to choose from, and greater payments toward them. Small banks are less convenient and can cause a crisis just as easily as large banks, but the competition does have many healthy effects, and letting any single one fail is a great deal easier. The UK and US markets are extremely concentrated as a rule, and this is very broadly true, in many cases it is bad for consumers and producers.