These are tough times for our country and its people. After the shock of the global crisis and the scale of public debt which followed in its wake, it would have been hard enough in a benign global context to get our own economy moving, but now the perilous situation in Europe makes it much harder. Although the recent fall in unemployment is welcome, the combination of low salary increases and rising costs for essentials such as fuel, food and transport mean we are seeing a continuation of several years of falling living standards, something which tends to impact most on the least well-off in our community. And we are still relatively early in the process of reducing the public sector deficit.
This crisis is not just economic it is also political. Across Europe there is a trend towards more extreme parties advocating quick but unrealistic fixes to problems of public finance and economic competitiveness which require patience and long term adjustment. As we have seen, markets often react badly to political instability, worsening the situation and threatening to create a vicious cycle.
Here in the UK there are genuine differences between the Government and the Opposition about how we got to where we are and what to do about it. These debates are a healthy part of democratic debate and will continue, however, as the leaders of the three largest Westminster Parties we believe it is the occasion to put our differences to one side to agree an immediate policy response to the situation in which the country finds itself. More importantly, we are coming together in the hope that our example can encourage others in our nation to respond.
We, together with our respective economic spokespeople, are working on an action plan to give an immediate boost to our economy. On the one hand, this means the Coalition is recognising the need to respond to the economic crisis, on the other, it means the Opposition underlining its short and long term commitment to addressing the UK’s public finance deficit.
In essence, our package combines a cross Party commitment to bring down the deficit year on year and to aim for fiscal balance by 2017/8 with an agreement to a substantial and immediate increase in capital spending, focused on housing and infrastructure. The injection of capital aims to boost the economy as well as addressing housing need and infrastructure priorities, while the cross Party agreement to a tough programme of deficit reduction signals to the market the strength of political will to tackle the underlying fiscal challenge.
As a token of its commitment the Opposition have indicated a willingness to allow its own fiscal plans to be reviewed and publicly assessed by the independent Office of Budgetary Responsibility in light of its commitment to deficit reduction. As a token of its commitment to national unity the Coalition have agree to work with the Opposition leader and Shadow Chancellor to agree the make-up of the capital investment package we will be announcing in the next few days.
In working together at this time the Party leaders hope also to mobilise the wider efforts of the British people. Whilst regulation and taxes play their part, we believe that much can be done on the basis of national commitment to tackling these issues together. In this regard we are calling on banks to step up efforts to make funds available to business for investment and growth. We are also calling on those many corporations with substantial reserves to be imaginative and bold in seeking to invest in new activity within their own firm and in promising new businesses in their own and other sectors.
Recognising the experience of other countries – such as Germany and Sweden – we are also calling on employers, employees and employee organisations to work together to try to ensure the minimum loss of jobs and the maximum creation of jobs. Within the constraints of fiscal policy we are open to suggestions from social partners as to shifts in policy which could assist strategies of employment maximisation.
More broadly, at a time when local authorities and other public agencies face difficult funding decisions, we call on citizens to recognise the vital role we can all play in making public investment go further and in strengthening community life; whether through supporting our local school or hospital, being a community volunteer or a caring neighbour. It is through tapping into the resilience and generosity of our citizens that this can be a time of renewal as well as challenge.
Celebration with purpose
The next few months will be a time of great celebration and pride for our country. We will be the centre of world attention with both the celebration of the Queen’s Diamond Jubilee and the Olympics and Para-Olympics.
In making this unprecedented joint statement it is our hope that this time of celebration and excitement can also be a moment of renewal in which we tap into the deep well of goodwill, creativity and resilience which is at the heart of our national character.
Leading up to the next general election in three years’ time we and our parties will offer different ideas of what is best for our country, indeed the Opposition and the Coalition continue to have very different views on many current policy issues. But as leaders we all three share a conviction that we can and should seek to contest the next general election against the backdrop of a country which feels confidence and hope for the future.
PS By the way, as part of our commitment to courage and good causes we are all donating £10 to Matthew Taylor’s mountain marathon appeal on behalf of that great institution the RSA. After all if an old timer like him can run 30 miles up a mountain carrying a full back pack then surely anything is possible.
As the astute Will Davies describes here, the last few years have seen a paradox: even though the credit crunch was in many ways an indictment of free market economics – and the orthodox economists who propounded it – the period since has seen this perspective continue to define what is and is not possible in the face of the impact of the crunch. For example, Bank of England Chairman Mervyn King appeared both to admit in his BBC lecture last week that the Bank should have intervened when the markets were overheating, while generally resisting the idea that anything of significance (beyond quantitative easing) can be done now the markets are failing to bring about growth.
It seems that when it comes to market economics, we are like the followers of an end of world cult that was the subject of a famous study by social psychologist Leon Festinger. When the apocalypse predicted by the leader failed to materialize on the appointed day, his followers had to choose between rejecting their previous worldview or finding excuses for the prophecy failing; they overwhelmingly chose the latter.
I am not against economics, indeed I think everyone interested in public policy should have a basic grounding in the subject, but used as the basis for policy advocacy, economic predictions lack reliability, are bound up in disputed social and psychological assumptions and often betray political predispositions. One example lies in what could be termed the tragic irony of plan B.
In the face of last week’s local election drubbing and the resulting soul searching in Government, there is a strengthening case for a little judicious loosening of the binds of austerity. Some additional public sector capital spending plus more comprehensive underwriting of bank loans to SMS might not be a bad start. Such an adjustment would be in keeping with the shift of opinion against pure austerity in Italy, Spain and now France.
The idea that such a loosening would on its own lead to a huge backlash by the markets and spiraling borrowing costs for UK debt seems alarmist given that the markets are continuing to offer cheap loans despite the UK already having substantially overshot the debt levels which George Osborne predicted just two years ago.
But here lies the irony: because, for a variety of non-economic reasons, the markets trust the Chancellor and Prime Minister, the Government could almost certainly adopt a slightly more expansionary strategy without an adverse reaction. In contrast, if the Liberal Democrats switched allegiances tomorrow and an incoming Chancellor Balls was to take the same actions this might be seen as the thin end of the wedge and the markets could punish him.
In other words Balls’ approach may be best but only if it is implemented by Osborne. It is the economic equivalent of the Nixon to China phenomenon in which it is easier for hard liners to compromise than those who are suspected of lacking ideological rigor.
Although it arguably more relevant to public disgruntlement than all the other issues being chucked in the blame frame by anxious Conservatives, there is no sign of the Coalition shifting policy on austerity. But that the success of an economic policy might depend so much on whether the person implementing it is trusted does reinforce the contingent nature of economic prediction.
Like a Russian doll of misery the jobs crisis has layers on layers. We all know about the problems in Britain, with an estimated seven million people who would like full time employment either out of work or working part time. Then today there is a report from the ILO questioning the effectiveness of austerity strategies and predicting widespread social unrest, and showing the number of jobs across the global economy to be still fifty million below the pre credit crunch level. Then looking into the medium term Jim Clifton, head of Gallup, has shown that employment is the single factor most strongly correlated with well-being across the world but has estimated that of the three billion formal jobs for which there is demand the global economy is currently creating only 1.2 billion.
There are many factors which determine how successful an economy is at generating jobs, not least of which is its underlying strength and level of demand. But picking and mixing from countries which do relatively well – like Germany, Austria and Uruguay – a broad approach suggests itself combining three factors: tax policies which encourage investment and job creation, active industrial policy directed particularly to areas with the greatest job creating potential, and industrial partnerships through which Government, employers and employee organisations work together on a core commitment to avoiding high unemployment. Our own Government is doing some very small things in the first area, but nothing that is likely to release the huge stocks of capital sitting in corporate bank accounts; there is also some talk of industrial strategy in the second area, but again it is very limited reflecting the Conservatives’ continued scepticism. As for the third, there has been little or no evidence of high level industrial partnership in the UK for over thirty years.
Much of this is fertile territory for Labour, although it is less vocal on the problem of weak and out-dated trade union leadership. But despite the rolling omnishambles the next election won’t be for three years. Mr Cameron could do with reasserting three things right now:
He is focused on the issues which most matter to people
He can be bold
He can do what it is the interests of the country even if it makes his party uneasy
On the initiative of our Chair Luke Johnson the RSA held its own reasonably successful Jobs Summit a few weeks ago. If I was advising Mr Cameron I would suggest he take a leaf out of our book. How about a major Number Ten jobs summit involving not just the Conservatives’ usual favourite business people but a much wider range of experiences and views (including, for example the ILO and TUC). Like the RSA event the summit could have sessions looking at both the short and the long term but with strong emphasis on solutions.
There are risks. Not just in what people will say but also the acknowledgement that the Coalition hasn’t got all the answers and in the implication that Government might be willing to explore some kind of new ‘post bureaucratic’ mechanism for industrial partnership.
As I know from my own time in Government, one good aspect of a crisis is that sometimes the left field suggestions to the Prime Minister which were previously discarded get called up from the records and re-examined in a fresh light. Who knows they might even look at obscure blog suggestions too?
By the way, it may only have been a subsidiary consideration but when the RSA decided to go ahead with our House redevelopment one factor was the sense that we should make our own contribution to generating economic activity and jobs in these austere times. As an RSA fan (if you are) you can make your own small contribution to the Society’s mission and to economic recovery by sponsoring my insane bid to run a marathon up a mountain.
Apologies to Shane, Neil and Ian: you all commented on a post I wrote at Sydney airport on Wednesday afternoon which I then comprehensively rewrote when I got to Bangkok nine hours later. The original post was called ‘the consequences of throwing stones’ and contrasted the punishment being meted out to rioters and looters with the way those who behaved irresponsibly in the financial sector have got away Scot-free. I don’t sleep well on planes and at some point in the first leg of my journey back to London I decided the post was trite. But now, back in England, I find myself wanting to make the point more strongly. But this time in the form of an urgent challenge to the Prime Minister.
My conviction was renewed by two pieces on the BBC web-site. The first describes the sixteen month prison sentence for Thomas Downey, who helped himself to doughnuts from an already looted Krispy Kreme shop in Manchester. From his photograph and his record, Mr Downey is not, I think, the kind of person I would like to have as a friend or even sit next to on a bus. But, even so, banging him up for sixteen months for grabbing a box of doughnuts from a vandalised shop when he was drunk is surely unlikely to: (a) do him any good; (b) be a wise use of public money; or (c) appear to most people as a proportionate punishment.
The second story explores the profound and still unfolding consequences of the financial turmoil unleashed in the credit crunch. With stock markets crashing again yesterday (and it looks bad today) no one knows where all this will end, but we already know that hundreds of millions of people across the developed world will suffer hardship and insecurity and that many will never fully recover from the effects.
No one can argue that all this came about just because of the behaviour of bankers and speculators. I have been arguing since even before the crunch that the deeper cause lies in the fundamental and growing mismatch between public expectations of personal affluence and public services and what the state and market are able to provide in the absence of a strong civil society. But equally, there is no question that the finance sector bears substantial responsibility because of how it chose to make as much money as possible despite the risks and because it was a strong voice advocating the economic and policy framework which collapsed in 2008. Furthermore, there continue to be parts of the sector which not only make money out of adversity but also have an interest in adding to the turmoil (this is one reason why four European countries recently banned short selling).
I could stop here, simply highlighting the way rich and powerful people can cause great misery and get away with it and poor and hopeless people can be severely punished for minor misdemeanours, but we need to get past impotent rage. The contrast between what happened to Thomas Downey and the impunity of the bankers and speculators is at one level entirely rational. Downey was personally responsible for committing a crime, the finance guys are collectively responsible for making a killing in a system which has created, and is still exacerbating, a crisis. Some people do terrible things which aren’t against the law; other people do trivial things which are. The state can only punish the law breakers. It’s just the way things are.
But borne on the wind of turmoil and trouble can be heard the swirling murmur of contested moral equivalences. The Government is close to big finance and it made an explicit policy decision to put pressure on the judiciary to hand out longer sentences to all those involved in the riots, so it can’t simply shrug its shoulders if people find this imbalance of consequences ugly and unjust.
The Big Society is in part a way of addressing the limits of the state and market in meeting social need. And for this I have often commended it. But to have credibility, the Big Society must also be about a basic sense of justice, which is essential to social cohesion and morale. Fred Goodwin and thousands more like him are still rich and still making money out of decisions which have had a profoundly damaging impact on innocent people. Thomas Downey and hundreds like him, more guilty of stupidity and impulsive greed than malice, are starting prison sentences which could blight their lives. There may be nothing that can be done about this, but political leadership has sometimes to be about helping us understand why things seem unfair and describing ideas and principles which offer a better foundation for society.
A friend of my fifteen year old son got arrested after the rioting. He didn’t attack or hurt anyone physically but he was involved in the looting. It is clear that the consequences for him as a working class kid are going to be dire. My son said to me last night ’my mate was stupid and he knows it but he is going to lose everything. Why is it when rich people screw up they always seem to get away with it?’ As he spoke I sensed a deep and lasting impression is being made on him about the way things are and how unlikely it is that ‘the system’, as he sees it, will ever change.
If David Cameron is to return to the promise of his early years as Tory leader and provide a vision which unites, heals and invigorates society then he needs to balance the punitive rhetoric of the last few days. He needs to say something which touches and unlocks this hardening sense of injustice and cynical resignation. He needs to do it powerfully and he needs to do it soon.
I’m delighted to say that the RSA has today signed up to 10:10, the new initiative to persuade organisations and individuals to cut their use of energy. The campaign, backed by a sparkling array of celebrities. is the brainchild of Franny Armstrong who was behind the film Age of Stupid which we launched here at the RSA.
The campaign is based on the simple idea that we all have a responsibility to help the nation meet its ambitious carbon reduction targets, and that it really isn’t that hard for us to make a cut in our own energy consumption of 10% by the end of 2010.
It won’t be easy for the RSA to meet our target as we have already done a lot in this area and the age and listed status of the House limits our room for manoeuvre, but we can’t bang on about ‘pro-social’ behaviour if we are not willing to do our bit on what is arguably the most important issue facing humanity.
Today’s 10:10 launch coincides with news that personal debt levels are falling for the first time in more than 15 years. A few months ago many commentators – including me – were suggesting that the global financial meltdown would lead to a fundamental questioning of the values that lay behind the debt bubble. The crisis would be a catalyst for a critique of a society that condoned greed and excess, that suffered from a range of social pathologies including falling levels of general well-being, and that was failing to grasp the scale of the environmental emergency.
But now we are clearly past the low point of the recession the question is: what has really changed? Bonuses are back in the City, house prices are picking up and we never stopped shopping even when it looked like things could be much worse. So is the only impact of the crisis to be on the direct victims – the unemployed and those who have lost their businesses? Is talk of a broader change of social values misplaced? I want to ponder this myself some time over the next few days, but I am, as always, interested to hear other people’s thoughts.