Time for Plan C?
Plan A (the Coalition strategy) and Plan B (Labour’s five point alternative) both promise that in the short to medium term they will return the UK to growth of over 2% a year, the threshold often applied to a healthy economy which is able to offer rising living standards to most of its citizens. But isn’t it about time we explored Plan C – Coping with long term slow growth?
Several weak arguments don’t make a strong one, but there are now a variety of reasons being offered for a long term slowdown. First, there is the view that it will take not years but decades to clear the overhang of debt which is weighing down countries and financial institutions. Second, is the argument that the entry into the global labour market of billions of low wage workers will mean a long term process of convergence as emerging economies grow and rich economies stall. Third, it may be that limits to affordable oil and other raw materials mean that the global economy is caught in a boom and bust cycle whereby growth leads immediately to inflation in the cost of energy and commodities – which then precipitates another bust. Finally, there is a more subtle argument that the scope and pace of innovation is in secular decline and that new internet based technologies – unlike steam, rail and electricity – generate new utility but mainly shift value (for example from the high street to the web) rather than creating new foundations for economic growth (the fuller thesis is developed by Tyler Cowen in The Great Stagnation).
The Plan C challenge is for policy makers, opinions formers and ordinary citizens to examine how we would cope, and even thrive, with long term slow growth. Here are some of the key questions:
What does slow growth mean for the macro-economy? Could it, for example, make it much more important that the money we spend goes on goods and services produced in Britain or our local economy?
What does slow growth mean for public finances? Should we be more willing to examine whole areas of public sector provision which are no longer affordable or ask much more fundamental questions about efficacy (for example, a huge amount of spending on medical interventions, in particular drugs, has little or no proven benefit)?
What does slow growth mean for public services? How can we move from a conventional efficiency model to reconceptualising public services as co-productions which blur the boundary between state and civic action? (This was a part of fascinating RSA Thursday today with John Seddon, Halima Khan and David Boyle.)
What does slow growth mean for social justice? If there is no rising tide how do we lift any boats? Without falling for the lump of labour fallacy, is it time to be more serious about the distribution of work?
What does slow growth mean for culture? Ironically, might slow growth achieve the shift to post consumerist values that many in religious, alternative and green movements have long espoused, or might it mean we turn on each other as more conflict feels zero sum?
I’m wondering whether the RSA should think about commissioning a number of public thinkers to write short essays on what they see as the biggest implications, adaptive challenges and opportunities of slow growth? Maybe in a year’s time with an economy barrelling along at 3% growth this will be seem like a misguided idea, on the other hand, even if we are fortunate, slow growth thinking might help us make more of fast growth than we did last time.
PS: If anyone thinks today’s post contradicts yesterday’s, I imagine that if there were long term slow growth, we would eventually find a way of dealing with it. The question is how quickly, how fairly, and how creatively would we do so?
Bringing tomorrow into today
Rarely, I fear, do I say anything worth repeating. Once, when I was asked ‘what is it like to be an only child?’, I answered ‘I don’t know, I haven’t got any brothers or sisters’, which I thought was cute. I have a recollection that some time ago, maybe even in this blog, I said something like this: ’political leadership is the courage and the ability to bring tomorrow into today’. I’m sure I’ll find it was said more elegantly by someone much more distinguished but until then I’ll claim it.
Listening to the economist Robert Shiller speaking at the RSA this morning (he is here again on Thursday at a public event) I was reminded of this idea. Shiller, you will recall, is famous for systematically linking the credit crunch and subsequent recession to what John Maynard Keynes called ‘animal spirits’. Simply put, the idea is that when things are going well we get carried away thinking that the economy will always grow and that we can do away with any constraints on our economic behaviour. Then, in downturns, the opposite occurs, with caution and risk aversion worsening the crisis and hindering recovery.
Professor Shiller has a number of policy solutions to end the current crisis and head off the next. But a recurrent theme coming from the impressive group of people attending this morning’s seminar was that the same psychological frailties he described mean that once the crisis had slipped from our memories, we are likely to dismantle all the measures put in place in its wake (Shiller, by the way, recognises this but thinks overall, crisis by crisis, we do learn and things get better).
This is the link with my bon mot. To avoid future epidemics of irrational exuberance and, more fundamentally still, to get us to support steps that prepare for major predictable risks like population ageing and climate change, we need leaders who can ‘bring tomorrow into today’.
At the heart of the deep failings of our political system is the problem of how to exercise leadership in the modern world. Democratic leadership involves convincing people that their first instincts are not always right (if they were, leadership would presumably be unnecessary) and persuading them to consider both the general good and the requirements of the long term.
Political strategy over the last era has moved between two inadequate way of thinking; either, broadly, that people (by which we mean ‘hard working families’ or some other phrase indicating the exclusion of the mad, bad or different) are right and we should give them what they want, or that people can’t be trusted so we should try to do the right thing surreptitiously while pretending to pander to public prejudice. The first was how it looked under Blair, the second is how it feels under Brown.
The MPs’ allowances system sprang up because even political leaders we associate with an older style (Thatcher and Foot) were unwilling to confront public instincts. They thought it impossible to explain that good governance requires us to pay MPs more so as to recruit and retain talented people in politics and to avoid even honest MPs looking for other, possibly dodgy, ways of supplementing their income. Instead of explaining the long term consequences of paying too little, the allowances system was created to paper over the ever widening cracks between the views of the woman on the Clapham omnibus and her MP.
Over the intervening twenty five years three things have happened. MPs have become harder working – thirty years ago many more MPs were essentially part time, typically combining politics with a career in law or business. For example, there has been an exponential increase in constituency correspondence and woe betide the MP who doesn’t answer it all. Second, Party leaders have continued to insist that MPs must constrain their wages in order to avoid a media fuelled public backlash. Third, the allowances and expenses system has grown to deal with MPs’ sense that they are underpaid and their need to fund the burgeoning workload of their constituency offices (much of which is demanded by national Parties themselves cash-strapped by the lack of state funding and the justifiable nervousness of donors)
Psychology teaches us to notice that the things of which accuse others are often those which we feel most about ourselves. When politicians complain that people don’t trust them the reality is that they don’t trust the people. And when politicians say the need is to empower the public they really wish the public would empower them to be brave and make wise decisions.
These are the kinds of question we should now be discussing. They link the political crisis with the economic crisis and the need for a post deferential politics of social responsibility and the long term. Somehow I don’t think capping MPs second home mortgage payments quite gets to the point.
Public services: the next eighteen months will be pivotal
Filed under: Credit crunch, Politics, Public policy
Financially, politically and socially the next eighteen months are pivotal for public services, especially those delivered locally.
As I argued in a post late last year, public sector policy makers, leaders and managers must use the window of the next eighteen months to make significant productivity gains so they are in a better position to cope when the big funding squeeze starts in 2010. The economic downturn will put new pressures on budgets, not just from rising demands on services but also falling returns on investment and reduced income in areas ranging from town centre parking to recycling. But, as David Brindle points out this morning, these effects are more than countered by what now looks like a pretty generous settlement; local government will be getting an uplift of 4.2% in 09/10, three times the probable rate of inflation. Brindle also echoes the point made on Sunday by Transport Minister Andrew Adonis that rising unemployment should make it easier for public services to recruit talented refugees from the private sector.
Socially, the downturn means public services will become more vital to more people. Most obviously this is about protecting people who are losing their jobs or homes, and trying to maintain morale and social infrastructure in communities suddenly facing a business failure – for example, those areas of the Potteries that have been hit by the collapse of Waterford Wedgewood. But it also means councils making positive interventions when the market fails; initiatives like Essex Council’s funding of community post offices or the attempt by several councils to address the shortage of bank credit by creating their own banking services. Indeed, just as the downturn makes local public services more important, councils are also enjoying new responsibilities as the Labour Government’s commitment to localisation takes concrete form. From post-16 provision to welfare to work to social housing, councils have new opportunities not only for local discretion but also to develop genuinely strategic responses.
How councils respond to these new powers and responsibilities could be very politically salient. David Cameron has made it clear that scepticism about the state will be a major plank of the Conservative critique of Labour’s recession plan. The Tories, their sympathisers in the media and think tanks like the very savvy Taxpayers’ Alliance will train an eagle eye on any examples of public sector profligacy, and there are bound to be plenty to choose from. On the other hand, Labour will talk up the role in protecting people played by the state, including some very entrepreneurial and ambitious Conservative local authorities.
The media agenda is always unduly influenced by the personal experiences of journalists. Often in the past this has played into complaints about middle class tax levels. But now more and more journalists will have friends having to rely on the state themselves – in the last month I have read two heartfelt columns in national papers by unemployed professionals horrified at their treatment by Jobcentre Plus. The recession could make more privileged people understand the importance of the state – it could also strengthen the consumer critique of the public sector as a service provider.
So, all in all, a vital eighteen months ahead. We need to be seeing powerful leadership and advocacy from peak organisations representing key parts of the public sector. One such is the Local Government Association. The one and only time I have failed a job interview was for Chief Executive of the LGA – I was backed by the Conservative members of the interview panel but opposed by the Labour ones! Given the joys of being RSA Chief Executive and the news that the person who beat me to the job has now been forced out by his political masters, it looks like I had a lucky escape. In fact, the LGA has clearly improved its research and communication in recent years, but there is an even more vital need for its voice – and that of other public sector leadership organisations – to be heard over the next eighteen months.
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