The economy: how do we adapt?
There is page after page of newspaper analysis and comment of yesterday’s mini budget but the top line critiques of the package may be rather confusing to those without the time or inclination to dig deeper. Darling is criticised simultaneously for doing too little to boost the economy (there is widespread scepticism about the impact of the VAT cut), for borrowing too much and for raising taxes in two years to help pay for that borrowing (in fact, the Government’s main medium term strategy to tackle the deficit is tight restraint on public spending from 2010 onwards).
There is a widespread view in the print media that the Government has somehow cheated in managing to achieve higher popularity ratings while the economic news worsens. Today is payback time. George Osborne is back on form and no one is asking whether, at a time when we should be boosting people’s confidence, it is responsible for him to say everyone earning over £19,000 will soon be worse off. In fact someone on that salary will – according to the Conservatives’ own figures – lose five pence a week!
But Labour can’t complain. Whatever the merits of yesterday’s package we shouldn’t be starting from here. It’s true – as I have said in the past and Larry Elliot said more elegantly than me yesterday – that most of us played our part in fuelling the debt bubble. It is also true that by wanting low taxes and action to tackle inequality and improve public services, public opinion created the political dilemma to which more Government borrowing was the answer. But politics is about leadership. This Government, and those like me who have advised it since 1997, have to take responsibility for not explaining the real choices and stopping the party before it all got out of hand.
Unless the whole of society is willing to follow the Government’s model and go deeper into debt, it is difficult to see how things will improve. Indeed the best bet must be for a very long period of sluggish growth. Even if things do pick up slightly next year, with interests rates already very low and the Government not able to offer any extra fiscal stimulus, it is difficult to see how a crawl back to recovery will become a march.
So we are back to the question of how we adapt. On the one hand, we have to lower our expectations as private and public sector consumers. On the other, and more positively, we must explore and exploit untapped social capacity.
To take one example, there is already a social care funding crisis. Unless we can reduce unnecessary dependency and increase voluntary effort the care gap will grow into a chasm. Public funding won’t help us out, nor can we expect people to suddenly start saving lots more for their old age. If there is an answer it involves some combination of mobilising voluntary effort, increasing the productivity of public investment (especially so it goes into maintaining people in independence rather than paying for dependency), fostering innovation (so, for example, we can create an effective intermediate labour market of people, many of whom may be retired themselves, being paid for a few hours caring work here and there), and much better collaboration between the different agencies and NGOs working in the field.
If things are going to be as tough as many people suspect, social care is only one of the many needs that are only going to be met thought this combination of pro-social behaviour and innovation. As I will be telling an RSA meeting in Leicester tonight, there couldn’t be a more important time for the RSA and particularly its talented and conscientious Fellowship to be turning outwards and asking what difference it can make.
The politics of tax pledges
Having argued just a few days ago for an increase in tax for the highest earners to help fund public spending and tax cuts that help the poorest, it is beholden on me to applaud Alistair Darling’s announcement of a deferred rise for those earning over £150, 000. By delaying the increase until 2011 Labour can remain true to its manifesto pledge to maintain income tax rates.
Over the next 24 hours we can expect to see footage of Tony Blair and Gordon Brown signing the first income tax pledge back in 1996. Darling’s move will be portrayed as a watershed and, for some, the final nail in the coffin of New Labour. Given that today’s move is, we understand, to be justified not just in terms of fiscal rectitude but also fairness this is a significant shift (although the contribution the higher rate increase will make to the overall fiscal gap is pretty small). Polls taken before the financial crisis did not suggest much appetite in the electorate for redistribution, but now we all know we are going to feel pain down the road the voters will probably think it right that the best off make their contribution. The public may also approve of Labour’s political courage – it is not often that the first pledge to go into a Party’s manifesto is to raise taxes.
But if Darling’s announcement goes down well commentators from the left should resist the temptation to argue that Labour should never have made the tax pledge in the first place. In looking at the opinion polls leading up to the 1997 election some analysts have argued that the Blair modernisation project was unnecessary. After all, the decisive decline in Tory support happened immediately after Black Wednesday (when John Smith was Labour leader) after which Conservative support flat lined right up to their election rout.
Attempts to reconstruct history usually provide more insight into the prejudices of the person doing the reconstruction than say anything useful. No one knows what would have happened had John Smith lived. But the last 18 months have certainly taught us three things. First, holding on to a poll lead is just as hard as grabbing that lead; we are now in our third major swing of the pendulum since Tony Blair left office. Second, there is no simple correlation between the state of the economy and a Government’s performance in the polls. Third, once things start turning against you, they take on their own media-fuelled momentum – just ask George Osborne.
Unless someone can explain why the electorate has become much more inherently volatile over the last ten years, Blair and Brown’s achievement in keeping their foot on the Conservative’s political windpipe looks more and more impressive. From the perspective of 2008 there doesn’t seem there was anything inevitable about the situation in 1994 that would lead to Labour’s victory in 1997. It was Labour’s single minded determination to win and the Conservatives apparent death wish that turned an economic crisis into a political sea change.
Tony Blair’s tax pledge in 1996 was an important part of maintaining the contrast between a brilliant opposition and a hopeless Government. Today, as Alistair Darling reverses that pledge the balance of political forces is much more even.
Update: I’m on the World at One to talk about this
Wave of anomie
The worst of the banking emergency appears to be over and the stock market may recover its losses but we have yet to see the long term effect on social norms of the credit crunch.
Emile Durkheim – one of the founding fathers of sociology – is famous, among other ideas, for developing the concept of anomie. Academics still debate exactly what the term connotes, but broadly it is a state of dislocation between the individual and society resulting from a failure of social expectations and norms. Durkheim himself said that conditions of boom and bust create anomie by attenuating the links between personal effort, social order, status and reward.
The credit crunch will generate a wave of anomie. For the public being reminded about city bonuses, and seeing even now generous payoffs for the architects of the recent disasters, underlines the break down of any relationship between merit and reward. The volte face of Governments on not only on state intervention but also the way the state has suddenly discovered a bottomless pit of extra money has undermined whatever lingering faith the public had in the protestations of their elected representatives. Finally, the failure of any expert to sound the alarm bell (hardly a single refereed article in any respected economic journal predicted the global contagion) will have ramifications for many other areas where the layman relies on the insights of experts. CERN’s large hadron collider hasn’t managed a full speed smash yet, but in the build up to the machine being turned on we were told not to worry about wacky predictions of the end of the world. After all, every expert said the technology was safe. But how is Joanna Public to distinguish this expert consensus from the complacency of the decision makers, academics and journalists who observed our walk to the edge of the financial abyss? More seriously, who now will trust what anyone in authority says about climate change?
In periods of anomie rates of murder, suicide and depression go up. People withdraw from society disoriented by the failure of its norms and systems, or they become susceptible to demagogues offering a simple explanation for the breakdown of the old order.
This is why it is such a problem that so few people in authority are willing to take responsibility for what is happening. It is not that apologies from millionaire bankers or superannuated regulators are worth a spoonful of spit in themselves, but the people need to believe that there is an explanation for all this. If the reaction of those retreating to their mansions in Gerrards Cross is simply to shrug their shoulders and murmur ‘shit happens’ they can hardly then complain when the hoi palloi not only treat the ruling class as undeserving parasites but also view their own place in life as a matter of crude fate. Once again we are reminded that censorious phrases like ‘rights and responsibilities’ or a ‘a hand up not a hand out’ are meant to apply only to the great unwashed.
The social elite is not a homogenous whole but it can look that way from the wrong end of the telescope. Unless we see some serious reflection, soul searching and humility from the rich and the powerful the longest lasting effect of the credit crunch may be to stretch the tattered fabric of social trust and respect to tearing point.
Brown’s recovery
It’s a risky prediction as I could be proved wrong very quickly but I suspect the next batch of opinion polls will show a further narrowing of the gap between Labour and the Conservatives. No one is thinking about politics right now – as I write the stock market is down more than 8% in its first hour’s trading – but has there ever been a year of fluctuating fortunes like it? In a year Gordon Brown has gone from what looked like an unassailable lead to the lowest poll ratings ever recorded by Labour only now to find himself (if my prediction is right) a few points behind with everything to play for.
Excuse the anecdotalism, but down at the pub last night it wasn’t just that people thought Gordon was handling the crisis as well as could be expected. There seemed to be a deeper sense of cleaving to a man whose personality fitted the gravity of the world situation. In contrast, David Cameron was talked of as nice but irrelevant.
My favourite commentator Daniel Finklestein (not that I always agree with him) discussed this a few days ago. He made the powerful point that while Gordon Brown may benefit from a crisis, the next election will probably be fought out not with a global emergency as the backdrop but after fifteen months of economic slump. The mood then will not be ‘all hands to the pump’ but instead ‘time for a change’.
Danny may well be right. But there’s another way of looking at things. Gordon’s big problem with the electorate over the last nine months is that the voters have stopped listening to him. Government political strategists and policy analysts might agonise over what to he should say or announce but it was pretty much irrelevant if the average voter greeted the Prime Minister’s appearances on their TV screens by putting their hands over the ears and shouting ‘la la la’. Well, the voters are listening now. Labour’s challenge will be to keep them listening if and when the economic storm has passed and the long dispiriting clear-up begins.
Those who know Gordon well would also argue that his insecurity has been another problem. Over the last year it has too often felt that he and his advisors have, on the one hand, tried to avoid unpopular decisions while, on the other, scrabbling around to find something – anything – that might reconnect Brown with the voters. The consequence is that the Prime Minister has at times seemed both indecisive and desperate. People might have pinned their dislike for the PM on his personal characteristics or style but underlying this was a deeper critique of someone who claimed to be determined but seemed to back down under pressure, who talked about principle but seemed (especially over the election that wasn’t) an opportunist, or who called for a new politics but ran a divisive Number Ten.
But, events maketh the man. The voters want the Gordon Brown they see now. Serious, determined, willing to be bold at home and to provide leadership abroad. Perhaps the Prime Minister who emerges from the crisis will be someone who no longer feels the need to try to project anything other than who he really is. And when there is no easy option (the policy context for the next three years at least) why not do the right thing and be damned?
If I was forced to bet I guess I would still put my dwindling savings on the Tories but politics is only one of the many aspects of our world of which we can say; ‘what seemed possible a month ago is impossible now, what was impossible a month ago is suddenly worth thinking about’.
Olympics – what sort of legacy?
To a breakfast hosted by Editorial Intelligence to discuss the legacy of the 2012 Olympic Games. From which I drew three conclusions:
The good news: As the always impressive Neale Coleman (the Mayor’s senior advisor on the Olympics) outlined, the building project is going well. One in ten of the workers on the site were previously unemployed and one in five lives in the surrounding area. The innovative and sustainable techniques being used to clear, equip and build on the site are setting a new benchmark for major development schemes.
The mixed news: The main legacy will be the redevelopment of the Lea Valley into a pleasant, modern quarter with many good facilities. But some of the hopes for a life for the Olympic facilities beyond 2012 are starting to look forlorn. In particular, it looks increasingly unlikely that an investor will be found to ensure that the media centre turns into a permanent facility.
The bad news: When London bid for, and after it won, the Olympics much was made of the intention massively to increase sporting participation, particularly among disadvantaged groups. This intention seems to have been largely abandoned. It is true that there has been improvement in school sports but central London is lagging even in this. Meanwhile the costs of sports at the grass roots – whether its athletics or kids’ football – continue to rise with little or no extra revenues funding going in.
This issue was raised this morning by Professor Stefan Szymanski from the Cass Business School and then reinforced by me from the floor. But the reaction of many others there was a mixture or complacency and indifference. To give one example, my own sons play for a really good Sunday youth football team but with rising referees’ fees and pitch costs already three teams in our league have folded and the fees we have to charge are at over £100 per child – making it really hard for poorer kids to stay involved. To be told in the face of this that the issue isn’t really about facilities and funding but ‘that’s its all a matter of parental commitment’ rather gives the lie to all those videos emphasising social inclusion that accompanied the London bid.
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