Friday, 8 May 2015

ELECTION 2015 - LOOKING FOR THE SILVER LININGS

If you're one of the 63% who voted other than Conservative, you may not yet have turned to wondering whether any good news can be sifted from this morning's surprise election result. The shock takes a while to wear off, but when it does a few glimmers of brighter light can be perceived.

The first is that the government's parliamentary authority is hugely reduced. Their working majority in the coalition was 73, but now it is 12. By-elections may eat into that, but even if they don't Mr Cameron, like John Major in 1992, is at the mercy of rebels on his own side and will be obliged to seek alliances across the chamber. The majority in England, however, is overwhelming, so we can expect to hear a lot about “English votes for English laws”. This simple slogan hides some complex constitutional issues, and the conversation that ensues could, potentially, have positive outcomes for regional and local government, as well as reopening debate about the broken electoral system.

The second point is that the outlook for the economy is nowhere near as rosy as the so-called “recovery” is supposed to suggest. Recent economic growth has been fuelled largely by consumer borrowing and spending, not real production. Interest rates may be low, but wages remain stagnant and productivity is going backwards while house prices continue to rise. Without inflation the cost of borrowing is not eroded over time, so something has to give. A slowdown within the next parliament is near-certain, a recession is likely and a further systemic shock, like the banking crisis of 2007, is on the cards. History suggests that whatever government is left holding the baby when the economy tanks will pay a heavy price at the subsequent election.

In my post on Tuesday I drew attention to the ethical dilemma this poses for people campaigning for fundamental change. If things must get far worse before the conditions are created in which they can get better, one may still hesitate to wish upon the homeless, the workless, the incapacitated and the underpaid another five more years of austerity.

Today's election results, however, do not suggest that the public has lost confidence in the free market economic model that gave rise to austerity, or that they are looking for a new system to replace it. Indeed, if voters remain invested in that model, it makes sense that they would prefer the party that “owns” the model, rather than the one that merely appropriated it as part of the “Blatcherist” consensus. Democratic political change can be a slow process, and while new, sharing, collaborative economic and political models are well established in the hothouse, they have yet to take root and spread within the wider public domain.

Fertile soil, however, certainly exists in that domain for these exotic plants, and on the evidence of yesterday's vote the extent of it is rapidly increasing. More than five million people voted Green and UKIP, over 16% of the votes cast and equivalent to 106 seats on a proportional basis. With a seat apiece to show for it, this group represents an unprecedented body of the disenfranchised.

The Liberal Democrats have been under-represented for decades on this basis, although rarely on this scale. By positioning themselves as a compromise between Conservatives and Labour, however, their politics have been embraced in aggregate by the two big parties whose free market consensus they share. Neither the Greens nor UKIP have this comfort, since these unlikely bedfellows share an ideological position distinctive to that of almost any other political group.

What the Greens and UKIP share is opposition to the workings of the free market. The way they express this could not be more different, but the similarity is real. For UKIP, the E.U. and its free movement of peoples is the bogey; for the Greens, the environmental and social effect of untrammelled greed and self-interest. But they are both talking about the same thing: a system in which individual people are rendered powerless by economic and political interests beyond their control.

Green opposition to the free market is rooted in the common good, while for UKIP supporters it may be that the free market has simply failed them. The latter are the “dispossessed” of contemporary politics - a growing group, both young and old, of people for whom a highly educated, flexible, increasingly mobile and disposable workforce has no use. Anti-market policies such as the basic income - a core Green policy that is gradually emerging into the mainstream - are directly relevant to their needs, opening opportunities of which at present they can only dream. It may be challenging to bridge high-minded Green idealism with the needs of this marginalised group, but the logic of doing so is impeccable. And the electoral rewards are there for any who can achieve it.

It is better to eat one's disappointment hot, and all at once, than to be obliged to chew it cold and slowly. President Obama's first term offered the latter dish, Britain's small-l liberals may one day be grateful that a minority Miliband government did not serve up a further helping of the same. At least, now, we know where we stand, and perhaps we should be grateful for that. The fight-back starts here.  

Tuesday, 5 May 2015

VOTING FOR RADICAL CHANGE IN A STALEMATE ELECTION

Polling station 6 may 2010 Writing about politics from the perspective of radical change is a dead loss during an election. Everybody heads for the centre ground for fear of frightening the horses, and even the Greens have been criticised for not pushing strongly enough their defining environmental agenda. The key to a successful campaign, as the parties know, is to keep things simple. Many of the basic assumptions about jobs, growth and the nature of wealth upon which the election debate is founded may be just plain wrong, but at times like this the truth is merely a complicating factor.

How, then, should people respond for whom that complication really matters? Through the prism of the election, what is the route to fundamental economic and political change? In a system in which so many votes will end up unrepresented, is there any point in voting at all? And should that vote be principled, committed, tactical, loyal or vengeful?

Before tackling that question it is worth scanning the horizon to see where the election is taking us. There is one piece of good news: if nothing else, the outcome is set to be disruptive, and disruption can be a useful precursor to fundamental change. No one-party outcome is anticipated: the Conservatives may end up with the most seats, but with too few friends to help them do their business, while a Labour programme will be dependent upon the support of the Scottish Nationalists. Meanwhile, so many red lines have been drawn in the sand concerning what the parties say they will and won't do that it already begins to look like a desert battlefield before the real negotiations have got going.

Also on the horizon is mounting evidence that the UK's so-called economic recovery is running out of steam. GDP growth is down, wages and job security remain depressed and household borrowing is on the rise. The outlook for manufacturing is poor. Recent growth has been derived not from useful production but from credit-fuelled consumption and a government-sponsored housing boom. The chickens are coming home to roost and a further recession in the next two years is entirely plausible.

The most likely outcome of the election is a minority government, so a further election in a year or so is quite possible. A headline decline in the economy is just the sort of event that could trigger it, as parties manoeuvre to shift the blame. The governing party could expect to suffer, in which case a marginal lead on 7 May could become a Pyrrhic victory. The danger is particularly acute for Labour, whose record on economic competence already provokes scepticism in the electorate.

For those of us who are interested in fundamental, systemic change, the question of how much worse things have to get before it is accepted that the system is broken is a real one. As a thought experiment, however, it poses an ethical dilemma: is it OK to wish things to get worse (with all the suffering that will bring) in order to create the conditions for transformational change? Or is there a better way?

One thing seems certain: the conditions for change are more likely to be created within a political system of greater diversity. In this election the first-past-the-post system (FPTP) will favour the two big parties less that usual. The anticipated Labour wipe-out in Scotland is a direct result of FPTP, which consequently will not deliver the “strong government” which is supposed to be so much in its favour. At the same time, a larger than ever number of UKIP and Green voters will find themselves almost completely disenfranchised, as many Liberal Democrats have found in the past.

Irrespective of whether Mr Cameron limps on, or Mr Miliband ends up seizing the prime ministerial crown, constitutional change will be high on the agenda. Scotland is the driver, of course, but the package of autonomy required to keep Scotland in the union is also relevant to the English regions. Post-recession Britain has already fragmented, and policies that may work in London are increasingly of little use elsewhere.

The decentralisation of government in Britain advances the cause of radical change because it connects political decision-making much more closely with social outcome. Government ministers in the Department for Work and Pensions probably have no experience of the human consequences of the Bedroom Tax, whereas political leaders in Birmingham and on Tyneside probably do. Localism only works when the entire chain of political responsibility is local, so that a decision and its consequences can truly interact.

Political diversity within a decentralised system has the further advantage of creating the conditions for experimentation. Ideas that would never get traction at a national level may be tried out locally or regionally where conditions are more suitable. In principle, the smaller the political unit, the greater the possibility of addressing specific issues in ways most likely to be effective. When a wide range of solutions are being tried, an effective politics may evolve more rapidly, and its methods be more rapidly shared.

It considering how to vote on Thursday, therefore, advocates for fundamental political and economic change should bear in mind the value of disruption to the status quo, as well as the relative merits of the two parties that the status quo is designed to support. At present, Labour offers a better bet than the Conservatives mostly because the Conservative grasp of social and economic reality is so poor, but anybody expecting a radical approach from a Labour government should remember how quickly the euphoria evaporated in 1997.

If the system is to change, however, it is important that the election result registers as strongly as possible how thoroughly it is broken. So the share of the vote matters more than usual in illustrating how much of the electorate is essentially disenfranchised, and supporters of the smaller parties should stick to their guns and not drift back towards the big two by way of tactical voting.

Voting Conservative against conviction merely to keep out UKIP flatters the Conservatives and increases the chances of business as usual. UKIP is not the BNP: however unattractive and incoherent their policies, there is no moral imperative to exclude them from a political process in which their mere presence advances the dynamic of change. Similarly, people attracted to Green Party policies should not consider this a wasted vote and plump for Labour in its place. Labour does not challenge the fundamentals of the market system, but the Greens do. If things are really to change, “the system” needs to hear from everybody who agrees with them.

Friday, 1 May 2015

ANGER IN EUROLAND, WHERE “GOOD NEWS” IS JUST FOR THE MARKETS

European finance ministers reacted angrily, it was reported, to what they perceived to be Greek intransigence during their meeting in the Latvian capital of Riga last week. They don't like the refusal of the anti-austerity Greek government to play their game, and they have yet to work out what to do about it.

The Greeks know that they can't repay their debts, and that some sort of debt-forgiveness within the Euro framework is a better outcome for all concerned that forcing Greece to abandon the Euro altogether. In the latter case the credibility of the single currency is undermined, default is certain and the lenders will have to sing for their money. In the former, order is maintained and only a proportion of debt is written off.

Logic, therefore, is on the side of the Greeks, which makes anger a natural response from their interlocutors, who have boxed themselves into a corner from which they can only lose. Their frustration is palpable: the big boys always set the rules, and hate it when others choose not to play. It remains to be seen whether they will swallow their pride and accept the Greek logic, or kick over the table and allow the pieces to fall to the floor.

It is not only logic that supports the Greek position. It is also supported by human need. When the provision of basics such as housing, food, education and healthcare is vulnerable to the workings of financial markets (of which ordinary people have neither understanding nor control) it makes sense to reduce that vulnerability. But when the chosen method makes things worse - when the outcome of prioritising sovereign debt repayments is to leave the sick, homeless and hungry unsupported - it is time to question the rigid assumptions that frame the institutional mindset.

This point is illustrated by a telling passage in the press statement that followed the Eurogroup meeting. Eurogroup President Jeroen Dijsselbloem spoke of “good news” from Cyprus, namely that “the Cypriot parliament legislated to establish an insolvency framework and that will also make an end to the suspension of the foreclosure framework”. Unpicking that dense terminology we learn that Cyprus has caved into pressure to make it easier for banks to repossess the houses of people in difficulty with their mortgages.

Mr Dijsselbloem's comments on the equally “good news” from Spain were even more revealing, and are worth quoting in full:
We were debriefed by the Commission and the ECB on the main findings of their third post-programme surveillance mission to Spain that took place in mid-March...
We welcomed the significant progress made by Spain. All indicators are showing progress in both budgetary and economic terms.

We also realize that debt and unemployment remain high. So, clearly there are still important challenges ahead.

We are confident that Spain will maintain its good track record and adhere to its commitments under the surveillance framework.
The “good news” here is that all indicators are showing progress in both budgetary and economic terms. All indicators. Presumably that includes the debt and unemployment that, Mr Dijsselbloem concedes, remain high. "High" is understating it: unemployment in Spain remains stubbornly close to 25% and actually rose in the latest quarter. Among young people the rate is nearer 50%. If these levels applied in Britain - or the Netherlands, where Mr Dijsselbloem is Finance Minister - there would be revolution in the air. But never mind: the Eurogroup is confident that Spain will “adhere to its commitments under the surveillance framework”.

Such language tells a clear story. At an institutional level there is unwavering belief in the framework, and everything else is subservient to that. What individual countries choose to do within the framework is up to them, but they must live with the consequences. In other words, the suffering of destitute Greeks, unemployed Spaniards and homeless Cypriots are the fault of choices made by their own governments, and nothing to do with the policy frameworks set down by the European institutions, including the European Central Bank (ECB).

There are (at least) two problems with this. The first is that the policy frameworks are far less rigid than the institutions are willing to admit. The German authorities had to be dragged kicking and screaming to agree the ECB's programme of quantitative easing, but with countries such as Spain now able to borrow at negative interest rates there is good evidence to suggest that the only harm caused by this policy is that it was so long delayed. Managed default in a case of unpayable debt is a perfectly respectable policy approach and it will be no consolation to the Greeks if the institutions decide too late that it would have been appropriate.

The second problem flows from the first. Because the frameworks are not set in stone, there is a much stronger connection between the institutional policy framework and the outcome for ordinary people than the institutions are willing to admit. In reality, the framework represents no more that a prioritisation on the part of the institutions - a decision to favour one set of economic actors over another for reasons that are largely political.

This does not mean that those reasons are necessarily self-serving. The collective mind of the institutions certainly believes that keeping the financial markets happy is essential to the wellbeing of ordinary people. It is the same mindset that assumes that the Transatlantic Trade and Investment Partnership (TTIP), which strongly favours the interests of large corporations, is also good for ordinary people, even if many of them suffer falls in wages or lose their jobs as a consequence.

It is a mindset, in short, that sees individual people as essentially passive, powerless pawns in complex, multi-dimensional, multi-participant chess game. The powerful, back row pieces are represented by institutions, banks, large corporations, rich investors - anywhere that large concentrations of wealth are to be found. Governments, and government institutions such as the E.U. and it agencies, are like the king, dodging around, keeping his head down and trying not to get cornered while the queen, bishops, knights and rooks freely exert their destructive power.

Real life is not chess, however. In a game with fixed rules the big pieces may be more powerful, but in life they are only as powerful as we let them be. In the post-war era up until about 1980 western economies grew rapidly and societies became progressively more equal because the institutions that governed them were not willing to concede everything to the market. The capacity of the already-wealthy to acquire more wealth was deliberately, institutionally, constrained.

One of the advantages of the European institutions is that they really are big enough to take on the markets. The problem is that they don't want to, and for reasons that are entirely political. And that includes the left: as Paul Krugman puts it in his Guardian piece, The Austerity Delusion, “...the whole European centre-left seems stuck in a kind of reflexive cringe, unable to stand up for its own ideas.”

Coming from a prominent figure in that centre-left, the language used by Mr Dijsselbloem to describe the good news emanating from Cyprus and Spain (in contrast to the bad news coming from Greece) illustrates that cringe in action. Good news - the markets are functioning efficiently. The consequence, in unemployment, poverty and homelessness, are “important challenges”, but never mind - just keep taking the pills.