The FishTank

Archive for January, 2010

This time last year we were in fantasy land. A land where, despite the cold winds of recession still blowing across the country, Labour still believed that the growth fairy would come along and magic away the gloom. The evil Tories wanted cuts, but Labour promised largesse. Now, as the first tentative and vulnerable sign of a technical recovery has been sighted, the debate has largely moved on. Gordon Brown may still be pretending that he can get through to the election offering new presents like free broadband without a hint of where the money should come from, but his party have come round to the view that sometime soon there will have to be cuts. They may not want to admit where or how much, but they are prepared to admit they will happen.

With all three parties espousing some kind of redress, it is not unnatural that the battle lines have had to be redrawn. Labour’s have taken a two-fold approach: they have created a dumbed down argument intended to convince the hoi poloi and a slightly more complicated argument for those who think they know a little about how the world works.

The dumb argument is simple and simply dismissed. Our cuts, they say, will be nice cuts, the Tory ones will be nasty cuts. It’s transparent tosh and shouldn’t really wash with an electorate who have already seen the scrapping of the 10% tax rate clumsily portrayed as generosity to the poor. Those who always vote Labour will no doubt convince themselves of its truth, most will simply ignore it as the ramblings of a party spinning into its grave.

It’s the second argument that requires closer examination. Labour claim that the timing of the cuts matters. The surface argument is the same: nasty Tories are so keen to cut that they would cut before they have to, nice Labour will protect public sector spending for as long as they possibly can. The subtext here is that Gordon’s growth fairy may still render the cuts unnecessary. The deeper argument, for those with a smattering of economic knowledge, is that it is possible to damage the economy by cutting it prematurely.

At its simplest this is an extension of the Keynsian philosophy; the idea that it is possible to stimulate an economy by what appears, on the surface, to be unnecessary spending. If you pay one man to dig a hole in the road and another to fill it, you create two jobs, putting money into the pockets of two families and allowing them to spend it elsewhere in the economy. Unfortunately, the Keynsian model was flawed even in his time and is now positively dangerous. Take, as an example, a classic Keynsian implementation, the car scrappage scheme: a government already heavily indebted gives people money to buy new cars. People promptly take the offer – including some people who already intended to buy cars and would have done so with their own money – and buy, not British cars, but foreign ones. Some money goes into our economy through those employed in the retail trade, but the majority goes to companies in France, Italy and Germany, increasingly the producers of the most popular cars in the UK. The net effect is to increase government debt by funding the economies of other countries. All very generous, but not much use to us. Brown may have claimed to be leading the world when countries like Germany followed with their own stimulii, but would they have followed if they thought someone else’s economies would take the spoils?

And there are similar problems with paying people for non-jobs. In a country which exports more than it imports, giving more people more money to spend will naturally help companies at home. Unfortunately, we don’t live in such a country. We live in a country which imports more than it exports, and that means that more money sloshing around results in much of it going abroad. And with a pound weakened by increasing government debt, it may not even lead to increased purchases – it might simply be swallowed up by inflation.

Stimulating inflation isn’t entirely bad, of course. If the value of money falls, then so does the value of debt. The trouble is that if inflation leads to wage pressure and this is unfulfilled, it will tend to redistribute money from the poor (who have no control over what they earn) to the wealthy. And in a time of high unemployment, when few people are indispensible, the cards will all be in the hands of wealthy employers.

That’s not to say that government can do nothing. Properly targetted stimulii aimed at industries with a growing export base could help the country to take advantage of a weak currency and grow its markets abroad. Unfortunately, governments of all colours are appalling at business decisions of this nature and such targetting is therefore unlikely. What they have to do, therefore, is to create the conditions which enable market forces to achieve the same effect. This can only be realised by either improving the flow of credit or by creating tax breaks for businesses.

We’ve tried the former. That’s what the bank bailout was supposed to achieve. Unfortunately, and perhaps predictably, giving money to the banks has done nothing to increase the flow of credit. Unless, that is, it is the credit extended to the city slickers by their drug dealers. The money might as well have been burnt for all the good it has done. It’s true that we might get some of it back in time, but it’s not much help now. It was at one point suggested that government could resort to direct lending, but this would again require the Government to make decisions about which investments were meritorious, making it equally unlikely to succeed. The only real option is to reduce business taxation – the exact opposite of what Alistair Darling proposed in his last pre-budget report.

Because, of course, we don’t have the money to reduce taxes. Twelve years of fiscal incontinence have left us far worse placed in this recession than we should have been. Of course, Gordon Brown trumpets the fact that our debt isn’t the worst in Europe relative to GDP, but that’s like telling a man with cancer that at least he isn’t dead yet. And it’s not just the debt that matters: the deficit – that is the amount by which we overspend on an annual basis – is not simply amongst the worst in the developed world, it is the worst in this country’s recent history. To gloat about the debt and ignore the deficit is to fall from a plane without a parachute and brag about how high above the ground you are. If we don’t tackle our deficit, it won’t only increase our debt, it will also increase the interest on our debt and thus, in cyclical fashion, increase our deficit further. To coin a phrase we can’t go on like this.

So, if we are to reduce taxes we have to do one of three things: increase other taxes, ignore our debt or cut spending. Increasing other taxes would be difficult. The headline grabbing measures to soak bankers and impose a new 50% band on other wealthy people will generate very little, partially due to tax avoidance, partially due to the fact that there aren’t as many rich people as you’d think. The Lib Dem proposal to bring capital gains tax into line with income tax would raise more, but in a weak economy it could also lead to a flight of capital and further unemployment. Increased taxes on those earning less than a fortune could be just as damaging, leading to a contraction in personal spending and a corresponding weakening of companies with significant domestic markets.

Ignoring our debt would be even more dangerous. Forced to the IMF, we would lose control over our economy. Whilst it could be argued that our government have already done that, it is at least marginally preferable to have decisions on the economy taken by people who actually live here, rather than international busybodies who care nothing about the damage their decisions make in the lives of ordinary people.

Which leaves us with cutting spending. Obviously you can’t just take an axe to it, but to deny there are massive savings to be had is to deny that the Government doesn’t waste money. And boy does the Government waste money. A recent examination of the finances of London alone found 15% of government spending was wasted in tasks either useless or duplicated elsewhere. If replicated across the country, this would mean that the deficit could be smashed without cutting a single front-line service. And that’s before you get started on completely pointless government initiatives such as local council climate change officials, equality counsellors and so forth. Government departments like the Treasury have massive hierarchies, stacked full of management whose only job is to facilitate communication between the levels above and below them, not because it helps in anyway, simply because it means those on the lower levels can see a career path. That’s why with the privatisations of companies like BT and British Gas there were so many redundancies: the public sector had bloated them with non-jobs, which, much as with  the ailing Royal Mail, rendered them uncompetitive in the real world.

Which leads us to the question of when you should cut. Brown would prefer not to have to cut at all: many of the non-jobs he has presided over have been created simply to hide his failures in regional development. In Scotland and Northern England there are significant populations dependent on public sector jobs. Cutting would have to come alongside relocation of departments in an attempt to prevent the ghettoisation of whole swathes of the country. Obviously there’s never a good time to make masses of people unemployed, but this could be an opportunity: if the Government were to move from  a policy of work for work’s sake to redevelopment and business stimulus through tax cuts, then people could be moved from pointless government jobs to infrastructure projects that made it possible to create thriving business communities in our depressed areas. Encouraging inward investment from richer areas and, with the weakened pound, even from richer countries would allow us to use the recession as a chance to retool for better times. And if you’re going to take that kind of measure, the right time isn’t later on, when the economy has recovered and the currency rebounded, but now whilst it’s still attractive for foreign investors to put money into the country.

One of the reasons we still matter as a country is that we still have world-leading businesses. In banking, telecoms, specialised quality manufacture, software and entertainment we do matter. And this comes about because it is in our country’s DNA to innovate. What we’ve had under New Labour is a period in which innovation has been stifled by a high tax economy, wrought to create a client state to mask the problems of long-term unemployment. To reverse this we need lower taxes and investment in the regeneration of areas outside London. Yes, a high-speed rail link to Leeds might be nice for people who want to work in London and live as far away as possible, but business parks and links to ports and airports would allow Leeds to use its talents in Leeds and export to the world. Facing up to Brown’s debt mountain, the time may not be ideal to launch a belated recovery of the regions, but it’s a fantasy to believe that we will find a better opportunity by simply waiting and allowing our finances to further stagnate whilst a generation of despondent youths grow up believing themselves to have no future. In the aftermath of the Depression it was the countries who took risks who prospered; after the Second World War it was likewise those prepared to seize the day with both hands who became the richest. Britain is historically capable of such feats – it falls to government to simply unshackle the bonds of commerce and free the entrepreneurial spirit to bring life back to our nation.

It’s election season, and in a period already filled with echoes of 1979 it seems that class warfare has once again reared its head in the SW1A postal district. Is reinventing a strategy which hasn’t worked for Labour in forty years really something that can succeed in a modern context?

Class is, of course, something poorly understood; neither politicians nor pundits seem able to get a handle on what it actually means. Brown regularly confuses it with wealth, a confusion not dissimilar to his other problem in being unable to separate debt (the amount we owe as a country) from deficit (the amount we overspend in a year as a country). Perhaps it’s a lame attempt at politics, but it makes you wonder if all those Labour MPs who were lauding Gordon Brown as an intellectual titan in 2007 were themselves unable to tell the difference between intellectual argument and plain ranting.

Class, as understood by nineteenth century Britain, was nothing to do with wealth. Indeed, such was the profligacy of the upper classes in late Victorian and early Edwardian society that many of the upper classes were debtors. Being upper class they naturally avoided prison – unlike their less elevated fellow down and outs – but the point was that class was about something beyond mere money, it was about being able to trace one’s lineage back to that original bunch of slash and burn politicians – the Normans.

We don’t really talk about lineage in that way anymore. The decline of the country estate and the decimation of ancient families in two world wars robbed class of its obviousness. Youth culture ended automatic deference and so class became something people talked about without really knowing what it was. It became little more than an idea.

Except, of course, for those trappings that remained. There are, after all, certain things that everyone tends to associate with class: going to public school, speaking with proper diction, and here it would seem that Gordon Brown has Cameron and his colleagues bang to rights. Until, that is, you scratch beneath the surface. Cameron has what we used to call blue blood, certainly, but George Osborne – his right hand man – is from a family which gained wealth through a successful business. William Hague, likewise, has come from humble origins to success on his own terms. There may be more than a dozen millionaires in the shadow cabinet, but few – if any – have been handed that wealth without at least some spadework of their own.

In former days this would have been little defence. The leading lights of the Industrial Revolution garnered their ‘new money’ not simply by dint of intelligence, but by a complex web of patronage and social connections. Those born in the Limehouse gutter couldn’t even dream of such success, let alone use their brains to acquire it. That’s why people like Marx and Lenin were able to align wealth and class in the public perception, creating the idea that simply having money meant you were more privileged than the masses. The politics of envy was born from those men, and when allied to what were then genuine grievances about the conditions of the working masses, those ideas gave rise to the British Labour Party. For the best part of ninety years, Labour steered a difficult line between Marxism and the politics of aspiration until the day when Tony Blair abandoned Clause 4 and essentially ditched socialism in the knowledge it no longer held the keys to Number 10.

Why did he abandon Clause 4? Because things had changed and not due to Labour. The key development was that of Universal Suffrage – a by-product of the carnage of World War One. It capped a century of political reform that saw Westminster go from a gentlemen’s club where aristocrats enacted laws for self-enrichment to the place where professional politicians went to ride the gravy train, staying aboard largely by dint of currying favour with the working masses. It took time to roll across our society, but roll it did. By 1948 every politician knew who kept him in a job. Labour may crow about their social justice in creating the NHS in 1948, but the truth is that all the major parties had it in their manifestos. Only a victory at the polls put Labour in the history books for its creation.

Because with suffrage came the key driver of change: social mobility. As people aspired to a better life, so the politicians who found means to deliver it would prosper. University education became something for anyone with brains, professional jobs for anyone with qualifications, wealth for anyone prepared to put the effort into acquiring it. The end of conscription, the rise of consumerism and the pill completely redrew the social contract and by the time Margaret Thatcher became Prime Minister, the solidarity of the working masses had been reduced to a rump of unions, perceived by many other low-paid but aspiring workers to be little more than greedy good-for-nothings who held the country to ransom out of self-interest. Labour, in supporting whatever the unions demanded, made themselves unelectable for a generation.

So why turn the clock back now? What possible reason could there be to believe class is back? Ask most people what class they are and most, nearly all, would see themselves as somewhere in the middle. Even those people who choose to live on benefits wouldn’t define themselves as working class – much less an underclass. Ask them what they think about people being wealthy and they will be relatively equivocal: there may be groups of the rich – politicians, bankers – who are acceptable targets for opprobrium, but people who become wealthy through luck or celebrity will be considered perfectly fine – as a class.

And that’s why class is a dead argument. In Victorian Britain, the hardest working deadbeat couldn’t hope to become middle class, now even those who lounge around on the taxpayer’s pound can aspire to instant and extravagant wealth. To attack those who have succeeded in acquiring wealth is to attack the future people want. To criticise a rise in the threshold in inheritance tax as ‘just for the wealthy’ is to tell people that, if they do succeed, the government wants to claw it all back. Cameron may still have that mountain to climb in gaining popular support, but in the end it has nothing to do with his class. In fact, it has more to do with the tribal instincts of those who see Thatcher as a hate figure, and the scepticism of those who think that any politician who presents himself as well as Blair must be equally crooked. If Cameron succeeds in overcoming these obstacles and delivering on his promises, he will do a great deal to rekindle the popularity of aspiration and to finally bury the remnants of the Marxist cadre.