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Hollande vacillates (again)

4 Apr

This week’s cabinet reshuffle in France has done little to clarify where François Hollande stands on the key issues facing his presidency. What it has done is confirm that Hollande remains the manager of his own fractious party rather than a president with a clear political agenda.

When it was announced that Manuel Valls would replace Jean-Marc Ayrault as prime minister, it seemed that Hollande was completing his turn-to-the-right that had begun in January, in a speech where Hollande promised to cut public spending and reduce the tax burden on business. This ‘social compromise’, denounced by Marine Le Pen as an embrace of neoliberalism, was at the time seen as a new departure for Hollande. His nomination of Valls at Matignon seemed to take it further. The Financial Times complemented Hollande for ‘daring to turn to the right’ and commentators began to associate this new socialist government with the likes of Tony Blair’s New Labour in the UK, Schroder’s SPD in Germany, and the current much-transformed state of the Italian Democratic Party.

A couple of days later and the impression is very different. The appointment of Valls has been tempered by the promotion of key left-wing figures within the French Socialist Party. Arnaud Montebourg – the self-appointed spokesperson of the anti-globalization wing of the French Left – has been given a beefed up economic profile. Benoit Hamon, another prominent leftist, was made education minister, a powerful and key government department.

With such a cabinet, there is little evidence of any dramatic turn to the right in the Hollande presidency. Indeed, there is no dramatic turn to anywhere. Hollande’s goal seems to have been to manage the different currents within his own party, deploying the popularity of Valls as an antidote to his own poor poll ratings whilst compensating the left of the party with the promotion of Montebourg and Hamon. Michel Sapin’s nomination as finance minister hardly signals a radical change in France’s economic policy, given the little Sapin has achieved as labour minister. The impression Hollande gives is of placating his party rather than leading it. It may be that all along his success in the presidential primaries of 2011 was down to good luck: an absent Strauss-Kahn, strong antipathy to Valls, a weak showing by Royale and Montebourg, Aubry running rather than Fabius. Now Hollande continues to act as manager of his party’s different currents and egos, at the cost of pushing forward his own programme. There is little evidence as compelling as this to suggest that the French Socialist Party is no more than a sum of its many – and very different – parts.

The next UK election: a contest in unpopularity

24 Jan

Continuing in our series of posts on the European Left, Andrew Gamble takes up the case of the United Kingdom and the prospects of the British Labour party in next year’s general election. Though opinion polls have consistently put Labour ahead of the governing Conservative party, Gamble suggests that behind this stability lies a more uncertain and volatile political landscape.  

Andrew Gamble is a professor of politics at the University of Cambridge. He is one of Britain’s leading political economists, and author of many critically acclaimed books, including The Free Economy and the Strong State: The Politics of Thatcherism, Hayek: The Iron Cage of Liberty, Politics and Fate, and The Spectre at the Feast: Capitalist Crisis and the Politics of Recession. Professor Gamble is joint editor of New Political Economy and The Political Quarterly, and a Fellow of the British Academy and the Academy of Social Sciences.

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British politics exhibits a puzzling stability. In the eleven YouGov polls so far in January Labour has had an average lead of 6 per cent over the Conservatives. Its share has fluctuated between 37 and 40 per cent, the Conservatives between 31 and 34 per cent. The other two parties also have been stable; UKIP’s share fluctuating between 12 and 14 per cent and the Liberal Democrats between 8 and 11 per cent.  It has been a similar pattern for a long time now. Labour’s lead has come down but only gradually and there is no sign yet of it disappearing. If this pattern persists, Labour will win the election in 2015 and Ed Miliband will be in Downing Street. Most commentators are perplexed. The recovery from the crash is now finally under way, four years later than expected, and there is good news almost every week; inflation is falling, unemployment is down, and growth forecasts are being revised upwards. The Government is loudly proclaiming vindication for its strategy of austerity and retrenchment. An improving economy is normally associated with increasing optimism among voters about their own financial situation and that of the economy, and greater willingness to vote for the Government. But the polls are not moving.

The Conservatives have also been busy creating clear dividing lines between themselves and Labour, setting traps for their opponents on the deficit, on welfare, on immigration, and on Europe. On all of these issues the Conservatives are more aligned with public opinion than is Labour, which has been forced on to the defensive and has failed to develop policies which are either clear or popular. When to this is added the greater resources of the Conservative party, the strident partisanship of a tabloid press which is strongly pro-Conservative and anti-Labour, and the consistently negative poll ratings of Ed Miliband as Labour leader, it is easy to see why many think Labour is a lost cause. The Conservatives have a winning hand and will surge past Labour in the run-up to the election and win a decisive majority. On this reading of British politics Labour has lost the political argument, and lost the political initiative. It is going down to a second defeat.

Except that is not what the polls are saying. Labour remains for the moment comfortably ahead, and nothing seems to dent its lead. There are several possible explanations for this. One is that Miliband’s personal ratings do not matter as much as many think. All the leaders have negative ratings. Nick Clegg is at – 50, Miliband – 30, and Cameron – 20. That still means that in the comparison between Miliband and Cameron as preferred Prime Minister, Cameron wins, and there is still a barrage of negative campaigning to come. But the Tories do not have an overwhelming advantage. The contest between the party leaders is a contest in unpopularity. Trust in politicians and their ability to deliver what they promise remains low in Britain. Negative ratings are clearly a handicap in an election in which there will be so much focus on the personalities of the leaders, but they will only be one of many reasons why votes are cast.

A second explanation is that Labour has begun to perform better and is making more impact on voters. Since Miliband’s Autumn conference speech in which he announced his plan to freeze domestic energy prices for fifteen months if Labour won the election, Labour has managed to dominate the agenda with its message that despite economic recovery there is a cost of living crisis, and most workers are suffering real wage cuts every year, because wages are rising more slowly than inflation. Asset prices have been protected by quantitative easing, and the average share portfolio has increased by 25 per cent in the last four years. But real wages have fallen, so few people are feeling better off. Miliband’s proposals on energy, and his more recent proposals on splitting up the retail banks, have attracted a lot of scepticism from commentators, experts, and interest groups, but the polls show that they are popular with voters. Some of the pledges may well be hard to implement in government, but Labour has begun to stake out new ground and prevent the Conservatives from dominating the agenda as they have been doing during the last three and a half years. Labour still does not excite much popular enthusiasm, and it is still struggling to regain its reputation for economic competence. But it has begun to do better.

Yet it is hardly doing well enough to explain its poll lead. Both the Conservatives and the Liberal Democrats may be seriously unpopular, but Labour is not far behind them. There has been no great surge of hope and confidence on the Left. One explanation therefore of Labour’s continuing poll lead is that it is due to the failings and divisions among their opponents rather than because of Labour’s positive appeal. Support for the Conservatives is fragile. They have not won a general election outright or polled over 40 per cent of the vote since 1992. They have tried since 2005 to broaden their appeal but have only partially succeeded. There are still parts of the country where voters who have deserted the Conservatives show no sign of returning. The modernisers in the party complain that the modernisation project has stalled and that in some policies the party has started going backwards, alienating the voters it needs to secure a majority. But the Right complains that the reason the modernisation project has stalled is because it has lost the party many of its core voters to UKIP. At the 2010 election UKIP had only 3 per cent of the vote. Its share of the vote over the last two years has been above 10 per cent, and in some by-elections and local elections much higher. It is expected to do well in the European Parliament elections in May. UKIP is increasingly taking voters from Labour, but the polling evidence shows that the majority of its support comes from the Conservatives. It is the loss of Conservative defectors to UKIP which, as Lord Ashcroft’s polling shows, is the biggest single obstacle to an outright Conservative victory at the next election. The party is now doing everything it can to win these Conservatives back, by banging on about Europe, immigration, and crime in the way modernisers deplore. But it is seen as the only way to put UKIP back in its bottle. If it fails it is hard to see how the Conservatives can win a majority at the next election.

All of this makes the next election extremely open and difficult to call. It may well turn into a four party contest as far as England is concerned, and given the vagaries of the first past the post electoral system, the outcome in many seats will be very uncertain, since it will increase the number won by very small majorities and minority votes. If both UKIP and the Liberal Democrats maintain their present level of support, no party is likely to win an overall majority, certainly not the Conservatives, who have the added disadvantage of the bias in the electoral system. Measures to reduce it were blocked by the Liberal Democrats when the Conservatives failed to deliver on Lords reform.

The Conservatives are waiting for politics to return to normal, with the support for third and fourth parties shrinking as the election approaches, and the improving economy brings their defectors back to the fold. They are confident that in a straight fight with Labour they will win. But just as the economy did not behave as expected after the financial crash, neither is the political system behaving as expected now. The kippers are on the march, and there is a sizeable body of Conservative MPs who sympathise with them, particularly on their call to withdraw from the European Union, and to impose much more stringent immigration controls. The disaffection of Conservative voters is proving hard to reverse, because the Conservatives cannot outbid UKIP in its populist stances on either the EU or immigration. Short of backing withdrawal from the European Union, and freezing all immigration, the Government can never satisfy UKIP demands. But unless they can find a way to reduce UKIP’s appeal in the next sixteen months, they will struggle at the next election.

Five Theses on the French Left

17 Jan

As an antidote to the snide gossip that passes for analysis of French politics at the moment, and in line with our broader reflection on the state of the European left, here are five theses on the French left that we hope might go some way to explaining the present impasse.

1. The French Socialist Party remains haunted by François Mitterrand’s u-turn in 1983-4. Elected on a platform of ‘Keynesianism in one country’, Mitterrand was forced to choose between spending more money and keeping the Franc within the European Exchange Rate Mechanism (ERM). Outsiders were betting he couldn’t do both and they were right. After much discussion with his anti-ERM “visiteurs du soir”, he opted to follow the advice of his finance ministry and give up his Keynesian policies. But instead of declaring a clean break with socialism, Mitterrand presented his decision as an embracing of Europe. Market-friendly policies were introduced through the backdoor without any ideological change at the level of the party. Hence the difficulty for the post-Mitterrand Socialist Party: they have pro-market policies but no new ideology with which to justify them. François Hollande, in his press conference this week, fumbled around with the language of social democracy. ‘Liberal’ in France remains a taboo, particularly on the left. The result is disenchantment all-round. Verbal gestures – such as Hollande’s promise to attack finance and re-moralize capitalism in 2012 – fall flat as they are not accompanied by policies that match the rhetoric. France’s business elites remain frustrated at the drip-drip nature of labour market reform. They know the Socialists have accepted the market but they see little public evidence of it.

2. France’s left-wing parties are not parties of the French working class. In the course of the 1980s, the French Communist Party (PCF) lost its status as the main, mass-based opposition party. Former PCF voters have gone in a number of different directions: many have left politics altogether, a few remained within the party or joined other small extreme left parties, and a large number shifted to the far right and began to vote – or at least sympathise with – the National Front (FN). The shift from the PCF to the FN is one of the most significant political developments for France in recent decades, though it is rarely commented upon. The Socialist Party has retained the support of much of France’s large public sector but it also competes for the urban, middle class vote that has little in common with former card-carrying communists whose life was spent working in French shipyards or fixing French trains. In Italy, Matteo Renzi’s transformation of the Democratic Party is aimed at keeping the public sector vote whilst also winning the support of employees and owners of the country’s small and medium-sized businesses. In France, the Socialist Party has made no such gamble and continues to experience these different constituencies as irreconcilable tensions.

3. The extreme Left in France has recently found a leader, Jean-Luc Mélenchon. Unfortunately for the left, Mélenchon is a narcissist. For all his eloquence and timely put-downs, his obsession is with himself. Rarely can he give an interview without talking about his persecution by the Socialist Party and the socialist-sympathising French media (e.g. here in the revue Charles). The momentum his party gained during the 2012 election campaign was partly a consequence of the widespread anti-finance and anti-elite sentiment, which also helped Hollande win the presidency. Yet Mélenchon was once again overcome by his own ego by deciding to run in the parliamentary elections against Marine Le Pen in Hénin-Baumon, a locality in the North of France, as if his mere presence could lift a town out of its depressed state and magically infuse it with some anti-National Front Mélenchon-inspired rhetoric. He scored poorly (just over 20%; Le Pen won with just under 50% of the vote) and has since been a more marginal figure in French politics.

4. Hollande will not change his spots. Ever. He will not pull out of his back pocket some long-hidden master plan for reforming the French economy. Nor will he take on the banks, or dent a long-standing trend towards growing inequality in France. He is what he has always been: a party apparatchik, clever and determined, but without any big idea or project. His election in 2012 was fortuitous. He became candidate because of the exit from the race of Dominique Strauss-Kahn and won the election because of the strength of anti-Sarkozy sentiment. His own contribution was to hold the line and not make any big mistake. Even then, he only just won. Another week of campaigning could have been enough for Sarkozy to claw back a victory. So there will be no “Mitterrand moment”, as Peter Gumbel recently put it, no grand transformation, no metaphorical rabbit out the hat.

5. Based on a close reading of the 2012 campaign, and an assessment of the state of French society and politics from the perspective of the left, it seemed that there were two historical goals against which the newly elected Socialist President – along with his Socialist majority within the national assembly – could be judged. The first was the goal of growth and social equality: pulling France out of its quagmire, reducing the terribly high levels of unemployment, doing something about the searing injustices of the dual labour market, tackling the decline in competitiveness. On that score, the record is dismal. Hollande failed to renegotiate the Fiscal Compact in favour of growth, as he had promised, and the preference for internal devaluation of prices and wages as a condition for the return of growth within the Eurozone – the ‘sadomonetarist’ agenda – remains central to EU macro-economic policy-making. The second goal was to halt the drift in French politics towards the right – the main-streaming of National Front rhetoric, the social acceptability of racism and anti-immigrant sentiment, the growing interest in law and order as a solution to France’s social problems. On this, the Socialist government has also failed completely, with its passing of the law on gay marriage a welcome exception that proves the rule (though even there, many defended gay marriage in the name of the family rather than equality). In fact, the most likely successor to Hollande is Manuel Valls, the hardline interior minister who has made much of his war on the Roma population. In his actions and rhetoric, there is little to differentiate Valls from the political right. Less likely to collude with the National Front in an election, the Socialist Party has nevertheless acquiesced in the rightward shift of politics in France. And here we also have to thank Mitterrand, whose tolerance of the National Front was due to his calculation that it would split the right and therefore keep the left in power. Perhaps it is too early to judge the Hollande presidency but so far, on both those counts, it has failed.

Hoist by his own petard: Obama, the ACA, and the neo-progressive model

27 Nov

The recent controversy over HealthCare.gov, the still glitchy website through which the uninsured are supposed to apply for coverage under the Affordable Care Act, had seemed to us like a tempest in a teacup. It looked like just another iteration of partisan posturing over a law that is somehow both a fait accompli and an incomprehensible mess. But a scathing editorial from Bob Kuttner, editor of The American Prospect, made us stand up and take notice. Attacking Obama for being “tragically and inexcusably hands-off” Kuttner concluded that “the debacle reflects both flawed legislation and flawed leadership.” This editorial is notable because, for one, Kuttner is a left-liberal, usually sympathetic critic of the administration, not a right-wing bandwagoner. Other liberals began to join in. William Galston, a political philosopher who worked in the Clinton administration and now at the Brookings Institute, recently wrote in the Wall Street Journal that “Every experienced manager knows that, left to its own devices, the system will not always behave this way…So the president must lean against these perverse tendencies…[but] it has become clear that President Obama failed to institute such arrangements.”

These criticisms of Obama are more than just indications of liberal discontent. The attack on Obama for being incompetent hits the president where it hurts: the latter’s attempt to replace politics with expert management. The health care law was not just Obama’s signature initiatve, it was also the single best representative of his general post-political approach to politics. Obama thought he could rise above partisanship by taking an essentially Republican plan and then leaving it up to Congress to manage the details of compromise. He thought he could avoid all semblance of ‘class warfare’ by taking single-payer off the table and by eliminating any talk of redistribution. He thought he could find a consensus plan by working with, rather than taking on, the insurance companies. In other words, the belief was that he could get something done without taking any sides or even acknowledging that there were significant conflicts of interest and principle. The result was a public-private partnership that yielded a measure of agreement not so much because everyone could see their interests represented in the final result as because nobody could understand that result. It was legislation by stupefication.

Yet amid all of this, there was still one promise – that the Obama administration itself understood the moving parts. Once passed, the wonks and managers would deploy their technocratic savvy to guarantee the thing worked. ‘Fixing a broken system’ is the hopelessly apolitical metaphor endlessly deployed to describe this (and every other) piece of social policy the administration promoted. Somehow, though, the master technician rose so high above politics that he never made it back down to earth. As Kuttner observes, “This law, after all, is Obama’s signature initiative. It has been on the books since March 2010, with a full implementation date of 2014. An engaged chief executive would have been demanding frequent and detailed progress reports from his team. He would have gotten early warnings about possible glitches. But this president is tragically and inexcusably hands-off.” Galston says much the same, noting that in late September and early October checklists showed major and repeated failures during dry-runs of the website, concluding that there is good reason why “the president’s standing as a competent manager of his own government has eroded badly.” There is very little to be said for Obama’s passionless program of ‘getting things done,’ but even by his own low standards he has been caught out. In the Obama era being a bad manager is close to the worst thing you can say about anyone.

Of course, now that a management consultant has been brought in to patch up the website, we are supposed to rest assured that all will be right in the world. Undoubtedly, the technical problems with the website will eventually be resolved. But this was never just a problem with administrative efficiency, it was with a model of politics that one might call neo-progressive. Despite their many limitations, the original American progressives at least thought there were political tasks that could be best achieved through collective political agency. Neo-progressives like Obama, and Clinton before him, have raised what began as Reagan’s attack on Washington to the level of a concept. Not only have they tended to accept the view that public ownership and administration is, in itself, inefficient when compared to ‘market solutions,’ but they have turned this into a kind of principle. The operating assumption is that any government program would be better run as a public-private partnership operating in an artificially created market. The truth is much the opposite.

Here again, Kuttner’s recent editorial is on the mark. Noting the difference between Social Security and Medicare on the one hand, and the ACA on the other, he writes

“These great achievements [Social Security/Medicare] are public public programs, efficient to administer and testament to the fact that government can serve social objectives far more effectively than the private sector. Obamacare, by contrast, is the inefficiency of “public-private partnerships” at its worst. It is a public subsidy for the private insurance industry. No fewer than 55 separate contractors were hired to design the software. Yet though it is not a true public program worthy of the name, Obamacare is being used to discredit government.”

The argument generalizes to other boondoggles, like private prisons and highways. Not to mention that other signature, public-private Obama initiative – the charter school. These ‘partnerships’ reveal a special viciousness – they are harder to manage. That is because, as Kuttner notes elsewhere, “a layer of complexity is added because of the need to supervise and monitor the private vendor. Corruption is invited, because it pays the vendor to offer disguised bribes to the public officials in charge of the contract.” The standard response, moreover, is to try to expertly manipulate the incentives of the market in which these entities operate, itself an impossible task that introduces only more complexity and confusion.

The deepest irony, then, of the neo-progressive vision is that its faith in expert management is belied by its lack of belief in the public. Indeed, the reliance on private contractors, management consultants, financial executives, isn’t just a sign of corporate influence, but also of a skin-deep confidence in their own powers. It is not so much the product of corporate corruption as it is a vision of politics that invites such corruption, beginning with a natural and spontaneous belief in the intellectual prowess of the managers, CEOs and Wall Street financiers upon whom they end up relying. In this context, Obama’s oft-noted deference to major private sector consultants, in areas like finance, health and educational policy, are not so much a personality quirk as an ideological position. Rising above politics turns into an attempt to find a place beyond reproach, indeed, beyond the point at which one can be held accountable at all.

No wonder, then, that the legislative products are not only incomprehensible and difficult to administer, not to mention designed to blur the boundaries between public responsibility and private interest, but that Obama then finds himself hoist by his own petard. Of course, from the neo-progressive standpoint, it appears like everyone from Republicans on down to the “professional Left” is unreasonable. But it turns out the truly unreasonable position is the one that hopes to avoid the messy world of taking sides, of competing interests and political fights. At the end of the day, democratically determined objectives, like universal health care or public education are best promoted…democratically. That doesn’t just mean through socialized programs, but in a way that makes as transparent as possible the lines of authority and responsibility.

The effects of QE

21 Oct

Of all the new terms that have been invented since the beginning of the crisis in 2008, quantitative easing is perhaps the most bizarre. A purely technical term, it has entered into everyday language as ‘QE’. Monetary policy has taken centre stage as the main tool governments have to do something about growth and QE is it.

Tucked away in the small money supplement of the FT weekend was a long piece on QE. Its discussion of the effects of quantitative easing is worth commenting on. QE is basically a monetary stimulus programme, where central banks create money and use it to buy assets from banks and other financial institutions. The main thing central banks have bought are government bonds. Holders of bonds have therefore exchanged them for cash and that cash is what the governments hope will be spent in ways that stimulate the economy. QE was dreamed up at a time when interests were so low that they couldn’t really go any lower, making a traditional monetary policy response to an economic downturn impossible. The standard approach had been to cut interest rates in a downturn, raise them when the economy seemed to be overheating. Unable to do that with rates so low, QE was the radical alternative.

QE has been striking by its ubiquity: it has been the key policy response of the US Federal Reserve, the Bank of England, the European Central Bank and the Bank of Japan. What is surprising is how prevalently it has been used but how sceptical people are of its effects. The idea is that cash injected into the economy would generate new economic activity. There is little evidence, however, that QE has done that. Banks have tended to use the money to boost their capital ratios rather than to increase lending to businesses. Companies have sat on increasing piles of cash. QE in general is seen as having had little effect on the real economy.

Where has its impact been felt? After all, the US Federal Reserve has been buying $85bn a month of US government bonds since it started its QE. Intervention on such a huge scale cannot be free of effects. According to the FT, the main impact of QE has been on asset prices rather than on the real economy as such. These prices have risen considerably, boosting the wealth of those who own such assets. Predictably enough, that means the already very wealthy. The FT cites a Bank of England study that finds that in the UK, the top 5% of households hold 40% of the assets whose price has risen most because of QE. The central banks’ policy of printing money has inflated some asset prices, to the great benefit of those that hold them.

For everyone else, the effect has been more mixed. By keeping interest rates at very low levels, QE has obviously favoured the lenders over the savers. All those hoping to earn some return on their savings have been disappointed. Home owners, especially those with big mortgages, have been happy.  This view of QE helps us understand some of the curious features of this current economic downturn: as the real economy data continues to give cause for real concern (unemployment remains high, growth is anaemic, business investment remains very low), the price of fine art, the best wines and the high end properties in London, Paris and New York have all soared. With low interest rates and with central banks injecting so much liquidity into the bond markets, investors are looking for some return wherever they can. And that includes in a Monet or a large house in Neuilly or Richmond.

The best defence of QE cited by the FT was that things could have been worse without it. It returned confidence to markets and investors, and so helped us avoid the complete collapse that could have occurred in 2008 or 2009. As the FT admits, this argument is difficult to prove: “we just don’t know what would have happened without QE”. It is surprising that a policy with such obvious distributional effects has not been the subject of greater debate or disagreement. This is perhaps because the term itself is so euphemistically technical. Or because it has been carried out by central banks whose place is somewhat outside the terrain of partisan politics. It may also be that governments have been good at convincing people that there is no alternative to QE, which is tantamount to saying that they have no way of tackling problems in the real economy directly but can only work through asset prices.

This, of course, is not true. Governments could intervene far more directly in the economy. However, QE sits alongside the view that governments are fiscally constrained and need to reduce their outgoings as much as possible. Fiscal austerity combined with QE gives us the policy mix for the current period: a massive boost in the prices of assets owned by the wealthiest section of society and extensive cuts in government spending on public services. However technical it may sound, there is nothing ideologically neutral about QE and its effect.

 

The Shadow Right

11 Oct

A familiar progressive narrative in the United States goes something like the following: “we could have achieved so much if it weren’t for the Southern racists, the religious reactionaries, the corrupt billionaires and the undemocratic procedures.” There is no question that many American institutions are deeply undemocratic, and purposefully so; it is equally evident that some of those driving the shutdown are, at best, uninterested in the normal democratic practices of convincing others of their views, and, at worst, looking for any means necessary to protect their unjust and unequal privileges.  But the recent flurry of effort to decipher just who this right-wing is reproduces a persistent error in the progressive narrative: a failure to address the conservatism of Democrats and the chaos and passivity of the American Left.

For instance, one prevailing question has been why the Republican Party would be willing to engage in apparent ‘anti-business’ brinksmanship that threatens the stability of global financial markets and draws us closer to another credit crunch? One explanation is that business does not control the Republicans (also here), which is why it can engage in seemingly irrational, ideological political games. Another explanation is that a “small group of radicals” are acting rationally with respect to their own interests, even if those interests are not the same as the national interest. Michael Lind has made the most persuasive version of this argument, claiming that this is a movement of regional elites or “local notables,” who find their power threatened by global financial markets and nationalization of social policy. Joe Lowndes reasonably argues this somewhat overlooks the national basis of the movement, and the tacit support of it among the Republican Party as a whole. And Doug Henwood has added the important point that a background class condition for these kinds of political games with American credit-worthiness and the stability of global finance is the increasingly fragmented and short-termist orientation of the capitalist class.

The emphasis of all these analyses is on the relative power and rationality of a right-wing movement. In this environment it is easy to forget some things about the Democrats and whatever stands to their left. The initial phases of this battle have essentially featured Obama going to the mats to defend the Republicans of the 1990s from the Republicans of today. Recall, for instance, that the basic principles of ‘Obamacare’ including the individual mandate come from Republican thinking circa 1994. As the negotiation now seems to be transitioning from the health care law to spending and entitlements, it is again worth recalling the Democratic embrace of the conservative position. Obama and the Democrats’ wider approach to the budget process is to affirm the need for balanced budgets (in contrast to at least some right-wing Keynesianism).  Presenting themselves as the party of responsible government and budget moderation is their only idea, even at a time when the cost of government borrowing is at historic lows. This is pretty thin gruel, especially for a public laid low by persistent high rates of unemployment, stagnating wages, and crappy jobs. All in all, the Democrats don’t have much on offer as an alternative. All they have is their much vaunted moderation. A moderation that can’t even make sense of the occasional political necessity of disruption.

But what is most striking about the present is not the virtues of moderation but of the potential power of conviction. One detects, behind all the anxiety about ‘extremists,’ ‘radicals,’ and ‘militant minorities ‘ a degree of envy. On the right there is a group with enough commitment to a shared project that is willing and able to disrupt the ordinary functioning of government. If only the Left had such wherewithal. We might, at the very least, get something more than than the economically stagnant, politically oppressive Mugwumpery of the Democratic Party.

Solving the productivity puzzle

10 Oct

In recent days, there has been much “I told you so” in the air. The IMF has revised its forecast for growth in the UK, predicting that the British economy will grow more than it had expected in earlier forecasts. The French chief economist at the IMF, Olivier Blanchard, had raised something of a storm in the UK earlier this year when he criticized the government’s austerity drive. Now that the UK appears to be growing more than expected, the British Chancellor George Osborne feels vindicated.

This squabbling over numbers points us to one of the problems with the austerity debate as it stands. Much of it has rested on forecasts and estimates. Projections of growth trends and government revenues three or four years down the line are notoriously difficult and yet both sides of the debate have claimed that their estimates make the most sense.  

This focus on numbers is particularly problematic in the UK as it detracts from the main issue. Newspaper headlines and public debate tend to focus on interest rate movements, the UK’s government-fuelled housing price bubble, the revision of growth forecasts that we have seen in recent days. What is not being discussed is the real mystery in the UK since the beginning of the crisis: the marked dip in productivity. Writing in the Financial Times, Chris Giles rightly points out that being so focused on the ups and downs of fiscal policy has meant we have missed the big issue of the UK’s productivity puzzle. Looking back at forecasts made in 2008, the main finding is that growth is much lower and inflation higher than was predicted.

 According to Giles, this tells us that the main problem in the UK is not a lack of demand due to austerity policies. Rather, “it suggests that something has gone wrong with the supply of goods and services in Britain” – this is what economists are calling the productivity puzzle and few have any explanations for it. Steve Nickell, a member of the UK’s Office for Budget Responsibility committee, recently admitted that whilst there are many theories about this puzzle, there is still no coherent explanation for it (FT, 10/10/13).

One idea (see Charles Goodhardt’s article here) is that if employment is held roughly constant, then falls in demand will lead to falls in output, which will then depress productivity. Logically this holds: if the same number of people are producing fewer things, then their productivity (output per worker) will fall. Compared with previous recessions in the UK (early 1980s and early 1990s), employment has held up well. We have not seen the collapse in manufacturing employment that we saw in the early 1980s, for instance, which had the effect of boosting productivity. A feature of the 2008-2013 downturn in the UK has therefore been the protection of manufacturing capacity and the avoidance of massive liquidation and bankruptcies. The result has been a fall in productivity. In other countries, like Spain, where unemployment has mushroomed, productivity has risen noticeably. Why this job-rich recession in the UK? And what about other countries like Germany, who have also managed to hold up employment? Has productivity fallen there too?

Goodhart’s is one explanation amongst many others and it may not convince everyone. After all, unemployment in the UK rose from just over 5% in 2008 to 8% in 2010. Isn’t that enough to keep up productivity levels? If not, then how much is enough? Compared to the petty points scoring of Osborne and co, though, and the fixation on forecasts and projections that has characterized both sides of the austerity debate, this is what we should really be thinking about.

Capitalism and the workplace

3 Oct

A recent news item reporting that a man was fired for liking My Little Pony is an unwelcome reminder of the kinds of arbitrary power that exist in the modern workplace. It is not hard to find other, confirmed examples of people losing their jobs for absurd, or at least unjustifiable, reasons – like sexual orientation, choice of desktop image, for being too sexually attractive, or not being attractive enough. In fact, we might recall from a piece The Current Moment editor, Alex Gourevitch, wrote with Chris Bertram and Corey Robin, that there is a long list of ways employers can coerce and dominate their workers.

We might get the impression from these lists that there are some irresponsible people out there who misuse their power. But these are not just aberrations, departures from the generally prudential and fair government of the workplace. Nor is the special wrong here just that some employers use their prerogatives to impose their irrelevant, personal morality on others. That is, indeed, a bad thing, but not the most important bad thing.

The worst thing about the workplace is not the power-tripping employer per se, but rather the rational element to these otherwise irrational exercises of power. That rational element has to do with how employers make money. They do so by taking advantage of the inferior bargaining position of workers. In exchange for whatever concessions they can win in the labor contract, workers give up control over their activity for the duration of that contract. All employers, at least those trying to make a profit, are acting rationally when they seek as much discretionary power as they can, because it is that power over the activity of the worker that is the key to their profit-making. The harder the worker works, the more effort the employer can extract from the worker in exchange for a given wage, the more profits the employer makes. In these conditions, it is in some sense rational for employers to demand conformity to their will even in areas that have little to do with the core economic purpose of their business. It is rational for them even if, like David Brent, the character that Ricky Gervais made famous in The Office, they do not want to exercise arbitrary authority, even if they just want to be the loved and benevolent boss.

Much as it might be comforting to distinguish between benevolent, rational employers and malevolent, despotic ones, it is worth remembering that this isn’t just a matter of the mindless accumulation and exercise of power. Without the inequality of power between employees and employers, an economic system based on making profits off the work of wage-laborers would not reproduce itself. The arbitrary element to workplace relations is not just some extraneous feature of the system, it is part of the logic of that system itself.

The meaning of Merkel’s victory

2 Oct

Originally published in the October issue of Le Monde Diplomatique

Angela Merkel and her Christian Democrat party (CDU/CSU) have won a resounding victory in Germany’s general election. Merkel has broken what had become an established rule of European politics since the beginning of the crisis: incumbents don’t get re-elected.

Merkel had seen this at first hand as close working relationships with other European politicians were felled by electoral fortunes. The peculiar alliance of France and Germany (“Merkozy” to the European press) was undone as Nicolas Sarkozy lost out in the 2012 French presidential election to his Socialist challenger, François Hollande. Mario Monti, another favourite partner of Merkel, was routed in Italy’s election earlier this year by the comedian-cum-blogger Beppe Grillo and his Five Star movement. Incumbents have lost out across southern Europe — Spain, Greece, Portugal — as voters hope that a change in government might mean a change in fortunes. There has been no decisive shift left or right, just a broad and sweeping dissatisfaction with existing governments. Apart from Germany.

Merkel’s re-election doesn’t mean that nothing has changed in Germany or that it has been blissfully untouched by the Eurozone crisis. Looking at the substance rather than at the party labels, we see shifts. The more dogmatically free-market FDP, Merkel’s coalition partner in the outgoing government, failed to secure any parliamentary representation at all. The Left Party, Die Linke, a persona non grata for mainstream German politicians because of its roots in East German Stalinism and its opposition to NATO, now has more parliamentary seats than the German Greens. If the Social Democrats (SDP) enter into a coalition with Merkel’s party, then Die Linke will lead the opposition within the Bundestag.

The policies of Merkel herself have steadily drifted leftwards as she has taken on ideas first floated by the SDP. From military conscription to a minimum wage and rent controls, Merkel has adopted policies that first came from the left. This had the effect of emptying much of the campaign of any traditional ideological conflict. German voters have not been divided by the politics of left and right, given the vastly similar programmes adopted by the main parties. Merkel has even given up on nuclear power, in a move that pulled out from under the feet of the Green Party their most distinctive policy position. Instead, the campaign was fought around the language of risk and of personality. Germans preferred Merkel’s low-key, homely aspect to Steinbrück’s debonair image and, seeking reassurance in the widespread depoliticisation, voted for Merkel’s motherly, risk-averse approach.

Political stability in Germany reflects its unique position in Europe as the country that has survived the crisis. Not unscathed, as the leftwards shift suggests, but markedly better off than any other country. Having reformed itself in the early 2000s, German industry rode an export-led boom that continues today. As trading partners in Europe — from Eastern Europe through to southern Mediterranean economies — crashed and burned from 2009 onwards, Germany compensated by expanding sales in non-European export markets. What it lost by way of demand in Europe it has gained in emerging markets, especially in Asia. Germany’s current account surplus, at $246bn over the last year (6.6% of GDP), is greater than China’s. Along with a more flexible labour market that is keeping unemployment low (but part-time employment high), we have the material foundation for Merkel’s victory. But though this foundation is solid, Germany is not booming. Since the early 2000s, German wage growth has been very limited. Moreover, few Germans own their own homes, meaning that they have not experienced the same wealth effects of rising house prices felt by a chunk of the British middle- and upper-middle class, the Dutch, Italians and Spaniards. They have been saved from the effects of collapsing property prices but have not known the heady days of year-on-year price rises. Merkel’s cautious optimism reflects the attitude of a large part of the German working and middle class who feel that their relative prosperity is precarious and needs to be closely guarded.

The meaning of Merkel’s victory for the rest of Europe is mixed. It is possible that Merkel will soften her stance to some extent now the election is over, though we should not expect any sudden U-turns on something like Eurobonds. A slow recalibration of the Eurozone economy is more likely, as crisis-hit countries like Spain and Ireland regain some competitiveness via internal adjustments to wages and prices. Where Merkel may compromise is on measures to boost domestic demand. If Germans were to consume a little more rather than save so much, that would help pull other Eurozone economies out of their deep depression. Though something like this may happen, any recalibration will still occur within the context of a Eurozone marked by massive disparities in wealth and spatially organised around a clear logic of centre and periphery.

Fiscal rules and election campaigns

24 Sep

As the UK Labour Party’s annual conference kicks off this week, ideas are beginning to emerge about what Labour will offer in the run up to the 2015 general election. One of these ideas is to have the country’s independent budgetary body, the Office for Budget Responsibility (OBR), to audit all of the pledges made by Labour in its election manifesto. Assuming that Labour’s tax and spend plans are found to be consistent with budgetary discipline and pledges on meeting deficit and public debt targets, the OBR would thus bolster Labour’s claims to responsibility and sound fiscal management.

This idea is nothing new for the Labour party. When Tony Blair carried his party to victory in 1997, he had promised to match Tory party spending commitments. This pledge had been intended to bury the long-standing image of the Labour party as a motley crew of profligate leftwingers. Over time, we have seen fiscal policy steadily depoliticized through the creation of fiscal councils and various fiscal rules, a development supported by the Left and the Right. The IMF estimated in 2009 that 80 countries in the world have adopted a fiscal rule of one kind of another. Debt brakes have been inscribed into constitutions in Germany and in Switzerland. In the UK, the OBR was created in order that government be made accountable to an independent body for its public spending. Elsewhere, fiscal councils with varying powers have become a common feature of the macro-economic policymaking landscape, as the table below highlights.

Fiscal Councils

Austria

Government Debt Committee (1997)

Belgium

High Council of Finance (1989)

Canada

Parliamentary Budget Office (2008)

Denmark

Economic Council (1962)

Germany

Council of Economic Experts (1962)

Hungary

Fiscal Council (2008)*

Netherlands

Central Planning Bureau (1947)

Slovenia

Fiscal Council (2010)

Sweden

Fiscal Policy Council (2007)

United Kingdom

Office for Budget Responsibility (2010)

United States

Congressional Budget Office (1975)

* Hungary’s fiscal council was dismantled in 2010

The European Union as a whole is organized around a set of budgetary rules that are policed and monitored by the European Commission, the so-called Fiscal Compact of 2012.  Monetary and fiscal policy are slowly starting to look alike as both policy areas come under the oversight of independent bodies of experts.

The idea of the British Labour party to submit manifesto promises to an independent audit takes this idea one step further. The message is clear: a promise made about spending by politicians is only credible if it has been overseen by a body of experts. Credibility and responsibility lies with apolitical bodies. Politics, itself, is the terrain of half-truths and misleading creative accounting.

One problem with this is the idea that once a policy has been given the stamp of approval by a body of experts, it becomes incontestable. Especially in the realm of fiscal policy, this is nonsense. Spending plans are notoriously subject to revision and change because they rest upon assumptions about the wider economy. Small changes in growth projections throw even the most carefully prepared and audited spending plans into disarray. That a party’s manifesto commitments are given the all clear by the OBR tells us little about what a party will do once in government. The OBR itself operates according to a set of assumptions about the maco-economy that are constantly subject to revision and change.

Another problem is that parties and governments that rely on monetary and fiscal rules set by independent bodies are in effect out-sourcing responsibility to these agencies. At the same time, these agencies – fiscal councils, central banks – only operate according to strict mandates set by politicians. The result is that neither the politicians nor the agencies accept the responsibility of making choices that are not right or wrong in any objective sense, but are based rather on what one believes is the right thing to do. This leaves us with a vacuum at the heart of politics. Ed Balls’ idea of auditing his campaign pledges brings that vacuum into the election campaign itself. Far from being a moment where rules are challenged and redrawn, the 2015 campaign risks becoming subject to the same rules and constraints that govern everyday politics today.

A word of advice to Ed Balls? It’s not because the OBR has given your policies the all-clear that voters will trust you. That will only come from building a direct relationship with them and engaging with them as citzens.

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