The NHS is dying, pretty well exactly as I said it would some two years ago now:
Some scandals may emerge in time over ‘backhanders’ paid by the private hospitals to the private commissioners, and in some circumstances it will turn out that the people doing the commissioning are simply commissioning themselves in another name – the whole inefficiency of which the provider-purchaser split was supposed to stop – but it will all be a bit esoteric and complicated for people to understand, and there won’t be much of a fuss.
In fairly short order, we may get these new commissioners creating two tiers of provision from within GP surgeries, with one level of care for those not paying, and those who just happen to have signed the relevant insurance policy forms, which just happen to be in the GP surgery.
Insurance-based healthcare, and the exclusions that this brings, will come not through a government announcement, but by the surgery backdoor……
The consortia [now called CCGs] will end up being led by two or three ‘movers and shakers’ in each area, whose job will be simply to negotiate a decent deal for their colleagues and let the private commissioners get on with the rest. There will be no revolt in primary care, and in secondary care no-one will actually notice till it’s too late.
Two years on, it’s being more widely recognised that, as of 1st April, the NHS privatisation will being quietly but in earnest, as the section 75 regulations kick into gear, Clinical Commissioning Groups with often overwhelming direct financial interests in private providers put services out to the market, public provision withers on the vine or simply goes bust, and private insurance arrangements start to become the norm, initially for (the more profitable) elective healthcare, and then for the rest. As Lucy Reynolds from the London School for Hygiene & Tropical Medicine rightly notes, what comes next in this wildly ‘imperfect’ market is market abuse and health cost inflation. This inflation around the ‘cherry-picked’ services, Lucy might also have noted, will lead to the stripping of resources from the less profitable services – no health budget ring-fencing will protect that.
So what is to be done? By 2015, if and when Labour regains power, the promise of a repeal of the Health & Social Care Act (and the accompanying Section 75 regulations) may be a welcome statement of principle, but it will not significantly change the way in which services have already been privatised, seemingly irrevocably. In many cases, there simply won’t be the public services to transfer them back to, and the incoming government is likely to consider the full-scale implementation of NHS II a little too much of a fiscal challenge, even if the recreation of the cumbersome institutions of 1948 were desirable.*
What Labour can do, though – and needs to start thinking through now – is to tackle the local institutional architecture, in a way which creates the platform both for the establishment of local democratic control of both the type and quality of provision. If it gets this right, this might actually lead, in the medium term, to a better health service than we currently enjoy - as I’ve noted before, it does not become Labour to gloss over the very clear health and social care failings caused by the managerialist ideology that has held sway for the last thirty years.
More specifically in terms of local institutions, the Labour government-in-waiting should first consider retaining the Clinical Commissioning Groups. but diluting the power of GP practices within them by making theirs a minority voting position, through the introduction of members of Foundation Trust governing councils (increasingly focused on quality standards if the Francis Inquiry recommendations are carried through) along with elected councillor representation in keeping with Councils’ new public health function. The immediate impact of this is likely to be presumption against private sector provision where other options still exist (they won’t in many places).
Second, the Labour government in waiting should commit to ensuring that these new-style CCGs adhere both to the letter and spirit of the Public Service (Social Value) Act 2012 under which all CCGs (and the NHS Commissioning Board), have a duty to consider:
(a) how what is proposed to be procured might improve the economic, social and environmental well-being of the relevant area, and
(b) how, in conducting the process of procurement, it might act with a view to securing that improvement.
(Oddly, this is Tory legislation, aimed primarily at breaking the perceived monopoly power of local authorities, but can be used to the same effect against private sector dominance in healthcare provision. That will really piss off the Tories….)
These two relatively simply steps will set the direction of travel back against wholesale privatisation, although of course attempts to terminate contracts are likely to result in lengthy and quite likely unsuccessful legal battles, so early progress is likely to be quite slow.
Nevertheless, institutional change at local level by government, especially if accompanied by moves within the Labour party and the broader movement to re-energise Trade Councils, in a move away from the vapid Tory ‘consumer localism’ and towards a quality-oriented ’worker localism’**, could provide early impetus for the creation of a properly socialist health and social care system – a system fit for the 21st century (whether or not this is tax-based or progressive social insurance based doesn’t really matter as long as it provides for equitable provision) , with private operators increasingly steadily cleared out in favour not just of direct NHS Trust delivery, but also a new surge of worker co-operatives (although charities and social enterprises may also play a valid part).
* It is always worth remembering, in the context of the fetishisation of the 1948-style NHS, that until very late in the day a radically different – and I would argue preferable – NHS structure was being argued for. This was a much more decentralised and locally accountable system, rather than the monolith we grew to love despite it tendencies to managerialism (and I would argue that this is why service standards have declined in the NHS faster than in local authorities, say). See Rudolf Klein’s seminal The Politics of the NHS for more (the later edition is called The New Politics of the NHS but the early chapters are the same).
** This is not to argue for the introduction/retention of localised terms and conditions. Trade unions should of course be encouraged to negotiate at national level, and a properly brave/strategic Labour government would use the need to ‘renationalise’ the NHS, and to invest quality in the hands of its staff (as opposed to its bosses) as a rationale for the relatively painless (in terms of reactionary public opinion) repeal of restrictive trade union legislation. Frankly, I’m not holding my breath on this one.
Miliband has, I’m afraid, got his reaction all wrong.
Had anyone from Labour HQ actually bothered to read the single piece of research behind the proposals, they’d have realised that it simply doesn’t say what everyone, in all parties, wanted it to say. As I have set out in detail, the research doesn’t prove that minimum unit pricing will reduce binge drinking, and it acknowledges that very clearly in the main report:
The elasticity matrices [the method used in the research] on their own are not sufficient to reveal the likely behaviour of the population to price changes, since these also depend on the preferences for beverage, drinking location and price point that the different sub-groups exhibit. However they do form a useful starting point for analysis, and can be compared with existing results from the literature. (p. 50)
This acknowledgment, and the other deep flaws in the research, will be set out in consultation responses (including the one I submitted), and the Tories will simply point to those responses to explain their u-turn. It doesn’t matter that the Tories’ real motivation for dumping the pricing proposal has nothing to do with the evidence, but is driven by a mix of electoral calculation and fear of taking on the Right of the part. By May, the narrative already being set out by David Davis - that the research doesn’t stack up – will have been firmly established.
Thus, by effectively coming out in support of minimum unit pricing, Labour is getting itself on entirely the wrong side of the debate. In a month or two, when the final government response to the consultation is published, Labour (and the SNP as a side effect) will be painted as the illiberal nasties who do don’t give a hoot about evidence but just want to punish the poor, while the Tories will have positioned themselves as the reasonable party, who consulted on the idea, listened to public opinion, and then took a mature, evidenced-based decision not to proceed.
In short, Labour is going to cop it on this one. Miliband may have had some fun today at PMQs, but the Tories will have the last laugh, as Labour is tarred with the very ‘authoritarian’ brush Miliband had worked so hard to avoid. The key lesson is that when Labour priorities media management over actual policy import, it does so at its peril. It should already know this, from the time it abandoned sound immigration policy in order to look tough, but maybe this time around it’ll learn…….
Richard Angell, Deputy Head of Progress party-within-the-party, had written an interesting column during the week on how Labour parliamentary candidates are selected. This might sound dull as ditchwater, but the process is actually a pretty key variable when it comes to what kind of person we end up getting to represent us in parliament.
Richard, who runs Progress’s member-only selection training, claims that:
the way in which ‘org sub’ has set about implementing changes – massively increasing the cost and more than doubling the time potential candidates need to spend in the constituency they hope to contest – are likely to make it easier for full-time politicos – whether they be ‘Westminster village’ thinktankers and aides to frontbenchers or trade union officials – and harder still for others to stand for Labour.
There are a number of problems with his ensuing argument.
First, there’s the decidedly worrying assertion that the extension of the selection period from four to eleven weeks means that:
it will not be a level playing field, as those who work for an MP, a think-tank, or trade union, are given all the time off they need to campaign.
Really? I’m not certain your average taxpayer, who generally foots the bill for those working for MPs, would be too pleased to hear that. Put simply, if that is happening, it should stop immediately. Likewise with trade unions. And the idea that people working for think-tanks can simply take paid sabbatical for an eleven-week period ignores they fact that think-tanks - like any other business – have to generate income in order to survive. As it happens, I know a think-tanker who is running for selection, and the idea that he can simply drop his work commitments for nearly three months looks a little absurd.
Then there’s Richard’s argument that needing £1,000 for 3 leaflets (in a 300 member ward) will militate against working class candidates. This is rubbish. First, many working class candidates will have some support from a union branch. Second, and more important, it doesn’t need to cost that much. As a councillor in a ward with 1,000 houses I produced a quarterly newsletter of eight to twelve pages for many years at no more than than around £150 per year all in, using an old Riso printer and buying the paper from Makro. No, it wasn’t glossy, but it was effective. I think Richard is simply assuming the Progress-style glossies are a prerequisite for a successful campaign, when in fact clearly low-cost materials can be just as effective with the right content (as Richard himself acknowledges with his DVD anecdote).
The most important flaw in Richard’s argument, though, is this:
Crucially, those going for selection will get the membership list – and the expense of an all-member mailing – before the party draws up a longlist, let alone a shortlist. This makes the cost of entry very high for some, with no guarantee of getting to make your case directly to the membership. The additional complication of supporting nominations makes the process more likely to favour insiders and ‘chosen sons’.
This conveniently ignores why the nominations process has been reintroduced. Obviously I can’t speak for the sub org on this, but I assume it is so that candidates get a chance, in more informal settings, to discuss local issues with members, and learn what their priorities might be, not least so that come the shortlisting this can be reflected in their interview. It seems to me perfectly reasonable that, come the longlisting, those doing the listing should consider thee extent to which local members and other parts of the labour movement have been convinced enough by the candidate that they then offer their nomination. To suggest that engagement with members and unions is simply a bureaucratic impediment is, I am afraid, something of an insult.
More generally, there is an assumption underlying Richard’s piece which requires challenge. This is that MPs are some kind of supremely talented breed, and that to fill a seat we need to catch the net nationwide for the brightest and the best – the clue is in the way Richard’s reference to “the time potential candidates need to spend in the constituency”. But as I’ve set out previously, the job of an MP is really just not that difficult - and the salary is broadly commensurate with the skill set needed for the job – and, we really don’t need to shop around nationally to get good candidates in place. I could name at least a dozen people in my own constituency who would make very good local MPs, most of them from working class backgrounds. While I’m not against people coming up from London to pitch in if they so wish, any move which makes it easier for local candidates who are already in (or at least close to) the constituency, should be welcomed.
Ultimately, Richard’s piece is a contrived defence of the status quo: MPs as overlords of their constituencies rather than servants of it. The NEC sub org committee has delivered a small victory for those who’d like to see candidates able and willing to engage with the genuine grassroots, and to do so in ways which favour working class candidates – such as knowing the local patch - over and above the glossy professional CVs and skills required to sell yourself to the party hierarchy.
The big news of the day for econo-geeks is the letter from the Head of the Office of Budget Responsibility to Cameron, rebuking him for his false assertions over the impact of austerity on growth.
In the longer term, though, I don’t think will be the most signficant lie in Cameron’s speech. I think this will be:
This deficit didn’t suddenly appear purely as a result of the global financial crisis. It was driven by persistent, reckless and completely unaffordable government spending and borrowing over many years. By 2008, we already had a structural deficit of more than 7 per cent – the biggest in the G7.
No source is given for this 7% assertion, but as far as I can tell* it comes from the 2012 IFS Green Budget which says:
Our estimates, based on the OBR’s latest official forecasts, suggest that the apparent ‘hole’ in the UK’s public finances that has opened up since the March 2008 Budget – that is, the additional structural borrowing that is now forecast to persist in the medium term, over and above what was forecast in the March 2008 Budget – equates to 7.5% of national income (or £114 billion in today’s terms) (p.51).
This does not, of course, say what Cameron appears to be claiming. In fact, we get the actual estimated structural deficit figures for 2007/08 further down the same page:
In 2007–08, total PSNB stood at 2.4% of national income. Since, at the time, the Treasury thought that the UK economy was operating slightly above its productive potential, underlying structural borrowing was estimated to be a slightly higher 2.6% of national income. The larger output gap** now estimated by the OBR implies that structural borrowing in 2007–08 in fact stood at around 3.5% of national income [my emphasis].
The reason I think this apparent lie is more important than the one about the austerity effect is that it looks like it’s going to be the main one used to beat Labour with. As the next election approaches the Conservatives will realise they are unable to defend their own record on the economy, and will need to rely on the “mess Labour left us in” narrative which served them well early on.
The general ’worst in the G7′ structural deficit accusation is not entirely new – it dates back at least to the ‘emergency budget’ in 2010 ( see p.8, although no figure is given there, just a reference to an OECD report, in which I’ve been unable to find the assertion backed up). However, it has not been used again until recently, and this firming up of a (false) figure appears to be a conscious attempt to resurrect it. Further, the 7% figure is important because it allows the Conervatives to claim it is the highest since the war, whereas in fact the IFS report makes clear that it was higher twice under the Major government:
A structural deficit of 3.5% of national income in 2007–08 would have been the highest level since 1995–96 (when it stood at 3.8% of national income) but still far below its previous peak of 5.5% of national income in 1992–93.
In any event, I expect to see the 7% structural deficit line to be trotted out regularly by the Tories, including by Cameron at PMQs, over the coming months. I hope Labour will be alert enough to call them out on the spot, referring to the actual figures set out in the IFS report.
* I suspect the 7% figure comes from here because it was trailed at the weekend (possibly by mistake) in a tweet from the Conservatives’ press office:
Terrible banking was cause of banking crisis. Before that happened, the UK under Labour, was running deficit of over 5% of GDP.
@citizenandreas check the Most recent IFS report on structural deficit when banking crisis hit.
** It’s also worth pointing out that measuring the output gap is a very unexact science. The figures used in the IFS report are based on OBR work, which in turn depends on a wide variety of source information to try to calculate ”the difference between the current level of activity in the economy and the potential level it could sustain while keeping inflation stable in the long term”. These sources include , for example, British Chamber of Commerce surveys of recruitment difficulties in firms. While the OBR report says that the historical analyses “appear to give a plausible representation of UK business cycle history and remain close to the range of alternative estimates”, it also notes that “[a]ny output gap estimate remains uncertain, even when it relates to the past. Similarly the estimates presented in this paper are subject to significant uncertainty and remain work-in-progress.” With these caveats, the OBR report finds that a structural deficit of 3.5% in 2008, pre-crisis, compared with the 2.6% on which the Treasury was basing its projections.
I’ve been away from the blogs a bit over the last week or so, but three posts have caught my eye.
The terrible outcomes at Mid Staffs were the logical consequence of a disastrously flawed management system that systematically forces people to face in the wrong direction, counts the wrong things, and focuses management attention on the wrong part of the job.
This is “deliverology”, as unappealing in practice as in print, otherwise “targets and terror” – the direct public-sector counterpart of the ideologically-driven, shareholder-first management model that in the private sector gave us Enron, then sub-prime, Lehman Bros, and seemingly innumerable banking scandals in their wake. Unconsciously emphasising how closely the two are related, David Cameron’s big idea for preventing more Mid Staffs was performance-related pay for clinical staff – the very thing that in the financial sector brought the global banking system to the brink of collapse.
Simon is passionate, angry, at the failure of management, but he offers no solutions.
Second, there’s Duncan Weldon, who offers us a glimpse of what that solution might be, as he seeks to wrest the ‘supply-side’ from the Right’s icy grip:
[Stewart] Wood, who has been arguing for a ‘supply side revolution from the left’ for over a year now, is correct to argue that what is needed now is essentially a three-step process. First a boost to demand, second, supply side changes to boost productivity and thirdly making sure we have the right set of institutions in place so that the gains from productivity growth are not simply seized by those at the very top of the earnings ladder.
Taking the supply side seriously is nothing new for centre-left politics. Academics write of Attlee’s ‘supply side socialism’, whilst Wilson’s ‘white heat of technology’ was essentially a programme of supply side reform. In this week’s FT Wolfgang Münchau wrote that whenever he hears talk of ‘economic reforms’ he first thinks of Willy Brandt arguing for pro-worker policy reforms rather than the current usual meaning of deregulation…..
The right policy programme now takes as its starting point the need to boost demand but recognises that we have real problems that simply increasing demand will not solve. The real significance of Ed Miliband’s recent speech, for me at least, was that vital recognition.
This is Duncan at his understated best. For “the right set of institutions”, we might read democratized control of the workplace – precisely the kind of reform I have argued is needed if quality of public services, in the NHS or elsewhere, is to improve.
For a moment, I am optimistic.
What is missing in British politics is a broad network that unites progressive opponents of the Coalition. That means those in Labour who want a proper alternative to Tory austerity, Greens, independent lefties, but also those who would not otherwise identify as political, but who are furious and frustrated. In the past two years of traipsing around the country, speaking to students, workers, unemployed and disabled people, I’ve met thousands who want to do something with their anger. Until now, I have struggled with an answer.
But if we could agree on some key principles, and avoid creating a new battleground for ultra-left sects, we could give the angry and the frustrated a home. We could link together workers facing falling wages while their tax credits are cut; unemployed people demonised by a cynical media and political establishment; crusaders against the mass tax avoidance of the wealthy; sick and disabled people having basic support stripped away; campaigners against crippling cuts to our public services; young people facing a future of debt, joblessness and falling living standards; and trade unions standing their ground in the onslaught against workers’ rights.
Such a network would push real alternatives to the failure of austerity that would have to be listened to; and create political space for policies that otherwise does not exist. Faced with a more courageous, coherent challenge to the Tory project, the Labour leadership would face pressure that would not – for a change – come from the right.
It is easier to discuss such an idea in a newspaper than put it into practice, but it is a mystery that such a network does not already exist. Though fraught with difficulties – never underestimate the ability of the left to miss an opportunity – the appetite is certainly there.
Indeed. “We should never underestimate the ability of the left to miss an opportunity.”
For here we are, with the theory and practice of managerialism in its death throes, and there goes an influential and eloquent voice on the left calling for one last concerted push against the austerity that it’s singularly failed to stop for the last three years.
So, once more with feeling………….Pouring energies into building a coalition of resistance out of the Coalition of Resistance and other anti-cuts networks is a strategic mistake of the highest order. Challenges to specific austerity measures will take place anyway, and while they should certainly be supported where it’s feasible that there might be at least some success (e.g. the bedroom tax) they don’t need any more coordinating than they’ve already got.
Instead, the undoubted intellectual and rhetorical energies of people like Owen, and the modest organisational competences of people like me, should be directed at hitting managerial capitalism where it’s weakest.
Initially, this may well be in traditional public services, where unions are still at their strongest. In the NHS, for example, we should be encouraged by and build on the great work of Gail Adams, Unison’s head of nursing, who for the second year is organising a nationwide spot-check of staffing levels*, such that the power of information is seized from management and the unions are able to go back to management and tell them what safe staffing levels are and when they expect them to be put in place.
We should be working with unions to localise this kind of approach, consciously and deliberately seeking to rip the carpet from under managerial feet, to replace ‘quality control’ with ‘professional pride’. We should be organising to revitalise and refocus our Trades Councils, the potentially crucial interface between workplaces and the wider community, which have become distracted by their own service delivery aims (if they have not withered away) at the expense of their core function. We should be organising with the NUT to build the competence and reach of social enterprises spun out of local authorities (such as Hackney), so that the most rapacious, lowest quality academy chains can bbe turfed out on their ear.
The examples go on – action in DWP to ‘safeguard’ vulnerable clients, banking union members coming together to challenge the quality of loan provision to SMEs (including the target-beating bureaucracy of making a rollover facility a new loan), unionising the childcare sector and working with local authorities to support the switch of private daycare to co-operative daycare, supporting new Foundation Trust** governors to listen to staff concerns separately from the Non-Executive Directors and then report back to the newly reformed Trades Councils, establishing professionalised local media operations through TUC start-up funding…..
In short, we should be organising to create a parallel mechanism to the Tory state, such that – come a Labour government – the state has little choice but to work WITH workers to reform the ‘supply side’, not seek to control them. No, it’s not easy, and yes, it will be piecemeal, but this should be about creating a genuine, conscious movement for positive local empowerment and accountability.
If we do none of these things, the state – whether it be a Tory or Labour government – will revert quickly to managerial type, just as it reverted to financial capitalist type soon after the 2008 crash, but this time around the targets, the controls, the sanctions, will be harsher and more random, as what Professor Gerry Stoker calls ”a strategy of governance by lottery”, first implicitly espoused by New Labour, is fully brought to bear (p.74-76). The workplace, if you still have one, will not be a pleasant place to be come the premiership of Mr Gove.
The task, As Owen notes in his article, is urgent. But Owen identifies the wrong task, while Duncan and Simon point us towards the right one.
* Declaration of interest: Gail and I go a long way back. We first used this ‘information seizure’ technique at St George’s Hospital, Tooting, back in about 1988, with reasonable effect (though I admit I was very naive about both the potential and the implications, so screwed up the final outcome).
** One small sign of managerial desperation and chaos is that in the NHS it’s been decided paid Non-Executive Directors are not sufficient safeguard against poor service, so unpaid Foundation Trust governors are to be given greater oversight over the people who are paid to have oversight over the services, while in education it’s been decided that the unpaid governors have failed and they need to be replaced by paid directors.
Sunny is in triumphalist mood, and thinks Labour’s fiscal conservatism has had its day:
The UK’s AAA downgrade wasn’t just a nail in the coffin of Osbonomics, it was also a much-needed kick in the groin to those on the right of the Labour party who thought opposing austerity was political and economic madness……Let’s not forget Black Labour – who published a pamphlet in 2011 saying Labour should ‘place fiscal conservatism at the heart of its message‘. How’s that working out for you guys?
Sunny is also completely wrong.
Labour’s fiscal conservatives are not quiet now because they know they have lost the argument. They’re quiet because they came out in 2011, won the argument hands down, and have gone home, put their feet up and relaxed for a bit with a nice glass of red. They simply don’t need to engage with people like Sunny (or me) because we don’t count.
Sunny needs to take a look beyond the media-heavy environment which he now inhabits, and see what’s going on when it comes to the Labour’s policy formulation.
Progress, the real party within the Labour party, is hosting regional events around the country to debate “the options and choices the party will face” if it comes to power in 2015. But fiscal expansion is not even on the table as an option:
An incoming Labour government in 2015 will not be able to countenance such increases in spending. Instead, the challenge of closing the deficit and tackling some of the long-term fiscal pressures the country faces will require some tough choices and radical thinking if Labour is to bring about progressive change.
(When I asked Progress if they’d set up an event in my area, they declined, pleading lack of resources. But look at it from their side. Why go through the hassle of being challenged by a nobody, especially a nobody who might be able to construct a coherent case against the parameters imposed on the debate?)
Similarly, Labour’s favourite think-tank, IPPR, argues its case for childcare from a determinedly fiscal conservative perspective; there will be no overall increase in spending:
Investment in childcare will help boost the employment rate, ease living costs for families with children and reduce child poverty. But finding the necessary funding will involve some difficult calls: should Labour seek to freeze child tax credits and child benefit or reform wealth taxation to generate additional revenues?
Everywhere you look, Labour is apparently preparing its own form of austerity: a little looser round the edges than the one that emanates from the Tories’ ideological drive for a smaller state, perhaps, but still very firmly in the fiscal conservative mould.
To what extent the In the Black Labour crowd (one of whom is from the aforementioned IPPR) are the cause of Labour fiscal conservative turn, or simply a reflection of a what was already developing, is an open question. I tend to think they have been the beneficiaries of (Dowding’s) systematic luck, whereby their “social location” made it more likely that what they wrote just the right nerve at just the right time within the just right bit of the party.
As for Sunny, he needs to get out more. First, he thinks people hate him for his “nuanced” approach to interventionism, when in fact the decision-makers didn’t even notice he wanted a say. Now he thinks he’s won the argument, when the argument was won months ago without him even being there.
Geroge Eaton at the New Statesman says Labour needs an answer to Osborne’s charge that it would “borrow more”:
If [Labour] wants to continue to attack Osborne on this territory it will need a much better explanation of its own approach. Without explicitly declaring that it would borrow for growth (and explaining why), the party merely reinforces the impression that borrowing is always and everywhere an economic ill.
Fair enough, but George Eaton doesn’t go on to say what this explanation should be. So here’s my version:
George Osborne is a cretin who doesn’t understand the basics of what borrowing actually is. He thinks borrowing is something to do with some kind of international gentleman lending club, who will lend to us only at exorbitant rates unless the Tories promise to keep on bleeding the poor.
But that’s not what it is (even if the equally cretinous BBC says so).
The latest Bank of England figures show that 70% of borrowing is from ourselves.
At least Vince Cable’s Special Advisor understands the basics. Back in 2010, Giles Wilkes sought to bring some cmmon sense to the hysterical debate about borrowing:
“All we get [from increased government borrowing] is a shifting balance between private and public assets and debts, in the absence of a massive international imbalance. Which means we can always afford to resolve either private or public indebtedness with a political solution, if we are brave enough.”
Labour is brave enough. George Osborne is a coward as well a cretin, who apparently fails to understand that when he announces grand though probably unworkable plans to get pension funds to invest in infrastructure, he’s actually only talking about borrowing from the same institutions as invest in government bonds anyway.
There you go. George Eaton. Job done.
I hage argued on twitter tonight, with Danny Blanchflower and others, that Labour/the left should forego the short-term pleasure of goading Osborne over the Moody’s downgrade, and simply stick to the key point that Credit Rating Agencies are part of the problem and should be ignored.
The counter-argument is that Osborne set maintaining AAA status as his ‘no.1 benchmark’ and that he should be held to account againmst his own criterion for success.
I can see the argument, but I disagree. It will be much more effective long-term to disrespect Moody’s judgment, and say it is an irrelevance, as this creates a continuity as and when Labour needs to get into an aggressive, economy-saving fiscal expansion post-2015 and the cretinous, austerity-crazed credit rating agencies get touchy about it.
This is actually an important moment. I hope Labour HQ has gone over the scenario, and gets its response right, in a way which avoids it being hoist by its own petard in 2016.
Sadly, I don’t hold out much hope.
Update 23/02/13: Ed Balls got his first official reaction half right, with the starting caveat to his attack on Osborne:
It would be a big mistake to get carried away with what Moody’s or any other credit rating agency says. Tonight’s verdict does not change the fact that the credit rating agencies have made major misjudgements over recent years, not least in giving top ratings to US sub-prime mortgages before the global financial crash.
Last week’s announcement on the 10p tax rate was most notable for the fact that it was embedded in Labour’s fiscal conservatism: the width of the income band within which people will be eligible for the 10p rate will depend on how much can be raised from the new tax on properties valued at more than £2m.
This ‘we cannot spend what we have not saved from elsewhere’ mantra of fiscal arithmetic is now at the heart of Labour’s economic policy, and is being firmly established as something that must not be questioned. Thus all IPPR papers reflect the assumption that all initiatives must be ‘cost-neutral’, and policy seminars run by Progress and the like always work from the starting assumption that ‘tough .choices’ around spending will have to be made.
None of these papers and seminars seem to set out exactly how such fiscal conservatism policy will bring about economic growth. This is an understandable omission. Shuffling the existing quantity of money from one part of the economy to another more ‘growth-focused’ one, or through a process of ‘predistribution’ (either via tax or investment in education etc.) may have benefits in the longer term, but it does little or nothing of what Keynes put on the tin about the need to boost demand and thus investment to create a virtuous circle.
There are two explanations for Labour’s current policy speak.
First, the leadership may have a Keynesian plan up its sleeve, to be whipped out post-election, and that the toothless fiscal conservatism they now espouse is for show only, in order to demonstrate to a supposedly economically illiterate public that they are ‘responsible’ with the ‘nation’s finances’ (though these are not, as Chris points out, the same as the government’s). Given Ed Balls’ background and previous espousal of Keynesianism, there may well be something in the notion that there is some kind of pact of silence in place. If so, I can understand it, but I certainly don’t condone it; it would show a shoddy disregard not just for honest engagement with the electorate – itself a recipe for continued political disengagement as well as the continued embedding of fiscal conservatism as the policy norm - but would also reflect the almost total usurping of power by a narrow elite within the Labour party, despite all the showy promise of opening up policymaking to the wider party.
Second, the leadership may be genuinely convinced that redistribution and predistribution of existing resources is both safest (in terms of the bond vigilantes etc.) and sufficient to create growth. In essence, it seems, Labour would be opting for an ‘at least do no harm’ strategy, accepting that there can and should be no quick fixes to the austerity-made mess in which we now find ourselves.
But I also wonder if this assumption that at least no harm will done by fiscal conservatism is actually justified.
If we think through how fiscal conservatism is actually implemented, we see how disruptive it can be too how the economy works overall. If public services or investment can only initiated when sufficient money becomes available from elsewhere, and if this money only become available if the economy at least stays stable in real terms, then the risk to efficient investment becomes ever higher, and when doubts grow about whether investment (and consequent demand) will actually take place, any confidence fairies which might have been emerging gingerly from the shrubbery of austerity may soon take flight. Investment becomes perceived as ever riskier because of the unknowns ahead, and the downward spiral continues into long-term economic malaise.
In fact Friedrich Hayek, hardly a fan of major public investment, saw something of the dangers associated with a cack-handed implementation of economic policy which doesn’t take account of the real dynamics of investment and confidence. His proposals for the Denationalization of Money are primarily based, not as might be expected from later interpretation by the right, on the belief that states’ monopoly of currencies tends to lead inexorably to run-away inflation, and that inflation ruins economies by removing the value of assets. His point about inflation (any level of inflation) is rather narrower, and focused on how the real economy reacts to it:
If the value of money is so regulated that an appropriate average of prices is kept constant, the probabilities of future price movements with which all planning of future activities will have to cope can be represented……..Though in this case the unpredictability of particular future prices, inevitable in a functioning market economy, remains, the fairly high long-run chances are that for people in general the effects of the unforeseen price changes will just about cancel out. They will at least not cause a general error of expectations in one direction but on the whole make fairly successful calculations based on the assumption of the continuance of prices (where no better information is available).
Where the divergent movement of individual prices results in a rise in the average of all prices……the individual enterprise will have as little foundation for correctly foreseeing the median of all the movements as for predicting the movements of individual prices, it could also not base its calculations and decisions on a known median from which individual movements of prices were as likely to diverge in the direction as in the other. Successful calculations, or effective capital and, cost. accounting, would then become impossible…….These skewed shifts of the distribution of price changes to one side of constancy which changes in the quantity of money may cause, and the resulting difficulty of foresight, calculation and accounting, must not be confused with the merely temporary changes in the structure of relative prices the same process also brings about which will cause misdirections of production (pp 71-73).
Hayek’s concern, then, is that the tendency to inflation creates, by its very nature, investment inefficiency and risk aversion. Replace the need for businesses to be sure about price with the need for businesses to have some security around demand – whether that be higher or lower – caused by the government’s vacillation around it’s own investments – essentially it’s own reluctance to lead the way, and you have the same kind of recipe for long-term underinvestment as that set out by Hayek.
Indeed, you could argue that at least with the Coalition’s current brand of fiscal austerity – aimed as much as a long-term retrenchment of the state and the establishment of a permanent and sizeable underclass – we at least have some certainty about what to expect, and can plan accordingly – whether that be finding safe havens for corporate cash (thus maintaining low interest rates for firms which thriveon increased inequalities), the development of the foodbank industry or simply being poorer/developing survival modes on the margins.
What we seem to have with Labour’s current approach to policy is an unappetising alternative: either accept we’re being lied to for our own short-term good, or accept the consequences of Hayekian logic for our economic future. There is still, of course, time to rescue the situation, by developing a credible economic policy based on a proper understanding of what money actually is.