… but if Labour is hoping that the cuts kicking in will change the game, it is mistaken.
Writing in this week’s Observer, Andrew Rawnsley argues that the Tories’ overtly political attempt to put Labour on the spot over the proposed welfare caps could backfire badly.
The Tories are proposing a 1% cap on increases in most state benefits for three years. They are bringing their plan to the Commons for a vote – even though a vote is probably unnecessary – so that they can put Labour in the position of having either to support it (contrary to its core values) or reject it (and risk looking like the party of “unlimited welfare”).
Andrew Rawnsley’s analysis of this cynical strategic motivation is widely accepted.
But Rawnsley thinks it won’t work out the way Chancellor Osborne expects.
Rawnsley argues that once the “strivers” – those in work but also to some degree dependent on state benefits – realise that they too are going to be adversely affected by the squeeze (and by a raft of other measures which will kick in this year) then they will turn against the Tories.
It’s an argument I would like to be true.
It is a version of the argument going round Labour circles in the spring of 2010. The idea was that, since nasty cuts were inevitable after the election, it would be no bad thing for Labour to accept defeat, let the Tories take the helm for the bumpy ride, and regroup in time for the next election, when surely people would have had enough of austerity.
Again, I hope this line of thought will turn out to be true.
But I fear that it lacks psychological insight.
Rawnsley suggests that when blue-collar voters realise that the cuts are hurting them just as much as they are hurting the scroungers, then, far from punishing Labour for opposing the cuts, they will turn back to them. Biting reality will reverse the “C2 meltdown” of 2010.
I can’t see it.
Because, as Rawnsley himself points out, the Tory spin doctors have done such a wonderful job of dividing the nation, and painting the picture of the closed-curtain layabout getting fat on his couch while the rest of us struggle into work. (In reality, only 3% of the welfare budget goes to unemployed people, and fraud accounts for less than 1% of that 3%. Yet 47% of us think the government is “not tough enough on benefit” and should do more to force people into work. – YouGov)
Because the Tory spin doctors have done such an overwhelming job of pinning the blame for their cuts on Labour.
Because – although Labour (and indeed many right-wing) politicos are at pains to point out that the cuts have yet properly to kick in – the perception of austerity has been with us for two and a half years. We already think we are suffering. We’re already tightening our belts. We feel the pain already. And yet there are no signs of a dramatic shift in mood. The C2s are not flocking to Labour.
Will it be different when the perception of pain is matched in reality? I don’t think so. If I think there’s only £20 in my wallet, and it then turns out there is indeed only £20 in my wallet, I am in no worse a mood.
Even if I did feel worse off when the cuts actually bite, would I need a new scapegoat? If I already thought that scroungers or foreigners or bankers or Labour were the cause of my paltry purse, why would I suddenly change my mind and blame the Tories?
So if Labour is hoping that the imminent reality of austerity will, on its own, clear the path for a return to power in 2015, it is mistaken.
Labour can’t wait for the Tories’ economic strategy to be deemed wrong by dint of time or pain or miraculously changed perception. It must make the argument that the strategy is wrong.
Further, Labour must ensure that the blame for the attack on the state is correctly apportioned.
And above all, Labour needs to understand what the Tories so effortlessly tap into: the psychology of mean-spiritedness. People who are scared, who are feeling the pinch, and who, because of those anxieties, are inclined to believe daft, demonising stories about benefits millionaires need an alternative narrative. A narrative which enables them to feel better about compassion than about righteousness.
That narrative needs crafting, and selling, by Labour. The reality of austerity, on its own, will not do the job for them.
For now, George Osborne has nothing to worry about.
On 10 December, Ed Balls sent out a link on twitter to an article he’d written about the LibDems serving as a fig-leaf to a radical right-wing government. Quite right too.
I responded, “@edballsmp Good piece; now pls translate that into action. New PLP rule: don’t mention the LibDems?”
Nine days later:
Ed Miliband has banned the shadow cabinet from using the word “coalition” to describe the government because it sounds too moderate and reasonable, and fails to convey what he says is its true “ideological, rightwing agenda”.
In a memo to his front-bench team, obtained by the Observer, the Labour leader’s director of policy, Greg Beales, says that from now on they must use the term “Conservative-led government” to describe the alliance of Conservatives and Liberal Democrats.
(The Observer, 19 Dec 2010)
Thanks guys. I’m sure you had that idea independently, but I am happy anyway. I’ve been arguing for ages that the language of the er, Conservative-led government, has been brilliantly controlled and effective.
Interesting to hear the Work and Pensions minister, Chris Grayling, on Radio 5 Live this morning, sympathising with the unemployed. He recognised things were tough out there and would be tougher, but he reckoned the private sector would, eventually, provide.
This is the absolute nub of the ConDem experiment, the sharp end of the debate about small versus big state.
The old Tory idea (which is what it is) that the state needs to be small in order for the private sector to thrive is based on two thoughts.
First, business doesn’t like bureaucracy. Sausages have to be a certain shape! Europe is bossing us about! Get rid of this red tape! Then business can thrive. That’s a crowd-pleaser. Not so much an economic argument, more a libertarian reflex.
The second thought is the posh one. It’s the idea that when the state spends, it borrows money. As it borrows “more and more” it needs to pay a better rate for its money, i.e. interest rates rise. That affects mortgages and, crucially, the price of money for business. Business cannot borrow, cannot invest, cannot hire. This is known as the crowding out argument.
(Hard-line subscribers even call private sector jobs “real” to distinguish them from [presumably unreal] public sector jobs; I noticed Chris Grayling slipping in a “real”, psychologically to upgrade these new jobs he’s hoping will materialise. Honestly! Perhaps we should all go round town with a badge to show whether we’re doing a real job or a phoney, state-sponsored one.)
When asked where the vital new jobs would come from, Chris Grayling replied, “I’m not a crystal ball-gazer.” He doesn’t know, and you can’t help feeling he’s happy with that; perhaps because the ‘real’ jobs are somehow only real when the minister for jobs has had nothing to do with creating them. Not knowing becomes almost a badge of honour – yet another articulation of the government’s deft, cheerful retreat from responsibility for anything or anyone.
Chris Grayling may not know where the jobs are coming from, but he has listened to reliable institutions like our friend the OBR and they say it’ll be all right. He went on to explain the crowding out argument. And that, pretty much was that. It’s hard for interviewers to argue against the crowding out argument. It’s capital E economics and it shuts people up.
But you don’t have to know your monetarism from your Keynesianism to know that we’re running a massive deficit in this country. And yet interest rates are virtually zero. Whatever is holding business back, it can’t be the rate of interest.
What really motivates business to invest is the whiff of profit. Sure, costs matter, and the cost of money matters. But it couldn’t be lower. What matters is sales. Are punters going to buy our product? Will they be spending? Will they have pounds in their pockets?
If punters are unemployed, or fiscally squeezed, or saving for a rainy day in the light of dire government warnings about broken Britain, they aren’t going to buy your product. No point investing, no matter how cheaply you can borrow money. If government, at the same time, is slashing its spending like it has never slashed before, there’ll be no public sector demand either. Time, you might decide, to pack up and go home.
That, in essence, is the debate. Of course it is much more sophisticated than that, and I don’t profess to be an economist. But I do know that the private sector is about people like you and me who spot the chance to make a buck – who see a market they can sell into. We are driven by opportunity. We do not notice that the price of money is low and then ask ourselves what business we might want to set up in order to take advantage of those nice low interest rates.
Forget the intellectual argument and ask yourself if you would invest in a new business in the UK at the moment. I know I would not.
I doubt Chris Grayling would either; when I listened to him trotting out the crowding out argument today, I didn’t think for a minute that he believed it.
The only crowding out that’s going on these days is the crowding out of reason and the shameless, cynical, oh-so-slick crowding out of responsibility.
When I helped Labour with this Eddie Izzard video for the election, I worried a little about the baldness of the ‘same old Tories/Thatcher’s Children’ line. I felt the Tories were probably a bit more reconstructed, a bit more compassionate, than they were being given credit for. I confess I was sold, just a teeny bit, on the notion of the ‘modern Conservative Party,’ as David Cameron kept calling it. I wondered how right it was to hark back to the folk-memory of the 1980s. Was the retro attack necessary?
It’s good to talk
On Monday, Mr Cameron stood up to warn us just how bad things were going to get, cuts-wise. I liked one aspect of it. I liked the fact that he wants to have a dialogue with the nation about economics. That has to be a good thing. Mind you – without checking the media forensically – it seems to me that there isn’t much debate going on about overall economic strategy. There is, however, quite a bit of chat about ‘what could go’; micro-debate which tacitly accepts that the overall argument for austerity measures has been won, and focusses instead on whether or not ministerial walking to work actually saves money, or whether the St George flag can be run up the flagpole during the World Cup for minimal cost.
At least David Cameron entertained the macro debate on economic policy, and we don’t get much of that in the UK. But, while it’s good to talk, unfortunately, the content of his argument – as opposed to the fact of it – really bothered me. And, though I was planning to comment less on politics, as this dismal week rolls on, I’m feeling more and more bothered.
Do you really want to hurt me?
Cameron harangued Labour again. So much for the New Politics the Coalition promised us. Every time these guys open their mouths, it is to slam Labour. Is it that they really want to hurt us, or is it that Labour are a soft target at the moment? I’m beginning to wonder whether it was right to create such a long campaign window for the leadership election. We need a new leader to marshall a proper Opposition, fast.
Gold!
Mr Cameron gave the impression that, now he’s looked under the bonnet, the country is in a bigger mess than he realised. He said hitherto unpublished Treasury figures revealed Britain could be facing an annual interest bill of £70bn on debt in 2015. He struck gold finding that figure. Has anybody got the detail on it? It probably has a dozen assumptions built into it – e.g. borrowing continuing to grow, interest rates rising, blah blah. Especially as this was the only new figure he revealed, we need the detail behind it. I haven’t seen anybody explaining or challenging this number. But I’d bet the Treasury has any number of worst-case forecasts for 2015, and that this is only one doomsday scenario. And there may well be any number of rosy scenarios too, in the same Treasury vaults.
In the absence of detail for a projected figure, it’s a shame he made no mention of the latest actual figures, which showed that borrowing in fact came in many billions less than forecast. See my earlier comment. Nor did Mr Cameron mention that growth results came in (slightly) above forecast.
What he did say was that the impending cuts are going to be very bad, and would affect every man, woman and child in this country. It was sobering stuff, and gave some commentators the willies. Playing sweetly into the Tories’ hands, they asked “does this mean all bets are off? All the ring-fencing you promised during the election – all those promises? You can’t keep them now, can you?”
I’m sorry, but I want to see more evidence than this putative “£70bn in 2015” figure before I let anybody off the hook on their election promises.
You’ve got an -ology!?
Once he had frightened us all with the £70bn figure, Cameron relaxed into his ideological position, repeatedly quoting the contraction in the private sector relative to the public sector.
“And while private-sector employment fell in this period (since 2007) by 3.7%, public-sector employment actually rose. So it has been, if you like, a tale of two economies: a public-sector boom and a private-sector bust”
For Cameron, this is self-evidently wrong. The private sector, in his world-view, is the ‘real’ economy, and the public sector is somehow phoney and unreal, even immoral. The public sector crowds out the private one. It is a cancer that needs to be cut out. Just like a cancer, it needs early radiotherapy:
“And now, today, we’re all paying the price because the size of the public sector has got way out of step with the size of the private sector. We’re going to have to try and get it back in line and that will be much more painful than if we had kept things properly in balance all along.”
Cameron really thinks this is truth, not ideology.
“We are not doing this because we want to. We are not driven by some theory or some ideology. We are doing this as a government because we have to, driven by the urgent truth…”
But anyone who has even a basic knowledge of the dividing lines between economists will know that it is indeed a question of ideology. Any economist will tell you that in a recession the private sector will contract faster than the state sector; that is inevitable. Any Keynesian economist will tell you it is also desirable – it is beneficial that the state sector stays large to compensate for the private sector running scared. Indeed the same economist is likely to tell you that the goverment should deliberately expand its spending for the same reason. It’s nothing new. It’s called fiscal stimulus. When markets collapse, guess what? We need governments to intervene.
Cameron would have us believe that government is, axiomatically, the problem. It’s a story that only really plays for the fit, the strong, the economically self-reliant. Fine if that’s you. Fine if you’ll always be that way and never need help. Fine if you live in a gated community away from others not so lucky. For the rest of us, it’s a horrible and frightening piece of ideology.
Ashes to ashes
The ‘sovereign debt crisis’ is the perfect excuse to abandon the compassion the Tories espoused under Cameron in opposition. It has an ash-cloud quality to it; it feels as if it is some external thing we have no choice but to respond to; it is the unavoidable reality of the international market in government debt. Chin up, Dunkirk spirit; we can’t fly for a bit, but we’ll survive. Where Labour failed to convince the nation that the global economic meltdown was exogenous, despite it being true, the Coalition seems to be able to appeal to the global markets and get away with it. They are defter politicians than Labour under Brown. They seem to have convinced us that unless we cut off our own legs, the global financial markets will do it for us, and take our arms for good measure.
“The global financial markets are no longer focusing simply on the financial position of the banks. They want to know that the governments that have supported the banks over the last 18 months are taking the actions to bring their own finances under control.”
I’m not entirely sure it’s true. Whilst my friend in the hedge fund game tells me the markets fear that if governments aren’t reliable, ‘there’s nowhere left to run’, I can’t help wondering what will happen if all Western economies vie for pole position in the self-flagellation stakes. Investors have to invest somewhere; assuming we all take the same action, relatively speaking nothing will change. It’s only if other nations do it and we don’t that we’ll become relatively less attractive. There’s an element of ‘satisfying the markets’ that’s like a financial nuclear arms race; cripplingly costly, and hard to justify to our children.
What’s true, and terrifying, is that the mood in Europe, the mood of the G20 and the IMF – until now laudably pro-stimulus – is beginning to swing towards panic and retrenchment. (Notice, by the way, how the Tories seize upon this shift – exaggerating a modest change of language in Osborne’s favour at the Korea meeting – without realising they are exposing just how isolated they were on the economy only weeks ago.) Nerve, it seems, is not going to be held. If everyone caves and rushes to slash their budgets in an austerity race, nobody will be able to export their way out of recovery. Other countries won’t be buying. At the same time, domestic demand will contract as net government spending reduces. No one to sell to, home or abroad. The interlinked economies of Europe and the Western world will wilt together like so many flowers in a field.
Do you really want to make me cry?
Presumably, if the Tory ideology is correct, this won’t matter. As long as the dirty bathwater goes – that nasty, polluted, immoral state spending on doctors, nurses, hospitals, child tax credits, Sure Start, pensions, tv licences for the over 75s – flush all that away, then the pain will have been worthwhile.
The 1980s are back. Be afraid, as Eddie Izzard says. Be very afraid.
