Saturday, 20 October 2012

Faster Horses, Please!

We are currently in the worst economic downturn since the Great Depression. This demands a response on a par with that of Keynes’s in the 1930s in terms of scale and imagination. Yet, the state of our nation’s finances means that we cannot spend or borrow our way to growth. Rather than being dependent on a financial industry that stretches no further than the boundaries of the City of London, we should look for new sources of growth in the industries of the future to secure a strong and sustainable recovery that brings the whole country with it.

In the wake of the financial crisis, it has become apparent that much of the economic growth we have enjoyed over the previous two decades was underwritten by an unsustainable credit bubble. The health of the whole economy became far too dependent upon the health of the financial services industry. Banking boomed, while the real economy, those in the business of making and selling products and services that the world actually needs, was ignored. The collapse of this arrangement has left us with a national debt of over £1 trillion, and an unsustainable deficit.   

The regions were also neglected during the boom years.  Between 1997 and 2010, Gross Value Added, a measure of output similar to GDP, rose by 61% across England’s northernmost regions, the North West, the North East and Yorkshire & Humberside. By contrast, in the South East and London, the centre of the financial services industry, Gross Value Added expanded by 92%. Moreover, whereas job creation in the South was spurred by a growing private service sector, the north has been heavily dependent upon government spending. Between 1998 and 2007, the state was directly or indirectly responsible for 64% of jobs created in the North, compared to only 38% in the South.

At the recent Labour Party Conference, Ed Miliband attempted to take on the mantle of One Nation Conservatism. However, Labour’s legacy speaks for itself. The direct consequence of Labour’s prawn cocktail offensive is that regions outside the South East of England were ignored and neglected by a party in government more interested in wooing financiers in the City. A truly One Nation response to the financial crisis would rebalance our economy away from London-centric banking and finance.

To do this, the government needs to support growth in new businesses and the industries of the future. Unlocking our innovation economy, and finding new engines for prosperity is vital for a sustainable recovery that is driven by growth in all parts of the country, not just central London. This means encouraging industries such as pharmaceuticals, energy, agricultural science and aerospace, which technology is reshaping into the building blocks of tomorrow’s knowledge economy, and where we already have a head start.

Although, Britain does not have the cheap labour of China, or India, it does have some of the finest universities and research establishments in the world, and a historically deep seated entrepreneurial spirit that saw our small island become the workshop of the world in the 19th century, exporting more goods across the globe than any other nation. Today, we should be using our know-how and passion for creativity and innovation to get strong foothold in emerging markets. With some emerging economies almost doubling in size every decade, our economic fortunes depend on developing strong trade links with them.

Take pharmaceuticals, for example. Having recently implemented better protection for intellectual property, India’s market for pharmaceuticals is expected to grow to $74 billion by 2020, and other developing countries are in a similar position. Even a small slice of this market represents a huge opportunity for growth for UK firms. Similar opportunities present themselves to our agricultural science sector. With the world’s population expected to rise to 9 billion over the next 30 years, agriculture around the world must use advances in technology to increase agricultural productivity. In these areas and others, the government must support British business in entering these markets, for example, through diplomacy and foreign policy, and making a commercial success out of British research.

Our lead in innovation is not just important in giving us an edge in emerging markets – it can even be harnessed to bring new, unforeseen markets into existence, and displace existing ones. Henry Ford said, “If I had asked people what they wanted, they would have said faster horses.” Yet, by developing the methods to mass-produce automobiles, Ford not only transformed people’s conceptions of what was possible, he also made the market for horse-drawn vehicles practically redundant.

Government cannot plan for innovation of this kind. To a large extent it is spontaneous and depends upon the genius and foresight of particular individuals. However, what government can do is create an environment that encourages innovation. First of all, the government should cut regulation to make it easier for entrepreneurs to start and operate businesses. Initiatives such as start up incubators, and hubs such as Tech City in East London, where entrepreneurs can collaborate and share ideas, should also be encouraged.

Our competitors, such as the US and Germany, are also investing in science, research and innovation. However, if we act now we can still unlock the full potential of our innovation economy, and make our advantages count. A focus on the knowledge-based economy, emerging markets and innovation will ensure growth is sustainable, and prepare Britain for the 21st century. Without it, any recovery we see in the next few years will be nothing but a false start on a broader path of long-term decline.  

Monday, 15 October 2012

Two Futures for America

In 2008, an electorate wide eyed with the sort of enthusiastic earnestness only Americans can affect, propelled Barrack Obama into the White House. In 2012, after four years of grandiose promises of “hope and change” running up against the realities modern government and a recalcitrant economy, that idealism has subsided. The 2012 Presidential election will be fought in a spirit of dispassionate realism.

This is something for which we should be grateful.  The last time two candidates were divided by such a wide gulf in terms of their vision for America’s future was 1964, when Barry Goldwater, a Republican with libertarian views, ran against LBJ. Goldwater carried only six states. Today there is less harmony in the electorate. Like the candidates, America itself is divided by an unbridgeable chasm on the direction in which America should be going. Better that Americans choose their path with their heads rather than their hearts.

Romney and Obama disagree on almost every area of policy. More so than anything on the issues at the centre of the election: the economy and the size of the state.  A Romney administration would be one that rolled back the frontiers of government. There would be lower taxes; drastically lower spending on just about everything but the military; and a balanced budget amendment to the constitution would also be on the table. Romney has also pledged to repeal (at least part of) Obama’s healthcare reforms. Nor is the rest of the welfare-state safe. Social Security and Medicaid, the healthcare program for the poor, would see deep cuts, while Medicare, the much beloved but completely unsustainable healthcare program for the elderly would be turned into a voucher scheme.       

Unsurprisingly, Obama disagrees with all of the above. Obama has presided over a fiscal stimulus program that has seen government spending reach levels unsurpassed since the Second World War; he has bailed out the car industry; and his healthcare reforms constitute an enormous rebuff to the power of the market in favour of the power of government. Though he too wants to reduce the deficit, his plan involves higher taxes and fewer loopholes for the wealthy, and less draconian spending cuts than Romney’s. His positive program, involving modestly higher spending on education and infrastructure hardly sets the world alight. Ironically, Obama has become the candidate of continuity and gradual progress, while Romney is the candidate of radical change - though, perhaps not of hope.

In other key areas the candidates are similarly divided. Romney wants a ban on gay marriage, and abortion in almost all circumstances. Indeed, Paul Ryan, Romney’s running mate, has co-sponsored a number of anti-abortion bills in the House of Representatives. Most ominously, the appropriately nicknamed “Let Women Die” Bill, which would have allowed hospitals to refuse women abortions, even when necessary to save their lives. Another, the Ultrasound Informed Consent Act, would have required women to be given a mandatory ultrasound involving an invasive vaginal probe before allowing an abortion to take place. Obama, on the other hand, put an ended the out-dated ‘don’t ask, don’t tell’ policy on gays in the military, and, after much vacillation, came out in favour of gay marriage. He has also signed into law legislation that makes it easier for women to sue for equal pay, and his healthcare reforms mandate that birth control should be offered to women at no extra-cost.

On foreign policy, Obama has sought to build bridges with those nations that were left out in the cold during the Bush era. On taking office he ‘reset’ relations with Russia, and he has attempted to position America at a distance from Israel, while reaching out to the Arabs. Neither policy has been successful. Romney, by contrast, intends to brand China as a currency speculator on his first day in office; he is more hawkish with respect to Iran; and he has already offended much of the Arab with his comments during his recent trip to Israel. Such an aggressive approach will do even more to damage America’s international position.

Perhaps the one area of policy that the two candidates agree on is the environment and energy. Both candidates essentially propose to change little. However, this is not a position converged upon through a shared perspective on the issues, but ankle-deep agreement on one goal: to get the economy moving. In an ideal world, Obama would like to do more to encourage renewables, and curb CO2 emissions. However, over the past 5 years there has been a boom in oil and gas, which has had more to do with technology and the market than government policy. Obama is loathe to put at risk one of the few healthy sectors of the US economy through burdensome legislation and taxes. For Romney and Ryan, the issue of climate change is simply too far down their agenda to matter.

The choice, in short, is between big government and small government. This may seem nothing out of the ordinary. However, with the rise of extreme movements such as the Tea Party, the candidates’ positions have become exaggerated caricatures of those that have been put forward in recent decades, with little common ground between. Once implemented, policies like Obamacare or the voucherisation of Medicare will be costly and difficult to reverse. This election, therefore, will determine the character of the US state for decades to come.  

Thursday, 4 October 2012

Better dead than Ed

At this week’s conference, the Labour Party have tried to show that Ed Miliband can make a tolerable Prime Minister. Earlier in the week, the focus was on trying to forge a personal connection between Ed and the electorate. One of Tony Blair’s great strengths was that many people thought of him as the kind of guy they wouldn’t mind having a pint with. Even David Cameron has a certain affability, despite his privileged background. Ed’s team have been trying to make it seem as if he isn’t all that weird and blinky, after all. Thus, we have seen the release of a rare family photograph, it which Ed looks thoroughly normal, as well a video stating the fact that Ed went to a state comp. As the conference progressed, there has been an attempt to communicate an alternative vision of Britain’s future to the Tory version of more cuts and austerity, culminating in Ed’s much lauded ‘One Nation’ speech.

The effort to make Ed Miliband electable, is by no means futile – I do think it possible. His very impressive speech has certainly bought him some time. However, ultimately I think Labour’s apparent strategy will fail. First of all, compare Ed Miliband to John Prescott – there is a world of difference between them. One is a genuinely working class politician, complete with regional accent, another is patently not. Ed Miliband’s father was an academic, he wrote books that are on the reading lists of any half-decent politics degree, Ed is clearly of the bourgeoisie; even if it is that part of the bourgeoisie that Marx described as the “small section of the ruling class [that] cuts itself adrift, and joins the revolutionary class.” Highlighting the fact that Ed went to a comprehensive will not be enough to convince most ordinary people that he has much in common with them.

Another flaw with the Labour Strategy is that Ed really is weird and blinky. Ed’s conference speech showed personality and charisma, but it was a 70 minute highlight in a two year omnisnore. Ed cannot win on personality unless this one brief spell of good form becomes consistent charm. His near constant inability to achieve this was fully demonstrated in his interview with Andrew Marr on Sunday. Asked about Labour’s new favourite buzz-word, “pre-distribution”, Ed opened with a terrible joke, telling Andrew Marr, apparently sarcastically, that he “loved” the concept. As he begins explaining it, he uses the words, “I’m very clear about this…” with increasing frequency, and no corresponding increase in clarity or lucidity. Quite the opposite. Then, failing to be pinned down to a simple definition of ‘pre-distribution’, he offers an appallingly vacuous definition along the lines of, “pre-distribution is about making the economy work for ordinary people”.

This brings me to the final problem. He has no substantive vision for Britain’s future that differentiates Labour from the Tories. On the major policy issue of our age, the economy, Labour would have practically the same austerity package as the Tories. Ed’s ‘one nation’ idea is utterly meaningless without some actual policies to flesh it out with. What makes it different from the Tory claim that ‘We’re all in this together’? Perhaps there is something to be said for not coming up with policies too early. Parties frequently get hung up on pledges made years in advance that are revealed to be impractical or foolish when they come into government; think of the Tory pledge not to restructure the NHS, or the Lib Dem promise not to raise tuition fees. However, there should still be some gesturing at what the policies might look like. When Brown was Prime Minister, the Tories positioned themselves as the party of austerity as opposed to stimulus without knowing where and when they would cut. We knew that they wanted to “cut red tape”, an appallingly vague phrase that still lets it be known that some regulations will be removed, even if they cannot say which ones. The ‘One Nation’ idea does not even do this.

Ed Miliband claims that ideas matter in politics, but this is nonsense if the ideas are devoid of any content.