Saturday, 20 November 2010

Why Old Young Had To Go

Former Thatcherite, Lord Young has gone just weeks after being appointed as personal advisor by David Cameron. Its not been a good week for Cameron. Having come in telling us that they were going to clean up politics, and how they were going to reduce waste in the Government, Cameron was not only found to have had his own personal photographer put on the State's payroll, but it turned out that around 80 Tory advisers had also been put on the State payroll.

The revelation over the photographer provided the political pundits with ample ammunition. Every day Andrew Neill in his BBC “Daily Politics” programme, and in his weekly “This Week” programme, managed to mention it. Even before Lord Young went, Cameron's photographer was taken off the State payroll. On one occasion Neill asked the question, “Shouldn't he have been advised by the Civil Service not to have put his photographer on the State payroll?” Well, of course, perhaps he was, but under conditions where Cameron and his Government are taking an axe to that very Civil Service, and challenging its traditional power, it would not be surprising if they failed to mention it. After all the last few months have seen a series of similarly poorly advised, and briefed Ministers, and a string of similarly rushed decisions and policy announcements that have seen Ministers red faced, and forced into retractions and revisions – See: A Bit Of A Pickle.

Cameron's decision to dump Young, and his obvious displeasure, is a sign of just how weak the Government is. It is based on a very narrow and shaky foundation. Fundamental to it is its narrative about the condition of the economy, and why it is having to make the Cuts. The real reason Young had to go was because he contradicted that narrative. On BBC's “Newsnight”, a journalist from the Spectator let it slip just how much that is the case. Before the Budget, he said, Tory Whips, had gathered MP's together to stress how important it was that they were not seen to be jubilant about the Cuts that would be announced, and how important it was to play up the severity of the crisis flowing from the deficit. That confirms what we were told by another section of the right-wing media in the statement from Sky News Deputy Political Editor, Joey Jones, about his conversation with David Laws, who also had to stand down from his Government job after just a couple of weeks! Jones says that Laws told him that, even at the time of the Coalition negotiations, the Liberals position was still that the best time to begin implementing Cuts was in the Spring of 2011, when the economy should have been recovering. Also confirming the point I have been making that the Cuts agenda was driven by political posturing rather than any actual need to make the Cuts, Laws is reported as saying that the “rhetoric on deficit reduction had been “hyped up”, that "it wasn’t as important as all that”. See:Liberal Economy With The Truth.

The real truth is that there is a crisis, but it is not a crisis resulting from the Deficit. On the contrary, the deficit is merely a symptom of that crisis. The real crisis is one of a structural nature, of a misallocation of Capital, resulting in a series of disproportions. If that misallocation of Capital – that is not specific to just the UK, but is at the heart of the crisis in the US, and of Europe – were corrected via a restructuring of Capital away from where it is over-accumulated in Retail, and other unproductive sectors, and into high-value added, high profit areas, then those disproportions, of which the deficit is merely a manifestation, would disappear.

In fact, as I showed in my post UK Debt The Facts, the two previous, obvious peaks for the ratio of debt to GDP also coincide with similar periods of restructuring. The ratio rose steadily after 1700, as the UK began to revolutionise agriculture, and to industrialise. It reached a peak in 1800 of more than 250%, which dwarfs today's figure, and then gradually reduces as the industrialisation and restructuring of the economy away from agriculture it had financed, results in rapid growth. A similar picture can be seen for the second period of restructuring that occurred after WWII. Although, part of the increase up to 1950 is clearly due to the spending on the War, the fact that it does not peak until 1950, shows that this was not the whole reason. On the contrary, it is the borrowing that was done to cover the costs of creating the NHS, of nationalising the core industries of Coal, Steel and Transport that the economy needed, and which required massive levels of investment and restructuring that explains that continued rise, and it is the restructuring itself which enabled the growth of the 1950's to proceed, which explains why the figure drops dramatically during that period despite continued increased spending on the NHS and welfare, and reduced levels of taxation.

A similar picture can be seen during the 1990's in respect of the so called Asian Tigers. From the 1980's onwards, they engaged in huge levels of borrowing, which financed their economic restructuring, and Capital Accumulation. By the late 1990's that borrowing could only continue to be financed, if the high levels of exports, and low interest rates continued. But, by the late 90's, attempts were being made in the West to increase interest rates, and there were limits to how much even the US could consume. Typical of this stage of the Long Wave, there was a debt blow-off in these new dynamic economies – the Russian Rouble crisis, and the Asian Currency Crisis. But, it was a quickly resolved crisis, and once it was over, those economies were able to grow, and not only cover their debt, but to accumulate huge levels of saving.

If the deficit really were the problem, the root of the crisis, which is the Liberal-Tory narrative, and which certain sections of the Left, every ready to see a Capitalism in permanent crisis, echo, were true, then the basis of the Tories programme would be more soundly based. It would indeed, be in the interests of Big Capital, but it isn't. The real nature of the Tories programme is that of a right-wing populism whose aim was to build a coalition of electoral support sufficient to get elected, and which could by its nature only be built around a narrative consistent with the views of the Tory rank and file, and its representation within the wider population. It is like its equivalent in the US of which one right-wing US commentator wrote:

“The bigger hurdle may be stereotypes. Business's sensible drive to get Uncle Sam to take on more of the health burden will run into the nihilistic (but potent) "big government" rhetoric of the GOP--plus the party's delusion that we can keep federal taxes at 17% to 18% of GDP as the boomers retire. If Republican pols want to help Republican CEOs solve their biggest problems, this caricature of a political philosophy will have to give way to something more grown-up.”

Matt Miller in Fortune

Young's crime was not particularly that his comments were crass as Labour spokesmen have claimed, and certainly not that they were factually incorrect, because as a number of examinations have shown, what he said was actually correct, but that it contradicted that very narrative, which is the only thing which the Government's position stands on. How can the Liberal-Tories persist with a narrative based upon how much Labour had destroyed the economy, and how much that meant that they had to ride in to save the day, and to savagely Cut, when here is one of their advisers saying well actually, the recession wasn't that bad. And, of course, although the narrative is repeatedly that the recession was the worst since WWII, the reality for anyone who actually experienced the 1980's, is clearly that it was not. Taken singly as a discrete period of economic activity then yes, statistically, that might be true. But, the reality is that it lasted no longer than a normal recession, probably slightly less, and the reality of the 1980's and 90's was precisely that it was a period of repeated crises and recessions one after the other, and coming after a period of low growth and stagflation in the 1970's. And, although it is undoubtedly true that a significant section of the population have been hit hard by the recession, Young's comment that large numbers of people with mortgages – which given that around two-thirds of the population are owner-occupiers is an even more significant number – benefited considerably due to the slashing of mortgage rates is absolutely true. In fact, I set out some of those facts myself some time ago Aftershock. Labour politicians will undoubtedly want to maximise the Tories embarrassment, but they should be careful. After all, their narrative has also been that the recession was not as bad as it might have been because of the actions they took. And, of course, that is true. Nearly every pundit had declared that unemployment was going to exceed 3 million and so on. In fact, it only just exceeded 2.5 million.

The reality is that Young had to be slapped down, because the Liberal-Tories have to re-write history to make the recession seem worse than it was, partly to justify their current position, and partly to cover themselves for how bad things might become if they continue with their current policies.


frolix22 said...

Interesting blog. On the final point about unemployment, I think we should be careful not to downplay the significance of having 2.5 million people out of work (and many, many more underemployed).

Firstly, with the spending cuts and public sector job losses still to bite it is entirely possible that unemployment will start to rise again next year.

Secondly, one of the neo-liberal era's greatest propaganda triumphs has been to increase society's acceptance of unemployment to the point where the levels of unemployment we have now barely register in the national media when in the past they would have been a national scandal. I recall a conversation I had earlier this year when the person I was talking to said he was worried there might be mass unemployment ahead. I had to point out to him that we have mass unemployment right now, it is just that large sections of the population have been anaesthetised to it.

Boffy said...

I accept your point. There is though a considerable difference between the 2.5 million unemployed during the recession, and the anticipation it was going to be much more. There is also a difference between that and the approximately 5 million that were unemployed during the 1980's. Even during the full employment of the 1960's there was around 600,000 unemployed out of a much smaller workforce.

The unemployment figure is always a bit dicy, because what is really relevant is the figure for long-term unemployment. As Hobsbawm says even of the 1930's the average period of unemployment was only a few months, but in areas like the North-east not only was the actual rate higher, but the duration was much longer. Even quite high rates of unemployment can be compatible with a dynamic economy, and relative prosperity, because what it reflects is a mobility of labour, people moving from one job to another with short periods of unemployment in between. In the 1960's that was quite common, as people looked for more money.

I agree entirely about the prospect of unemployment rising asa result of the Cuts. That's why the Tories need to re-write history about how bad the recession under Labour was. I also think its necesary to understand that also Young was not actually wrong in soemthing else he said, which is that even after the Cuts the figures for the Public sector will only be back to those for 2007. If we want to emphasise how bad cutting 1/2 million jobs is, (and we should)then conversely the left should have been jubilant about the fact that New Labour icnreased Public Sector jobs by nearly 2 million! If we want to comaplain about 25% cuts in spending, (and we should) then we ought to balance that by a reflection on the fact that New labour trebled expenditure on the NHS, and increased other spending hugely. To me this is an indication of how fraught it is to limit yourself to just looking at how much a Government spends on the Public Sector rather than asking the questions about who benefits from it, what was it really for.

I actually wouldn't describe current levels as being "mass" unemployment. I'd say they do in Spain for example, where its 20% and 40% for youth. But, as I wrote the other day, if the current policies continue we could well get there quickly.