The Financial Times on Tuesday [23 June] had an extensive analysis of British public spending. This will soon account for almost half of the UK economy, matching war time levels and that period when ‘socialism’ controlled the ‘commanding heights’ of the economy.
It notes that the general trend in politics is to seek ways to shrink the state but that there is much room for conflict on what should be cut and what protected. 20% of the population now works for the Government directly or indirectly, 6m directly.
Public spending and the consequent role of the State is the central ideological battleground emerging out of the recent crisis. There are too many variations on this theme to cover fully in this posting.
But the dawning realisation is that New Labour’s version of the market economy has, by stealth, constructed a national economy that relies on high levels of economic growth to transfer resources disproportionately to the public sector, often with minimal economic and skewed social justification.
Fault Lines
The sudden ending of the motor behind public sector purchasing power with the credit crunch and a somewhat passive redistribution model, skewed by its nature towards the retention of power by a surprisingly small element in society, has exposed some worrying fault-lines in the wider system.
- The last decade has seen a dependency culture in which a less-than-efficient state structure sustains a significant proportion of the middle classes as well as active service workers.
- A commitment to high growth strategies has skewed policy heavily towards encouraging low cost labour inputs (in essence, migration) that needs to be serviced.
- The increasingly authoritarian tendencies of New Labour (necessary, it would seem, to maintain a simulacrum of control over an unstable system) comes up hard against the libertarian instincts of the Southern English.
The bloc vote created by high public spending (not only direct employees but consultants and providers of services to the public sector) in itself creates an electoral drag on any attempts to reform the inefficiencies in the publicly-funded parts of the economy.
Similarly, the high growth commitment to encouraging migration makes demands on the use of the public sector that diminishes the number and quality of services to those indigenous Britons who are not safely ensconced within it: hence the move to the right in the recent elections.
The New Labour model is, as we have often pointed out, held together by an alliance of special interests.
The political faction at its head, the trades unions and the non-Southern English regions were combined by Blair with middle class voters who appreciated the market economy orientation during the boom times.
This might have expected to solidify its hold by winning over migrants (with full voting rights) and anyone indirectly dependent on public spending, a good proportion of the middle classes, notably in London and the South-East, but also central to its hold on the regions.
The Threat To Assumptions
The fiscal crisis now threatens this whole system. If economic growth is not fuelling taxation revenue and if authoritarian measures cannot squeeze more taxation out of the upper middle classes to feed the maw, then the strains begin to show.
If the market-based middle classes are drifting away from New Labour, who is to replace them? Are there sufficient migrants and voters dependent on the public purse, a sort of mega-payroll vote, to do this? If not, where will the strains begin to show first? ....
- Choices over spending cuts means choices over who in the political alliance will gain or lose.
- The unemployable unskilled indigenous working class who voted BNP are not the only ones competing with incoming labour.
- Those in the southern middle classes (the goose that lays the golden egg) who are not safely set up within the public sector are seeing job insecurity, loss of final pension schemes, negative equity and the prospect of increased taxation.
- Investments in the next stage of economic development (mostly related to transport and energy distribution) are triggering troublesome alliances between locally affected middle classes and increasingly active eco-anarchists.
- Within a weakened New Labour, ‘progressives’ are demanding (against all economic sense) more public spending.
It looks like some of the older elements in the coalition (especially those in some regions and those in the industrial trades unions who depend on manufacturing capacity in defence and automotive) are going to suffer most. It is vital for New Labour that this pain is felt after they have voted and not before.
As for migrant effects, the single market is permitting import of European skilled labour as much as unskilled labour so that the BNP and the wildcat strikes are two sides of the same coin.
The wildcat strikes at power stations and other sites are still spreading while talks continue to try and resolve the central dispute at the Lindsey oil refinery. Even if this particular crisis is resolved, they are only the tip of an iceberg of ‘ressentiment’.
As for the private sector middle classes, they see public service workers better protected than they are and by their taxes. They increasingly distrust the Conservatives as any better and are moving not to the libertarian centre-left (Liberal Democrats) but to the libertarian right (UKIP).
And as for dissent against economic growth, initially small-scale, these revolts now have considerable potential for expensive civil order problems if conditions worsen.
Meanwhile, within the ruling party, restoring the universal social provision dimensions of the Labour Movement could remove the ‘baksheesh’ from the middle classes element in the alliance and redirect it back to the working class. Middle England is in no mood for this …
The Authoritarian Impulse
New Labour was always riddled with ‘internal contradictions’. Unless it develops a new strategy for power (extremely unlikely under the current leadership), it has only two options in the run-up to the next election:
- a return to at least the simulacrum of rapid economic growth (so that it can make the hard choices from 2010 rather than the Conservatives);
- an assertion of authoritarianism – or both.
This latter is already under way, directed at the BNP and the eco-anarchists. The war on the BNP continues with an attempt to apply the Race Relations Act to its ‘whites only’ membership policy and with hints of a preparedness to suppress it forcibly under certain circumstances.
The holding for four days without charge of four activists at the Kingsnorth site, simply for attempting to identify a police officer, indicates the lengths to which the Government is prepared to go in collusion with industrial interests.
In short, the Government appears to be panicking quite early in the game about two still-marginal threats. But the instinct of New Labour is often authoritarian. We only have to think of the reactions of Reid, Straw, Blunkett and Harman when faced by new threats or by behaviours that they do not like.
Will we see a dangerous combination of an aggressive Government with low legitimacy using Parliament and the security apparatus (including police) to maintain order in a way that might split the country with serious civil order consequences as conditions in the street worsen?
The Bank Stands Up To Be Counted
This brings us to the most important recent development – one at the very centre of economic policy. This is the reported breakdown of trust between the Governor of the Bank of England and the Treasury.
Mervyn King complained openly to Parliament that he had not been adequately consulted on regulatory reform. The lack of consultation on regulatory reform must be seen in a wider context.
The situation is serious because of the Governor’s underlying concern: that the Government was borrowing ‘extraordinary’ and ‘enormous’ amounts that must be reduced faster than the Government is planning.
The Government is trying to hold its coalition together for less than a year in order to get four or five more years of power. It is doing this by borrowing in the market to maintain the illusion, to more intellectually challenged or lazy voters dependent on the goose, that the day of reckoning will not come.
The Bank of England (assuming the need to keep to certain basic rules in a liberal capitalist economy that is embedded in the international system) is only doing its job. It is Becket to Henry, a turbulent priest speaking truth unto kings.
The point is that politicians like to gamble. Central bankers do not. The New Labour government is betting the house, perhaps our houses, that, Micawberish, something will turn up, perhaps a US recovery or some other ‘deus ex machina’.
New Labour is becoming a threat not only to itself (as a viable expression of the centre-left) but possibly to the nation as its essential obsession with the holding of power is placed ahead of the needs of the country.
A short term drive for office could work but it might only be returned on a minority of the total vote to face the need to cut public spending and raise taxes in ways that will create serious discontent within its own base and a detachment from Parliamentary politics of its more extreme opponents.
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Friday 26 June 2009 at 12:11