Cameron's almighty gamble

After the party comes the hangover. Only it’s not been a party. More to the point, it was a car crash with the fatality of Britain’s role in Europe and the post mortem is in full swing in the British press. Of course, I am talking about David Cameron’s decision to veto the Merkel-Sarkozy plan for fiscal union, something that would have led to a new European Treaty. 

There has been plenty of navel gazing in the media, mainly about whether or not Cameron’s move will damage Britain. What received less attention is the question why on earth he did it in the first place. Yet the question about his motifs is an important one. Cameron himself points out that he had to protect the City of London and its financial services from a financial tax that would have come with the treaty. Louise Cooper agrees with Cameron in the Guardian today (you can read her piece HERE). 

Yet two questions remain. First, does Cameron’s veto mean that the city is now safer than it would have been with a new treaty? And, second, was this the only reason Cameron reached for the nuclear button? 

The first claim is questionable. The rest of Europe will now come together to design new rules and regulations for financial transactions which will affect London one way or another. Remember that any future rules will apply to all banks that are based in one of the treaty member states, hence to all but Britain. Politically, protecting British banks from sensible regulations which are being applied across Europe sounds tricky to me, to say the least. Is Cameron really going to block a financial transaction tax repeatedly over the next years that has broad popular support in Britain? This does not sound like a plausible strategy for which the voters will richly reward him in 2015. 

The second question however goes to the heart of the relationship between domestic and foreign policy for Cameron’s government. If his veto will not safeguard the City from future regulations, the question arises why he used it in the first place? Critics may point to a previous decision on European affairs that was less than surefooted: his withdrawal from the Conservative party bloc in the European parliament. Some may say Cameron simply does not care much about Europe. A more likely explanation however may be that his policy is mainly determined by preventing Europe to tear his party apart. 

After all, his veto stopped a new treaty for which he would have needed to campaign in a referendum; the new treaty ‘referendum lock’ would have been triggered by any new treaty. Seen from this perspective, Cameron’s veto looks more like a desperate attempt to prevent a referendum on Europe which may have jeopardised the unity of his party. By exercising his veto he may have saved Britain an early exit from the EU, at the cost of marginalising it. 

Time will tell if this almighty gamble will come off. Some of his Eurosceptic backbenchers are already calling for re-negotiating Britain’s relationship with Europe. Some political scientists call it the law of unintended consequences in politics: you aim to do one thing yet get another. Cameron may find it just as difficult to extricate himself from this iron law in politics as any of his predecessors in Number 10. 

If a victory, then only a pyrrhic one

So David Cameron got his victory and so did the Eurosceptics in his party. While they are undoubtedly busy celebrating, Labour only managed some pipsqueaks from the sidelines. And the Liberal Democrats are practicing public loyalty to their coalition partner by exercising a stony silence on Europe. 

But this is a serious issue and we should not leave it to the Eurosceptics. If you believe the UK papers, the Euro is bagged and tagged. Yet, they are wrong. The Euro will survive because the political spirit that sustains it, European solidarity, cannot and will not go away. 

As the Eurozone countries are struggling to find the right mechanism to address the economic imbalances between them, the spectre of a Euro breakup was raising its ugly head, but it was never a plausible scenario for anyone who knows what Europe feels like on the continent. That is something many Brits forget. Europe is a feeling as much as it is a political project. And there is no politician in the Eurozone who can ultimately wrest herself free from the main thrust of the European spirit: mutual solidarity and closer integration. 

To maintain that the Euro would survive was a questionable account as long as the economic crisis made it difficult for Merkel and others to dish out enormous sums to countries like Greece, Italy, Ireland and Spain. But pay they will. And that is why the gradual but steady distancing of Britain from the European integration project amounts to nothing less than the biggest foreign policy mistake of the last decades. As Europe finds a solution to the Eurocrisis and embarks on closer integration, it will strive to reform and strengthen substantially the European institutions that can deliver fiscal oversight, the European Commission and the European Parliament. 

The result will be that Britain will fail to have a seat at the table to influence the direction of future European integration. Thatcher’s legacy, to nail the Tory colours to the mast of a trading and tariff zone, will come to haunt Cameron. Europe will go the other way, towards fuller integration and Cameron will be hostage to the veto he so courageously wielded yesterday. The uncertainty of Britain’s position in the emerging Europe of the future will mean that business and the people of Britain will suffer in the long run. Cameron may celebrate today, but his victory will turn out to be a pyrrhic one. 

Why Nadine Dorries worries me

I am worried. And I am worried about something that I never thought I would be in my lifetime. I worry that the life I have built up here in the UK rests on precarious foundations. Let me explain. I am German. I have moved to the UK in 1996 and, by all accounts, settled here successfully. I work at a university, joined a political party and will stand for council elections in May next year. That's not a bad achievement in terms of integration I think. 

However, listening to Nadine Dorries on Newsnight yesterday (you can watch her exchanges with Sir Malcolm Rifkin HERE 9:30mins into the programme) I am not so sure anymore that I made the right choice. Her comments made me feel very insecure indeed. And I never thought I would ask myself the question: do I, as a German, have a future in the UK? 

All of this of course is a result of the Eurozone crisis and the moves by France and Germany to forge a closer union. I always believed (Euro or no Euro) that closer co-operation would happen. Europe was designed to contain some parliamentary and legal components which meant that nation states gave up some of their sovereignty. Don't get me wrong: I always recognised that there are huge problems with this transfer of powers to the European Union in some areas, not least the fact that there is still no elected government of Europe but only a motley crew of bureaucrats and clapped-out national politicians who decide what we eat, consume, trade and produce. 

Yet, I was never in doubt that the way to address these problems was to engage with others in the European Union and find a way forward. Yet, if it was up to Nadine Dorries, all bets are off. As the countries in the Eurozone will grow closer together, Britain may move away from European institutions. Yet it was these institutions that, by and large, have protected my legal status in the UK. It is because of Europe that I am being treated exactly the same as any British citizen when I apply for a mortgage or a job in this country. 

I could become a civil servant in Leeds, draw a local government pension and, incidentally, if I decided to move to Germany again at the end of my working life, I could transfer my pension pot to Germany without any hitch. It is this ease with which we are moving around in Europe that is remarkable, though often unnoticed. This wouldn't be the case anymore if Britain takes a step away from Europe, adopting a position more akin to, say, Switzerland. Arranging health care, pension arrangement and applying for work visa can be a nightmare for anybody from Switzerland or any other non-EU country living in the UK. 

In a way what I am saying I think is that I never really felt like a foreigner here. Living as a German in Cardiff or Leeds felt more like being in a different part of your home country where people somehow happen to speak a language different to your own. If Nadine Dorries and the Eurosceptic wing of the Conservatives have her way, this feeling may not last. Moving away from Europe and its institutions will create uncertainty in the minds of people like me. My position, and incidentally the position of tens of thousands of expatriates living in Spain, Portugal or Italy, will become precarious. That is why I am worried.  

Why the Eurozone crisis may bring about a more democratic Europe

While everyone talks about the Eurocrisis and the economic woes of some countries in the Eurozone, the need to forge a closer fiscal union between Eurocountries may in fact bring about some much desired movement in another area as well: Europe's democratic deficit. 

Over the last decades, the democratic deficit has mainly been a topic for academics and disgruntled Eurosceptics. Yet the problem is real and has always had the potential to undermine the entire European project. As Europe grew closer together and transferred some powers to Brussels, it was never quite clear how to ensure that Brussels' bureaucrats were held to account for what they did. A result of this has been that auditors have refused to sign off the books of the European Commission for the last 13 years. This may sound like an obscure argument but it goes to the heart of budgetary responsibility and democracy. 

In effect, the European Commission has been spending taxpayers money (contributions from European nation-states) without having to say HOW it spent it. Since the European parliament is at best a 'quasselbude' (a place to chatter), the European Commission has also not been held accountable by the elected politicians we sent to Brussels. 

The overall effect is complete impunity for budgetary decisions by the European Commission and Brussels' bureaucrats. This is no small feat in the history of democracy. The European Commission must be the first quango in history that can spend taxpayers money without ever being held to account. 

This may all change now. Why? Pretty much everyone is agreed that the Eurocrisis needs closer fiscal co-operation. Part of that co-operation is supervision of fiscal rectitude in countries that run a deficit and require a bailout such as Greece, Italy, Ireland, Spain and Portugal. 

The obvious choice would be to select those to monitor budgetary responsibility of bailed out countries who pay the bill: the Germans or the IMF. Yet, this is politically impossible. No Italian or Irish government would permit German civil servants to scrutinise the national budget. It would also raise some serious questions about the accountability of those governments to their own electorate. 

The proposal that is emerging instead is that the European Commission or a newly created body in Brussels will take up this task. This brings us back to the democratic deficit. Any monitoring of national budgets in Brussels will require robust democratic legitimacy. So as European leaders muddle through the economic crisis and try to devise a reliable mechanism for budgetary discipline and independent supervision, we may just see some significant progress on creating more democratic European institutions as well. Let's keep fingers crossed, for our sake and for the sake of Europe. 

Why Michael Howard is wrong about Germany

Last night, I had the privilege to attend an event of the Welsh Conservative Party which invited the former leader of the party Michael Howard to Cardiff. Howard gave a brief but thoughtful speech in which he outlined the bleak economic future for Britain. The comments that made me listen up especially however were those when he implored the German government to take responsibility for the Euro. Paraphrasing slightly, he said Germany had benefitted enormously from the Eurozone but now it was time for the Germans to step up to the plate. 

I am always a bit puzzled by these sort of remarks that imply that German leaders have been acting irresponsibly so far. It strikes me as an odd claim to make, not least because the German government is actually a coalition government between the Christian Democrats (Conservatives) and the Free Liberals (Free market liberal party), and just approved an austerity budget which has already shown some good results. Public debt is down and with a bit of luck (the German government found another 55 billion pounds stashed away in the vaults of one of the banks it nationalised in 2008), public finances are very sound indeed. 

But what really puzzles me is when people say that Germans now need to underwrite the debt of the other Eurozone countries. Why should they? Is that something we in the UK would volunteer to do? Let's take this step by step. First, Germany has benefitted from exporting into other Eurozone countries not because of the Euro per se, but because it reformed its employment regulations under Gerhard Schroeder's government, and has introduced the necessary changes to its pension system and public services during the boom times. 

Another factor which contributes to the current competitiveness of German products is wage constraint that has been negotiated between companies and unions in 2008 at the height of the financial crisis. It is  because all Germans agreed to contribute to bearing the burden of the economic crisis together that is now paying off in increased competitiveness. These decisions were not easy and they often incurred high political costs from all political parties and sacrifices from ordinary people. Therefore, to lambast Germans for being irresponsible is a bit rich, to say the least. 

But criticising German leaders for irresponsibility is also a peculiar strategy for British politicians given that, I am convinced, no British leader would countenance the transfer of billions of pounds from the British taxpayer to the the Italian, Greek or Spanish coffers. Think about it for a moment. All you have to do is to put yourself into the shoes of Germans being asked to provide hard earned taxpayers money to prop up profligate governments which have been on a spending spree for the last decade and refused to implement the changes to their public services that are required to remain competitive in the Eurozone. 

Why should somebody working 40 hours at an Aldi till in Berlin or Hamburg pay for a Greek pensioner who retired at 50 and takes home a monthly pension she could only dream of? 

I am absolutely convinced that there will be a solution to the crisis of the Eurozone (which in fact is a debt crisis, not a currency crisis). As part of this solution, Germany will do what it takes to, which may include to approve of the ECB to buy up Italian, French or Spanish bonds. And I am also certain that, at least in part, Germans will pay for the mistakes of other countries. Their notion of European solidarity will move them eventually to bail out much of the Eurozone. But I think it is only fair to insist on some solid guarantees before you part with your hard earned cash. Michael Howard should know that. He would expect nothing less from a British government if things were the other way round. 

The only way is up?

There has been plenty of debate in the media about the economic woes of the country. Commentators warn us that living standards will continue to fall for the foreseeable future and that families struggle to make ends meet. Wages have already come down, and, more significantly, the British economy has actually shrunk since 2008 and, by 2015, is likely to be smaller than in the year 2007 by 14%. This is indeed unprecedented and means that the long upward move of Western economies has finally come to an end. 

I have described the challenges for the British economy and society as a perfect storm in a previous posting and said that what makes the present situation so explosive is that several factors are coming together: a mis-adjusted educational system that is poorly linked with training and workplace skill development; the shift of the manufacturing sector to China and other developing countries with low wages; the slow but steady rise in production costs in China for those goods that we imported since the late 1990s and that had previously ensured low prices for us, fomenting a consumer boom financed by personal and national debt that is now coming to an end. 

An interesting aspect of our recent travails however would be what historians make of it. There is little as yet in terms of a unifying narrative emerging from historical studies, but I did come across something truly amazing recently. Listen to this: 

‘The institutions [of the West] were designed and modified to meet the needs of a booming society. If this [is] true, then the whole modern age would appear to be an abnormal one. By its very nature a boom is a temporal thing, something out of the ordinary run of life, an abnormal state of affairs which is destined to end when the forces that caused it cease to operate. Though this truth is obvious, people do not bear it in mind, even in the briefest periods of unusual prosperity. They act as if the ‘good times’ are permanent, as if the abnormal activity is the normal thing. It seems that their whole psychology is quickly affected, leading them to extravagances they would not ordinarily think of indulging. In short, ideas and institutions begin to form themselves around the boom conditions; the boom itself begins to make history, institutions, ideas, to form a culture complex.’ 

This was written by Walter Prescott Webb in 1951 in his seminal study: The Great Frontier. His argument was that the West (loosely defined as West European and North American societies) had enjoyed a four hundred years boom because of the unprecedented injection of resources through the opening up landmass in America (North and South) and its subsequent colonisation. 

I do not know whether or not he is right. What I do know however is that his words are eerily resonant of the conditions we are experiencing at the moment. Perhaps we are standing at a similar junction in history when we in the UK have to learn to live with less while the people in other countries and continents are catching up. As Webb reminds us: we should never assume that the only way is up. 

Not fit for the future

In 2008, Mervyn King, the governor of the Bank of England, warned that the UK is about to enter a ‘time of decreasing living standards’. The last figures from the Office for Budget Responsibility seem to reveal the staggering extent of the disaster that is unfolding in front of our eyes: stagnating wages, missed inflation targets and high youth unemployment. Given that there are few signals in the UK and Eurozone economies indicating imminent growth, this is as close to a perfect storm as it can get. 

There are however economies in Europe that still enjoy healthy growth rates. The German economy is one of them. Having reformed the employment regulations under the Social Democrat Gerhard Schroeder, and retaining a functioning apprenticeship system which brings companies and educational institutions together, Germany has been well placed to weather the storm. In fact, it did even better than that. It enjoyed unprecedented growth rates and its unemployment figures are down again this month. So what’s wrong with the UK? 

The public debate focusses much on pay differentials between CEOs and employees in the FTSE 500 companies, a dysfunctional banking sector failing to lend to businesses and whether or not the deficit should be reduced in four or eight years. These may all be important topics for politicians slugging it out in the ring of public opinion. However, the underlying factors for growth in the long term may be found elsewhere. The deficit will come down sooner or later, regardless of whether Labour or the Conservatives’s plan will prevail. 

What is less clear is whether Britain will be ready for business once growth returns. To be ready it must tackle the deep inefficiencies that obstruct this economy from being competitive. What are those inefficiencies? There have been two large trends in the last two decades which allowed Britain to enjoy boom years but may now come haunt her. First, manufacturing has relocated to China and other developing countries ensuring that British people could consume goods at record low prices. 

This came at a price for domestic manufacturing though and it will be difficult to reverse the trend. Looking at China and labour wages there, things are moving fast: Chinese labour is becoming more expensive yet this may not mean that British labour is becoming more competitive. British wages are still much higher than Chinese wages. So, in the long run, what would get Britain back into the picture is not cheap labour but skilled labour. This leads to the second large trend in modern economies, the disappearance of low skilled jobs.

On the face of it, German manufacturing cannot compete with Chinese production facilities either. Yet, they have managed to retain their manufacturing capacity by fostering highly skilled labour forces through workplace apprenticeships paid for by companies and colleges. German educators call it the dual system of education: two weeks in a company, two weeks in college. At the end of the training, most apprentices are integrated into the workplace and familiar with work routines in a given company, a critical advantage for gaining a job. 

In Britain nothing of this sort has happened. The Blair government pushed hard to increase university attendance to 50%. Although it failed to achieve this number, the consequence was a highly educated student body with low levels of practical skills. Thanks to the expansion of university education under Blair, colleges and university put on thousands of nonsense degrees which failed to provide practical training, and led nowhere near a job. British students, with the exception of some professions, are overeducated if judged by their degrees, but have little work experience or employable skills. 

Britain may enter very choppy waters over the next years, but if it wants to re-emerge as a competitive manufacturing centre at the other end, it needs to radically reform its educational sector and the way in which companies train young people. The chasm between the educational system and companies must be bridged. Otherwise the government’s aspirations to be open for business will not ring true for thousands of young people for decades to come. 

Polly Toynbee in overdrive

Polly Toynbee is back! Presumably she just couldn't bear the bad news arriving at her posh Italian villa from the shores of these green islands and so she had to cut her holiday short to write a piece that is riddled with class war terminology.

(You can read it HERE: http://www.guardian.co.uk/commentisfree/2011/nov/29/osborne-class-war-autumn-statement)

While she clearly pleased many of her supporters on the Guardian website with her comments, the Labour Party will lose in the long term if it thinks this immoderate language serves it well. The reason why Labour should tread carefully is simple. Osborne's autumn statement set out a series of factors that makes it impossible to eliminate the budget deficit by the next election. Toynbee is furious that this means more pain for everyone. Yet, what she fails to mention is that the government's plans to balance the books are now almost identical to the one by Labour. In fact, borrowing will be even higher now than under the Darling Plan, given the difficult economic circumstances for the next couple of years.

In essence, Toynbee therefore already got what she wanted: higher borrowing which will be spent on infrastructure projects up and down the country. So, why does she think this is class warfare when it is exactly what she called for only weeks ago?

The conclusion can only be that as Labour's plans to revive the economy and the government's budget are getting more similar, Labour is running out of the ability to portray itself as radically different from the coalition. Hence the shrill sounds from Ed Balls and Toynbee. Toynbee thinks there is only one way to go now: further to the left. For the moment, Darling's plan is still Labour policy. We will see over the next couple of weeks if the Ed Miliband and his shadow chancellor stay in the middle of the road.

Individual versus collective responsibilities in health

The British Medical Association has recently proposed to ban smoking in cars. The reasoning behind this proposal is that toxic fumes reach a higher concentration in cars than anywhere else because of the confined space. This may harm children who might travel in the same car.

There has been plenty of debate on this subject since and I will add another sound of outrage or anger. Instead I would like to mention a curious anomaly that often seems to be overlooked in public health debates.

Our health system is tax funded and it is often argued that this injects an element of mutual solidarity or social responsibility into society. In effect, we fund the outcomes of other people's actions that may lead to situations where they either harm themselves or others. Still, there is widespread consensus that this is part of a minimal reciprocal commitment to strangers with whom we live together in this country.

What is interesting to note however is that the main thrust of harm prevention programmes targets activities that are rooted not in social responsibility, but individual responsibility. Public health prevention aims to reduce risky behaviour of individuals, not of societies as a whole. In other words, the impetus of prevention is rooted in an acknowledgement that conduct emerges from individual decisions, which in turn may only be curbed through individual behavioural change.

Where does this lead the reciprocal commitment that is manifested in the foundations of our health system? Does this mean there is a clash of moral principles that animate preventive programmes and those that lie at the heart of our health care system?

Our own personal greed

The debate about what caused the financial crisis seems to have been settled. Greedy bankers have gambled recklessly with our money and when the bad bets came off, the people had to bail out the financial institutions. This narrative operates with the notion that bankers are motivated solely by greed, essentially placing their actions outside the realm of normal behaviour. 

I have previously argued here that this strikes me as a highly simplistic narrative. It rests on the questionable assumption that bankers are somehow different to the normal population, engaging in high-risk conduct which no ordinary person would condone. My reservation about this account flows from the simple idea that human behaviour across populations at large and across cultures is fundamentally stable, which means that those who argue that bankers are profoundly different to ordinary human beings need to demonstrate how they came to be so different from everyone else. 

A more plausible explanation of the banking crisis may be that reckless behaviour is taking place wherever restrictions and sanctions on what is harmful to society are either vague or absent. In other words, bankers did what they did because they could. And, arguably, few of us would probably have acted differently.

There is however another dimension to the financial disaster that is rarely discussed. It is a deeply unpopular trope because it points the blame at least partially to all of us. Kieran O’Hara hints at this point in his recent book: 

‘The house price bubble, the rise and fall of credit were all engineered by bankers and financiers of course - but were only possible because very large numbers of people wished to spend money they had not earned.’ (p.255) (O’Hara: Conservatism, 2011)

This is a deeply uncomfortable truth. The desire to find better interest rates for investment, to seek out the highest return for savings or the satisfaction that many of us felt when house prices reached stellar heights, is testimony of our own personal greed. Ditto our pension funds, and how much we wanted a decent return for our monthly pension payments when we retire. 

This is of course not a narrative that you are likely to hear from politicians who are only too eager to blame bankers. Yet, the fact remains that our society has lived on borrowed means and many of us were only too happy to turn a blind eye to the reckless way in which wealth was created out of thin air. 

Better regulation of the banking sector may produce more stability for our financial system in due course, but unless we also come to value hard work again, and stop believing in ever increasing returns through financial wizardry, our society will be a mirror image of the greed in all of us. And for that there can be no regulation; only our moral code and common sense can protect us from seeking immoderate personal gains. 

Why Miliband still does not cut it

Polly Toynbee, the celebrated Guardian columnist, is off to write a book. Her contributions in the Guardian will be sourly missed, especially by Ed Miliband, the leader of the opposition. Toynbee is one of his most vocal, and increasingly few supporters in the media. 

After another shaky performance at the dispatch box this Wednesday (9 November), observers were unanimous in their criticism of the Labour leader. He is good at PMQ when he can wrongfoot Cameron with questions about intricate policy details such as how many businesses have so far been supported by the Business Support Scheme of the government. But these are easy wins. Since Cameron does not know where Milliband will go, questions about detail may temporarily show the prime minister as less informed than he should be. 

However, the public knows the rules of the game and will eventually see through this strategy of scoring with questions on minutiae of policy. What Miliband has still failed to do is to hit home on the general policy front. And how could he? The Labour Party is still stuck in an endless policy review process which so far has produced little. It leaves Miliband appearing non-committal on many issues, apart from matters emerging from the tussle of daily politics, or current affairs such as the hacking scandal, that dominate public debate and gain large media coverage for a brief period of time. 

The upshot of this narrowing of options for Miliband is that he often looks like somebody jumping on a bandwagon rather than somebody defining public debate. The opinion polls provide ample testimony for this impression of a leader tossed about by whatever daily politics throws his way. Eighteen months into the coalition government, the polls see Labour and the Conservatives within the margin of error (2 per cent). For a mid-term blues, a debt crisis at our shores and anemic growth rates, this is good news for the coalition. In other words, Miliband and the Labour Party still thoroughly fail to capitalise on the troubles of the government. 

His performance at the dispatch box does not improve his chances to be the next Labour prime minister. His body movements are awkward, often unnecessarily overwrought and displaying anxiety rather than manifesting calm and confidence. Sitting on the bench and listening to Yvette Cooper during the recent grilling of Theresa May, his demeanor was painful to watch, more akin to a 9th grader struggling to keep up with the debate. 

Much of this of course has little to do with his ability to become prime minister. Presentational issues beset other prime ministers too, such as Gordon Brown. However one cant help wondering if the way he speaks and presents himself is actually a true exposition of his inner lack of confidence, a nagging doubt he himself habours about his qualification for the most powerful job in the country. If it is, he will have to conquer his own demons very soon, or he wont make it to the other side of the chamber, with or without the help of Polly Toynbee. 

Why grand coalitions rarely deliver

As Greek and Italian politicians scramble to form new governments, many people are gasping at the unedifying spectacle of prime ministers holding on to their positions. Yet before welcoming any Greek grand coalition or an administration of ‘technocrats’ in Italy we should perhaps pause and ask ourselves whether these interim governments have a track record of delivering the radical reforms both countries need.

Germany has an interesting history of grand coalitions. The first coalition between the main parties between 1966-69 is widely believed to have been a failure. While it prepared the Social Democrats (the junior partners of the CDU) to government, it did not initiate the reforms the country needed. 

In fact, most modernising reforms in the social and economic sphere were introduced by ‘small’ coalition governments under the leadership of visionary Social Democrats, such as Willi Brandt and Gerhard Schroeder. Both sought a strong democratic mandate from the German voters and introduced reforms through ‘small’ coalition governments (with the Liberals and the Greens respectively), implementing reforms often against the own parties and, more often than not, against the Christian Democrats in the Bundestag and the Bundesrat. 

So, if grand coalitions have the combined parliamentary support of the two main parties, why does their supposedly strong mandate not translate into decisive legislative action? The reason lies in the way in which representative democracy is set up. Political parties represent sectional interest of society, their clash of interests in the chamber is supposed to produce a consensus between those, often conflicting, interests. Where governments are formed by one party, or as in Germany and the UK at the moment, by one major and one smaller party, legislative programmes can by and large be implemented without significant hurdles. The struggle of ideas moderates their stance but does not prevent them from carrying out a coherent legislative agenda.  

Where two large parties come together, the interests they represent are often diametrically opposed, for example in the reform of labour law with the conflicting interests of trade unions and employers. The result is stasis, two parties blocking each other’s reform ideas. Their viewpoint of what constitutes the best way forward are bound to be farther removed from each other between two large parties than between a large and smaller party. And their habitual opposition to the other party’s proposal does not bode well for future co-operation either. 

So what about technocratic governments, so-called administrations of experts? Is their removal from the tussle of party political life not an advantage at times of crisis? Sadly not. While governments of technocrats may have a sound notion of how to break the reform deadlock, they often lack the support to get their ideas passed by parliament. The history of the Weimar Republic is a fascinating example. 

Once political parties blocked each others legislative programme in the Reichstag, the call for a technocratic Chancellor, someone above party politics, became stronger. Yet, it quickly transpired that this only quickened to move away from parliamentary politics in the first place, since the political parties in the Reichstag had little incentive to support someone without any loyalty to their ideological principles. 

In effect, technocratic Chancellors in the last years of the Weimar Republic governed without parliamentary mandate and hastened the end of representative democracy (the ironic twist of this story is of course Hitler who had achieved a strong relative parliamentary majority in the elections of July 1932 but was not appointed Chancellor until January 1933 and another round of elections where the share of the NSDAP went down). 

So what is the way forward? There may be no clean, neat option for those who find themselves in the straightjacket of overdue economic reforms and global market dynamics. To placate the markets, technocratic governments or grand coalitions may be an interim solution, yet we should not expect them to deliver the radical reforms that are necessary in either Italy or Greece. 

Ultimately, the voters will have to go to the polls again to provide the democratic mandate for such reforms. To weaken parliaments or to silence the struggle of ideas by artificially forcing technocratic solutions on political parties will only produce the impression that democracy does not work and undermine representative democracy in the long run. 

Why market critics still have questions to answer

The protesters outside St Paul’s couldn’t be more clear: it’s the market that has ruined this country. Or, more accurately, the belief that the market dominates our lives. The charge is not new, yet the pitch of those claims has reached dizzying heights after the financial crisis and the economic downturn of 2008. 

There are two things that are conspicuously missing from the criticism of the market. One is a good analysis of what markets are for. The other, the articulation of a viable alternative. Here are some comments on how to fill this blind spot. 

Public debate often conflates free market with un-regulated market. In fact, as Hayek made clear many decades ago, these concepts are not exchangeable. The lack of regulation in the market place means nothing else but the absence of freedom. The freedom to sell and buy is conditional on the application of strict rules that allow people to chose in an un-coerced manner. Where monopolies develop and price cartels emerge, the freedom to chose is significantly curtailed. Hence a functioning market requires good regulation. A free market is only one that is effectively regulated. 

The critics of the market often think that the play of market forces gives rise to social and economic inequalities. That may be so, and it raises some important moral issues about how we mitigate the effects of the market in a modern society. What critics assume in the wake of this argument, however, is that this renders the market an unacceptable and morally repugnant vehicle to exchange goods. 

Yet this means holding the market to standards it is by no means supposed to meet. The moral aspect of markets hinges on the ability of individuals to operate freely and fairly within the regulative framework that exists at any given time and which applies to everyone without exception. It’s the potential of the market to offer a space for individual self-fulfillment and self-determination that speaks to its moral dimension. Whether this leads to unacceptable inequalities in society is a question of political import, not something for which we can find the answer in any philosophy of the market itself. 

Downscaling the expectations of what markets can and cannot do opens up a more plausible perspective on what markets are for, the aspect that the critics at St Paul’s have so far failed to address. 

Markets are not primarily means to make money or enrich some at the expense of the few. Markets are mainly the most suitable mechanism to establish the value of things in society. This is not so because everything is ‘marketable’ but because markets allow us to accumulate a myriad of pieces of information that we otherwise would not be able to obtain. This is where Hayek made his most important contribution to the debate on markets and society, something that is echoed in the thinking of even left-leaning liberals such as Surowiecki (see his book ‘The Wisdom of Crowds’). 

In effect, markets are the centre piece of a ‘discovery process’ about the needs of human beings and their ability to engage with each other in economic exchanges. In other words, markets function as a mechanism to aggregate knowledge about those human needs and wants and transmit this knowledge to the producers of goods. Since knowledge about human wants is highly fragmented in society, no central authority can effectively gather this information on a national scale, although we certainly have tried hard to achieve this in the past through nationalisation of industries and economic planning. 

And it is here that the protesters outside St Paul’s still have to develop a viable alternative to markets. If they want to jettison the market as a mechanism revealing human preferences and the value of goods through a free and fair exchange, they need to explain what is to take its place. What has previously been a main candidate for this, a dirigist planned socialist economy is not an option anymore. Some hard thinking is in order on their part. 

The real cost of welfare

A couple of weeks ago, John Humphrey's investigated the 'Future State of Welfare' for the BBC. You can find his report  HERE .

He went back to Splott in Cardiff, where he was raised, to listen to the people who have been out of work for years or have never had work. His report is balanced, instructive and eye-opening. While the people who are unemployed get the chance to tell their side of the story in the documentary, listening to them evoked feelings of pity and despair in me. 

Curiously, what was absent from their views was the damage unemployment causes to themselves and their offspring. While they were very vocal in asking for higher benefits and adamant that they would never work as long as they only get a minimum wage, they seemed to reflect little on the fact that being unemployed placed them outside the mainstream of society in many respects with the attendant consequences. 

The debate on social rights has taken a wrong turn somewhere, to the extent that some of the interviewees in the programme were clear that they have a right to be unemployed which we would have to respect. This idea is a strange one. Rights entail obligations. So if there is a right to chose worklessness then there must be an obligation on somebody else to finance this unemployment. The people Humphreys interviewed were clear that everyone else had to support them. 

But what about right of the rest of society to decide whether or not we should carry this obligation in the first place? In effect, what has taken hold in the public debate, and is neatly reflected in the responses of those unemployed mothers and fathers Humphreys spoke to, is a culture of claims made against society coupled with impunity for their own actions. In their view their 'choice' to remain out of work does not entail any consequences for themselves. They are convinced that those who decide to work day in and out (and sometimes for the minimum wage!) have to shoulder the responsibility, not just for their own choice, but also for the choice of the others who are unemployed. 

Yet, this topsy-turvy view of personal responsibilities is not all there is in this confused worldview. What is often less commented on is the damage to their own lives they cause by remaining on benefits. Effectively they are condemning themselves to life without any occupational pension, old age poverty and increased chances of mental health problems. 

Arguably, no one can refuse to observe the main standards of society without detrimental effects to their psychological well being. It is this disregard for their own lives that provides the strongest argument for the radical shakeup of the benefits culture in our society. The people who are damaged most by continuous worklessness are the people who chose to settle into a life of idleness. In a sense, eerily similar to how we treat drug addicts, we may have to save them from themselves. 

What charity can achieve...

This sounds like an amazing project. I stumbled over it on the web... I thought I should share it on here!

Sparrowschools

Axel

Democracy or protest?

For the last couple of days, there have been several hundred people camping outside St Paul's in London. They have made life very difficult for the Church of England which is not quite sure whether it should support them or seek an eviction order to have them removed from the steps of the Cathedral. 

Yesterday, the Church decided to cave in and join the protesters. It withdrew its support for an eviction notice that was sought by the Corporation of London and subsequently, the Corporation ditched the idea too. This means the camp is to stay for the foreseeable future. 

I fully support the right to protest. After all, I grew up in a country that did not allow these sort of demonstrations. So it is only right and proper that we should carefully balance the rights of protesters with public order issues and, if in doubt come down on the side of demonstrators who exercise their freedom to public assembly and protest. 

Today, however, the Archbishop of Canterbury did something that went beyond tolerating the protesters outside the Cathedral. He said he supported the so-called 'Robin Hood' tax, a tax that was mooted by the German and French government to be levied on every transaction taking place on the stock exchange. 

This strikes me as odd in several ways. Remember the outcry in the media and from left-leaning commentators when the government introduced some bills that were not in the party election manifestos? The fundamentals of democracy were at stake we were told. The government had no mandate to introduce these bills because the electorate had not voted on them in May 2010. 

Now, here is what puzzles me with the Archbishop's suggestion. He says that we should listen to the campaigners outside St Paul's. Yet I do not remember voting for them, nor do I think they have stood for elections and have obtained a mandate from the British electorate. As many commentators on the left of the political spectrum correctly remarked months ago: This is a question that goes to the heart of British democracy. Who has a mandate to make policy? 

The Occupy London camp claims that it speaks for everyone but the 1% super rich in the country. How do they know? So far, they have not produced a list of their demands. I am at a loss of whether or not they even have my support since I do not know what they stand for. Yet, they seem to think that they have 99% support in society, a claim by the way that is eerily reminiscent of the election results of the country in which I grew up where people could NOT camp outside churches. 

So, why should government listen to a few hundred people camped out on the pavement in London? The simple answer is: it should not. The right to protest is a right to make your voice heard. This is not the same as the right to make decisions on behalf of an elected government. 

The Occupy London protest makes an important contribution to the public debate, yet it should stop claiming that it represents 99% of the British people. Chances are it does nothing of this sort, and even if its (yet unknown) demands chime with the sentiments of the majority of people in this country, the protesters have no mandate to govern. Mandates have to be obtained in democratic elections. If we fiddle with this principle, we may as well outsource policy making to Speaker's Corner and every fruitcake can have a go. 

On the poverty of anti-capitalist imagination

Europe is in turmoil. The financial system is close to collapse and the watchwords are solidarity, anti-capitalism and greed. You could be forgiven to think that this is a scenario written by Marx and his followers. Yet, the default position of every politician in East and West is repair and reform, not revolution. Why? What happened to the convictions of the left? Where are the radical plans for the social and political transformation of our societies? 

The most striking aspect of the deep political, economic and social convulsions across Europe and America is the almost complete absence of communist, socialist and leftist voices in the debate about how to change our societies for the better. To be clear, there are many who are bearing the anti-capitalist banner. The anger and disillusion with capitalism is real and palpable. Yet prick those anti-capitalist discussions and the hot air escapes instantly, deflating the big balloon of anti-capitalist rhetoric. There is not a single serious proposal for social, economic and political re-structuring that has not been either already adopted by the moderate centre ground (banking reform; taxes) or is itself a beacon of moderation (pension reforms in the public sector). 

What happened to the great ideological struggles, the antagonistic clashes of the past? And where are the socialist blueprints of Jerusalem? After the election of Tony Blair, many commentators complained that the main political parties had become less tribal, crowding together in the centre ground. Has the population followed suit? Are we becoming more moderate in our political convictions? 

There are several factors that may have contributed to the slow death of socialism as a radical political transformative force in developed countries. The first is welfare and the increase in wealth. As a greater section of society becomes better off, those who only have to loose their shackles (Marx) become fewer. The most vocal supporters and campaigners for a left cause are now sons and daughters of the middle and upper middle classes, and you cant help feeling that their convictions have more to do with youthful rebellion against their parents than with their familiarity of the Marxist analysis of the accumulation of capital. 

Another important factor is the decline of labour struggles as manufacturing, and the friction that comes with employment issues, has been exported to China and the emerging economies. In its wake Western societies have become far more adept at developing mechanisms for resolving labour conflicts, while governments have also largely accepted that the spill over effect of prolonged labour disputes into the economy should be avoided. This tempers everyone’s taste for fights on the streets. 

The most important factor however may be something else: a widespread acceptance that communism does not work, a lesson learned across Europe as the legacy of Post-Communist Revolutions makes itself felt. You only have to visit Lithuania, Estonia or Poland to see the remarkable transformations of those societies that have toiled for decades under communism. They are the striking examples of how communism worked under a false premise: that making everyone more equal economically also meant that everyone was better off. Under communism all these countries faced an enormous amount of problems: economic, social, political, and environmental. What killed ‘real existing socialism’ in the end was the inability to change. 

That’s why socialism is so absent from our debates on how to change societies today. Socialism has no answers to the most important question for the survival of any society: how to maintain change. It is essentially a doctrine of stasis, simultaneously failing to demonstrate a path to a better society and, once established, how to keep it alive through constant reform. 

Marx was deeply hostile to the idea of reform and change. He fought many of his philosophical struggles against those who developed a blueprint for gradual change of capitalist society. This lack of thinking about change became the achilles heel of communism. Only radical and sudden revolutions could bring about communism, and once established, there were no plans to evolve in the face of difficulties. It was a recipe for ossification. 

Hence socialist and communist proposals on how to deal with the current crisis are absent. The idea that we simply throw out anything we know and start with a blank sheet on Monday has lost its appeal long time ago. Those who blame capitalism for the latest crisis know this and therefore their shouts for anti-capitalist solutions never advance beyond those words. Regret it or not, he highpoints of our debate on solving the current crisis are provided by Red Tories and Blue Labour philosophers. We have lost a radical critique of capitalism but perhaps we are the better for it. 

How Fox News made me love the BBC

I love watching the news and political features and when it comes to news providers, I am all for diversity and choice. Having recently installed a Sky dish I noticed that I have added to the menu of news programmes. Sky feeds in CNN and Fox News! Pure bliss! So I thought. 

While most CNN programmes are often bordering on the soporific, and I quickly tired of seeing repeatedly the same ad of another Thai holiday resort, I finally gave Fox News a try. 

Now, before you say it: I am keenly aware of its reputation, but I also think it is a good thing to judge for yourself and so I tuned in as an analyst was talking about Mitt Romney, the Republican candidate for the presidency. His comments were balanced, sounded scrupulously fair and his conclusion, that Romney stood a better chance against Obama than the Texan governor Perry, was probably spot on. No mention of Romney's Mormon faith or his health reform in Massachusetts which are highly controversial on the right side of the Republican Party, let alone the Tea Party movement. So far so good!

This was a promising start; there were no obviously tendentious comments and it seemed Romney got fair deal. Cynics may point out that selecting Romney by the Republican Party may just suit the proprietor of Fox News (Rupert Murdoch) given that Romney appeals to some moderate Democrats. He may just defeat Obama in November next year. 

Be that as it may, the programme made me skeptical of all the high strung criticism of Fox News and I decided to stick with it for the evening. Coming up next was a feature on why the US pays development aid to China. This was topical. We have a similar debate here in Britain about the restructuring of aid to countries like Russia, Pakistan and India. So again, this was something I was interested in and I put the kettle on while an sheer endless number of flashy graphics swished across the screen advertising other Fox News programmes. 

Returning just in time with my tea and settling down in front of the telly I looked forward to learn more about the debate in the US on development aid to countries that had a trade surplus with the US. The programme started with a still picture of a Chinese street with lots of red lanterns and an off screen voice talking about the extent of the trade surplus of China with the US (25 billion US dollar in 2010) and the amount of development aid spent in China (about 275 million US dollar per annum). It then cut to a clip of some poor Washington bureaucrat who said something along the lines that China still had pockets of immense poverty. The feature then showed a house representative who denounced the aid to China without really saying anything else. 

So far, the feature had lasted about 3 or 4 minutes and I thought the analysis of these positions would start imminently. Sipping on my tea, my hopes were still high as a guy with a funny hairpiece suddenly appeared on the telly and shouted: 'Why are we giving aid to China? It's stupidity!'. Apparently afraid the audience may not have understood this fairly straightforward remark he felt compelled to repeat it: 'It's stupidity, nothing else!' he barked. I was slightly taken aback, not knowing what to make of this guy who had appeared from nowhere. Not least I was afraid for his hairpiece which seemed to move precariously as he got increasingly agitated. 

The programme cut to an advert on diapers and I was left stunned in front of my TV not sure what to make of it, when, in between baby pooh and happy cats in cat food adverts it finally dawned on me that this was it! This had been the feature on US aid to China. No half an hour in depth analysis of a political or social issue, no Panorama style detailed investigation, just a guy with a hairpiece shouting at his audience: 'It's stupidity! That's what it is!' 

In case you wanted to know, I have now cancelled my Sky subscription and went back to another provider. I hope this will save me from stumbling over another Fox News feature or anything similar. For now, I think I stick with the good old BBC; in fact, if need be I take my cheque for the license fee personally down to the post office, if it keeps me and this country from the mad men at Fox News passing themselves off as journalists. 

Newsnight anyone? 

Why higher taxes wont help the poor

About two weeks ago Dave and Angela Dawes from Cambridgeshire won the lottery. The final amount they bagged was more than 101 million pound sterling. It made them one of the richest couples in the UK. It certainly, in case you wondered, put them into the top 1% of people who are called by the protesters outside St Paul’s the ‘filthy rich’. 

When asked about what they would do with the money Dave Dawes, a Chelsea fan, mentioned that they may buy a house near the Chelsea football ground. Chances are that, once they have spent their win, or invested it somewhere, they will not have gained entry to what Pareto long time ago called ‘the elite’. As they may or may not find out, to get access to power, money is in fact of little consequence. 

Presumably, that is not what the protesters outside St Paul’s think. Their anger is firmly targeted at the inequality that comes with income. We have been here before. In 1974 the Labour government under Harold Wilson identified the root cause of all social injustice: personal riches. It took to tax everyone into oblivion. The top rate of income tax reached the dizzying height of 83% with a marginal top rate of personal income tax of 98% including investments. 

While this meant that government expanded exponentially, income redistribution to the poorest in society (in the age before tax credits) did not improve. In fact social mobility was affected very little. The main beneficiaries were people in the middle income bracket who gained big pay rises and generous pension settlements through their employment in the public sector. 

What is so puzzling about the obsession of the ‘Occupy London’ campaign with money is that taxes as a primary mechanism to transform society have long failed to show any results. Income inequality may be bad or good for society, taxing the super rich however does not tilt the balance of power in favour of the poor. 

Marx knew a thing or two about this. He had very little interest in money as such; the cause of power imbalances, so he argued, was ownership of means of production. In our times, you may call this access to resources, educational, economic and social. They’re the things that make a difference to your chances in life as you grow up, and the record of any UK government, Labour or Tory, is pretty bad at transforming the life chances of the bottom rank. 

Top schools and universities in the UK are still fiendishly out of reach for ordinary people, social networking amongst the country’s elite still significantly contributes to the chances you have in landing a plum job in the city or in government, and with the banking sector ever more reluctant to lend money, establishing a business (still the most important route out of poverty) is near impossible. 

So where does that leave the ‘Occupy London’ campaign? Their ignorance of the Marxist critique of capitalism is mind-boggling. Marx was full of disdain for ‘re-distributive policies’. He clearly saw that any preoccupation with income and taxes is likely to fail to make any significant dent in the distribution of economic, social and political power. And he was also (famously) critical of any moral case for re-distribution of income. Taxing the ‘rich’ may conspicuously be in line with our immediate sentiments of equality, yet, he was convinced,  it would leave the fundamental iniquities in place. So whether or not the ‘Occupy London’ campaign will be successful in making the case for more taxes, chances are it wont change a thing for the bottom 1 per cent of this country.