Monday, 20 November 2017

The Nature of the Political Firm

A theme of Corey Robin's analysis of the conservative tradition is the relationship between the older conception of aristocratic virtue and the newer idea of value arising from judgement in the marketplace. Though the latter crystallises in the late 19th century with the substitution of subjective preference for objective labour as the source of value, Robin shows that its roots lay in the reaction to the French Revolution, notably in Edmund Burke's tentative search for a philosophical justification for the virtue of capitalists as a replacement for the discredited virtue of the ancien regime, a search that put him at odds with Smith, Ricardo and Marx, but which connects him beyond the Marginalists to Friedrich Hayek and the contemporary vulgate of entrepreneurs and "wealth creators". A further link in this chain is Friedrich Nietzsche's equivalence of esteem and value, which both emphasised the idea of personal judgement and restored the importance of rank: the esteem of the superior sort creating a superior value (there's a lot of Nietzsche in Google's Page Rank algorithm). The point that Robin makes in his study of conservatism after 1789 is that it responded to modernity "by turning the market into the realm of great politics and morals", and that it was inching towards this long before the emergence of the Austrian School.

Robin's basic premise is that modern conservatism remains an essentially reactionary movement that seeks to preserve private hierarchies against democracy. It employs both aristocratic virtue (e.g. constitutionalism) and rabid populism (e.g. Trump), despite the inherent antagonism of the two. In practice, the attempt to reconcile elite virtue with the market as a mechanism for determining value has led to an increasingly narrow definition of the virtuous elite as the merely wealthy - i.e. those who have been rewarded by the market - hence the contemporary contempt for "elites" not founded on wealth, such as democratically-elected politicians and professionally-credentialed scientists. An obvious problem for conservatism is the lack of virtue displayed by the modern rich, which is evident not just in disquiet over predatory business practices and tax avoidance, but in the personal "unworthiness" of Donald Trump and the "sociopathic" behaviour of Mark Zuckerberg. Though these critiques are loudly voiced by liberals, they are essentially a conservative demand that rank should reflect conventional ideals of virtue (not unrelatedly, much of the liberal abhorrence of Russia arises from what is seen as Putin's presumption and the vulgarity of his oligarchic supporters).

Friedrich Hayek's importance to the conservative tradition is often reduced to an instrumental borrowing of his defence of markets and the price mechanism, which takes at face value his claim to be a classical liberal rather than a conservative. Though Hayek saw the market as the ultimate arbiter of knowledge, he also believed (as a good neoliberal) that the market was made, and specifically through the guidance of the wealthy as an avant-garde of taste. But while Hayek thought that the rich had to drive society forward through their daring and experimentation, he wasn't a fan of the self-made man, let alone the "disruptor" (Schumpeter's creative destroyer, in older terms). Rather he advocated an aristocracy that benefited from elite education and the productive idleness enabled by freedom from material want: "The grosser pleasures in which the newly rich often indulge have usually no attraction for those who have inherited wealth" (insert your own Trump joke here). Hayek seems to have missed the partial democratisation of taste over the course of the twentieth century: the wealthy may have pioneered the mobile phone, but they didn't pioneer jeans. Contra Hayek, there isn't a single avant-garde and taste is a field of contest not consensus. In his top-down view of taste, Hayek echoes Burke's ideal of a contract between the generations - i.e. the importance of inheritance to values as much as to property.

In this light, Robin's updating of his seminal work The Reactionary Mind to include Trump (the first edition concluded with Sarah Palin) is interesting because of the emphasis he appears to place on the dichotomy of traditional political virtue and the value of the market (I'm judging from press articles as the new edition paperback won't be out until the New Year and the hardback is nearly £50 - that's the market for you). Robin sees Trump as a product of the market realm whose attitude presents a challenge to the more aristocratic tradition of political virtue (that The Donald was criticised as a would-be monarch by the Republican Party's Whig nobility rather supports this view), though he also notes the destabilising scepticism that Trump has himself displayed about the operation of the market, which is clearly part of his populist appeal: "So he is on the one hand very legible as a kind of great man of the economy, but on the other hand he also can be very skeptical of that tradition, and is constantly exposing it as a fraud and a deception. That really is at the heart of what makes Donald Trump new and innovative within the conservative movement and the Republican Party". Trump may not be a complicated man, but he is a political paradox.

In a blog post, Robin maps Trump onto another revealing dichotomy: "In his classic article 'The Nature of the Firm' ... the economist R.H. Coase divides the economic world into two modes of action: deal-making, which happens between firms, and giving orders, which happens within firms ... When it comes to wielding power in the political sphere - I'm not talking about executive orders, of which Trump has issued many, and which are a sign of his weakness, not his strength; I'm talking about exercising power that requires the assent and cooperation of other political actors - he's completely out of his league. There's a reason for that: the conception of power he has - such as it is and however bad he is at it - is drawn from the Coasian world of the firm". This is true, but it also highlights that Trump is a product of inherited wealth more than business school. His corporate experience has been characterised by fealty and whim, hence his ease with mobsters and his attractiveness to small business owners everywhere. He has bullied politicians and threatened bankers ("too big to fail" was a feature of New York real estate long before financial services). He has rarely had to persuade employees or shareholders beyond bluster. Revealingly, he entered national politics as a "birther" (questioning Obama's legitimacy) and has gone out of his way to appoint family members to key positions on the basis of little more than birthright. He may be yahoo in liberal eyes, but in his own mind he is an aristocrat.

Robin sees this dichotomy - the reduction of politics to giving orders and making deals - as another example of neoliberalism's colonisation of politics with economic modes of reason. That is certainly plausible if we think of the operation of politics within the domestic sphere (Coase obviously influenced the discourse of privatisation and the extension of transactional management to the public sector), however there is a dimension of politics in which the Coasian dichotomy is perhaps more legitimate, rather than simply an ideological imposition, and that is the distinction between internal and external sovereignty: who ultimately decides and what compromises must be made with other states. While the former has become symbolically both more demotic and economic during the democratic era (think of the prominence of the household budget trope today), the latter has retained an aristocratic tone, however squalid the reality of foreign affairs. This has thrown Trump's more vulgar approach - ranting about unfair competition and promising "great deals" rather than diplomacy - into sharper relief and encouraged the hyperbolic accusations of a lack of competence and integrity.

The distinction between internal and external sovereignty is a fundamental attribute of all organisations, which might make it seem a rather banal observation, but it also allows us to think of politics in terms of transaction costs, which is particularly relevant to the current Brexit negotiations because those centre on the redrawing of the boundary between the two realms. In Coase's conception, a firm will take on the overhead of dealing with an external supplier when the cost of doing so is lower than the cost of making provision inhouse - i.e. when outsourcing is cheaper than insourcing. Rather than a federal superstate or a bureaucratic imposition, the EU can be thought of as a series of outsourcing arrangements, from the regulation of medicines to the control of borders. The separate cases for joining the Common Market and quitting the European Union that bookended our membership focused on the benefits of trade, but the reality was a reform of the scope of the state (which was misleadingly interpreted by europhiles as an attack on internal sovereignty) and choices about what was and was not a "core competence" of "UK Plc". This rational (if often covert) discourse has now been replaced with irrational theatre.

In Coasian terms, what recent months have shown is that UK government ministers aren't very good at doing deals, even allowing for the unhelpful barracking of the Brexit ultras and the Tory press. Where their ability to secure an external deal has been constrained by circumstance, that has often been the consequence of the self-defeating issue of orders internally, such as the premature invocation of Article 50 and the calling of a general election. But this seems all the more baffling when you consider just how successful the UK was in doing deals with the rest of the EU over the last 40 years, from the famous rebate to exemption from the euro and the Schengen Agreement. To put this in terms of the conservative tradition described by Corey Robin, if the US is led by an instinctive aristocrat who lacks aristocratic virtue (a Hayekian without taste), the UK is plagued by inadequate Nietzscheans, such as Boris Johnson and Michael Gove: monsters of self-esteem who can barely hide their contempt for the herd and have only a dilettantish understanding of matters "economicky". If the UK really is a firm, then we have the wrong management team.

Sunday, 12 November 2017

Norn Irony

It is becoming increasingly clear that the crunch-time of the Brexit negotiations is fast approaching and it looks like Northern Ireland will be the sticking-point. While the ultras loudly demand that we refuse to pay Brussels a penny, we know that we have to settle the bill and it is only money at the end of the day (in the spirit of the Bullingdon Club, perhaps we should just chuck cash at the EU to secure a prompt exit). A figure can be agreed, even if it requires some creative accounting for PR purposes. Similarly, the issue of citizens' rights can be resolved. The EU has long fudged freedom of movement in practice, the irony being that the UK's failure to take advantage of various restrictions and derogations helped give the misleading impression of an inviolable principle. But the one issue on which the EU is likely to remain implacable is Northern Ireland, which raises a further irony in that leave voters' demand to "take back control" was directed towards Calais not Dundalk. The reason for the EU27's insistence that the six counties be treated as an exception is its determination to protect not only the interests of a member state, the Republic, but the interests of those citizens of the North who will, care of the Good Friday Agreement (GFA), remain citizens of the EU after the UK leaves.

Some Brexiteers have taken to characterising the EU27's attitude to the UK as comparable to the EU's attitude towards Greece in 2015. Leaving aside the UK's support for that attitude at the time, and the enormous difference in economic and political muscle between the two countries, this misses the key point that a majority of Greece's citizens did not want to leave the EU and would have considered such an eventuality to be an even greater calamity than the debt crisis and the subsequent austerity. That's why Tsipras and Syriza buckled. It occasioned little coverage in the UK, but the EU's stance towards Greece was not the cartoon image of a punitive, occupying power, or even of an emotionally obtuse parent disciplining an errant child, but of a supra-national culture that believed it was protecting the interests of its own people (the honest burghers) within Greece, not just in Northern Europe. The cultural gulf that has appeared in British life these last 18 months has too often been attributed to the nostalgia of leavers, but the europhilia of remainers has been equally responsible. We shouldn't be surprised to find that continental Europeans are no less "loyalist" in respect of the ideal of the EU than Britain's army of Jolyons, and that this entails a perceived duty of care to those in Northern Ireland who will continue to be legally as well as emotionally committed to the EU (I doubt Arlene Foster & co appreciate the irony of this).

To emphasise the point, protecting the rights of Irish passport holders who are natives of the North is not the same as guaranteeing the rights of EU citizens who have chosen to live in the UK but have not been naturalised. The latter can be addressed by the ceding of limited rights, which is fundamentally no different to the existing grant of rights to foreigners, such as the protection of property from arbitrary seizure by the state. Ironically, the obvious precedent here is the reciprocal rights agreed between the UK and Ireland, notably the Common Travel Area and the provisions of the 1949 Ireland Act. But these were rights that addressed citizens of the Republic as an exception within the UK. They did not recognise the exceptional status of citizens in the North who under the terms of the GFA chose to become Irish nationals and will thus remain citizens of the EU regardless of the UK's status. This right of nationality was always recognised by the Republic but the UK (unlike Ulster unionists) chose to downplay the associated claim to territorial sovereignty. When that claim was explicitly retired by referendum in 1998, the quid pro quo was the right of any native of the North to become a citizen of the South: the "recognition of both identities". This may well have only been achievable within the context of the European Union and the dismantling of the visible border.

The focus of the British debate on the status of Northern Ireland has centred on trade and the risk of recreating a "hard border". While this is clearly important, it means that the UK's political establishment has largely neglected the more emotional dimension of national identity and sovereignty, which ironically echoes the tactical error of the remain campaign in the run-up to the EU referendum in 2016. The EU27 have been clear from the outset that the onus is on the UK to propose solutions in respect of Northern Ireland. To date, this has not advanced beyond the sci-fi of a supposedly frictionless, high-tech border system, while the challenge that Brexit presents to the equal recognition of identities enshrined by the GFA (to which the EU considers itself a co-guarantor) has been ignored beyond anodynes. This has now led to Leo Varadkar floating the idea of a possible exceptional status for the North, which has predictably allowed David Davis to refuse to "compromise the integrity of the UK". In other words, frustration has got the better of the Republic, allowing Brexiteers to mount the high horse of sovereignty. That the UK has long been happy to compromise its constitutional and legal integrity in respect of the Channel Islands and the Isle of Man is another irony that escapes the government.

That the Irish have made this move (together with their subsequent blunt indication about being "stubborn") suggests a belief among the EU27 that the UK has no intention of presenting any sort of credible plan in respect of Northern Ireland, presumably in the hope that the issue can be parked while trade negotiations get underway. This looks naive, not to mention dismissive and patronising in a manner familiar to many Europeans from prior engagements. The Brexit ultras are still insisisting that the EU needs us more than we need them and that as a result the 27 will come to the table to agree a trade deal that benefits all parties. This goes beyond naive to delusional. The EU's objective is not to secure an improvement in trade terms for anyone but to preserve the benefits of continuing member states. This isn't that difficult to achieve in respect of 26 of those states, which is why the EU isn't rushing the negotiations - it knows it has the leverage of access to the Single Market (a British initiative, ironically) and specifically the City of London's passporting rights. The one area where the EU is vulnerable is the economic integration of the Republic with Northern Ireland, hence the preference for the latter to remain within the Customs Union and ideally the Single Market. Unless this is resolved, there is unlikely to be substantive movement on trade talks, even if that has negative consequences for the economy of the Republic and other EU states.

I've previously mentioned the confusion over the nature of sovereignty that marked the British debate in the run-up to the EU referendum, which largely arises from the peculiarities of the constitution of the United Kingdom. Ireland is an acute example of the problem, combining major concessions in external sovereignty (those reciprocal rights as much as the GFA) with a formal commitment to internal sovereignty (now brought blinking into the light of day by the Tory deal with the DUP) that does its best to ignore those concessions. The obvious contradictions could be finessed within the framework of the EU, but that cover will shortly disappear and there is plenty of evidence that the DUP intends to approach the negotiations as a zero-sum game: internal sovereignty must not only trump external sovereignty, but the one must flourish at the expense of the other. It has been clear for months that the DUP's insistence that there won't be a hard border is insincere at best and a deliberate tactic of obstruction at worst. Though it will cost it the support of some in the Protestant community, the party calculates that "all true unionists" will rally to the flag and thus buttress its support at a time when Sinn Fein has been inching ahead.

Brexit offers the DUP the prospect of unionist electoral consolidation (the UUP are on their last legs), a reaffirmation of British support for the preservation of the six counties as an inalienable component of the UK (which reverses the commitment to a potential united Ireland agreed under the GFA), and a clear dividing line of economic self-interest once a hard border reorients the economy further towards the mainland or (with a bit of luck) beyond the EU. In reality, consigning the UUP to history won't change the secular demographic drift of the North towards the South. I also expect the British commitment to the future of the province to be lukewarm at best. While the media loons are often dyed-in-the-wool unionists, many British leave voters consider Ulster to be foreign and would be happy to be shot of it (many remain voters have been reconciled to Irish unification, within the framework of the EU, for two decades). The reorientation of the economy is unlikely to be a success unless Britain thrives at a rate well in excess of the EU. Given the current indicators (the UK sluggish, the EU picking up) and the probability that uncertainty over Brexit will undermine near-term investment, this seems an unlikely outcome.

If Brexit founders on the issue of Northern Ireland then the ultras and the DUP will find common cause in blaming the EU27 generally and the Republic of Ireland specifically. A hard border will then become not merely a regrettable consequence but a political inevitability. This will almost certainly lead to a revival of militant Republicanism in the border areas. The DUP will cynically hope that this either splits the nationalist camp electorally or prompts the IRA into "disciplining" operations that can be used to taint Sinn Fein. As such, this is a return to the strategies of old, indicating the degree to which the DUP is trapped within the laager of its own historic mentality. Ironically, the party's temperamental unsuitability for government (its incompetence as much as its negativity) has been offset by its critical contribution to the preservation of a Tory administration at Westminster. The final irony is that Theresa May's decision to seek a "strong and stable" mandate has made her beholden to the DUP, which may turn out to be the one condition that precludes an even half-way tolerable Brexit.

Saturday, 4 November 2017

We've Been Here Before

We're a quarter of the way into the Premier League season and Arsenal find themselves in 5th, the position where they ended last season - their lowest finish since 1996 and the brief tenure of Bruce Rioch. This might appear rather ho-hum, but the club's oscillations have been anything other than predictable, which at least offers a sliver of hope ahead of our trip to the Etihad Stadium to challenge the runaway league leaders, Manchester City, whom we trail by 9 points. The pre-match focus is inevitably on the two sides attacking tridents - Sanchez, Lacazette and Ozil versus Sterling, Sané and Aguero (or possibly Jesus or Silva) - so I'm going to predict a 1-0 Arsenal win through an 89th minute Koscielny header. Recent matches between the two sides have tended to be close. The last six league games have seen three draws, two Arsenal wins and just the one City victory. When you add the FA Cup semi-final last season to the mix, there is no reason to dread the trip, but common sense (and that 9-point gap) suggests that City are a markedly stronger outift today than they have been for a while.

A poignant part of this weekend's build-up was the coincidental news that Santi Cazorla's long-term injury was a lot more serious than realised, and may yet prove to be career-ending. Having been the man-of-the-match as a deep-lying playmaker when we last won at the Etihad, in January 2015, Cazorla has taken on an almost mythical status among Arsenal fans as the missing piece of the midfield jigsaw. His absence certainly hasn't helped the development of his erstwhile sidekick Francis Coquelin, who produced a notably poor performance as the B team qualified for the knockout stage of the Europa League with an uninspired draw against Red Star Belgrade on Thursday. While the novelty of that competition has quickly worn off, there's realistic hope that we might progress further in the knockout rounds than we've managed in the Champions League of late. We're nothing if not an accomplished cup side now and the likelihood that we won't meet either Bayern Munich or Barcelona must be a plus. It would certainly be funny if we won the competition with a cavalier rush after the attritional approach that Mourinho's Manure adopted last year.

There are many similarities between City and Arsenal, from the employment of a more mobile three-pronged attack to the use of wing-backs (I suspect our acquisition of Kolasinac will prove more astute than City's purchase of Walker), though this may simply result in them cancelling out each other on Sunday. The game may well turn on defensive errors, which both teams are capable of, or an individual moment of skill. Both will want a quick goal so the early stages could be frenetic. Beyond the confines of the match, I suspect that the more Pep Guardiola encourages City to play fast and open, the more cautious and closed the other Manchester team will become. This is less because Jose Mourinho is negative, though he is, than because of his egotistical need to be different. At Real Madrid he was able to exploit the talents of a number of individuals at their peak to achieve this end, creating a team that bested Barcelona without looking remotely like the blaugrana (much as Simeone achieved with Atletico), but at United he is faced with a squad that has few good players at the optimum stage in their careers, namely in the 25-28 range, other than De Gea. They're on their way to a very good squad, but they need a couple of years and some better defenders.

Spurs remain every journalist's favourite team, as they have been since the 1960s. Not only do they have the greatest striker in the world (TM), but apparently drafting Harry Winks into the England squad will guarantee World Cup glory. My personal suspicion is that last season is as good as it is going to get for them. While Pochettino deserves the plaudits for his transformation of a mid-table team into title challengers, it's worth bearing in mind that his teams can only play in one way, which means they have a limited shelf-life at the top end of the table where reinvention is constant. Once the opposition are more familiar with Spurs' system and personnel, they will become easier to nullify. Manure's recent victory was notable less for Mourinho parking the bus or the absence of Harry Kane than for the predictability of the play. Beating an ageing Real Madrid doesn't suggest that they're about to discover a plan B, though it might suggest that Dele Alli is consciously auditioning for a move. The first North London derby, in a fortnight's time, is unlikely to be conclusive at this early stage of the season, but it may well say as much about Tottenham's limitations as Arsenal's stability (if Kolasinac thumps the winner, he will have achieved legend status in record time).

Chelsea and Liverpool continue to be entertaining in their different ways, and while I find it hard to believe that either will mount a serious title challenge, a late rush for the line isn't beyond the bounds of the possible. Antonio Conte might narrow his eyes, go hardcore disciplinarian and get some consistency back, or he might just give up and start planning a return to his family in Italy. Jurgen Klopp's hope of steadying the ship at Anfield appears as forlorn as ever, though this doesn't appear to bother the fans or the club hierarchy that much, both of whom seem to have given the manager a free pass because of his rueful grins (this won't last forever). If I had my way, I'd get the two clubs to organise an exchange. The touchline histrionics wouldn't be that different, but I suspect the Liverpool squad would appreciate a focus on defence while Chelski's players might respond more positively to "heavy metal football". Viewed in historical terms, this would actually be a reversion to both clubs traditions from the 60s and 70s, which would certainly be popular in the stands.

With 19 points from 10 league games, we're on course for our usual total somewhere in the 70s. We've had the habitual balls-up (Liverpool away) and the failures to turn up (Stoke and Watford away), while our home form has been immaculate. There's no way of telling how this is going to pan out, but somewhere between 3rd and 6th looks like the realistic target range, though it would only take a good winning run including victories over a couple of other top sides to put us on the brink of something better. I'm quietly optimistic because I don't think we've seen the best of this team yet, and while departures are likely at the end of the season if not before, that very fact (along with the predictability of next season under Wenger) might ease some of the anxiety that has affected the squad at times. Lacazette looks like a player who will get better, while an injury-free Ramsey looks like he might be on an upswing in his form. The defence may (fingers crossed) settle down and stop shipping goals so freely, while the freedom afforded Bellerin and Kolasinac is starting to pay dividends. If we can coax swansongs out of Sanchez and Ozil, we might still have a chance of further silverware. And if all else fails, we can always bring on Eddie Nketiah.

Sunday, 29 October 2017

Universal Basic Services

While the libertarian advocacy of universal basic income (UBI) tends to have a distinct whiff of bad faith about it, centred as it is on the dismantling of the state and the invigorating effects of self-reliance, the social democratic response has generally been argued in good faith, with an emphasis on social inclusion and the broadening of opportunity. However, this shouldn't blind us to the extent to which that response has been influenced by neoliberal ideology. Hard on the heels of the recent LSE paper that cast a sceptical eye over the relationship of UBI and social democracy comes a proposal from the UCL Institute for Global Prosperity that seeks to reconcile the two in the form of universal basic services (UBS). The idea is essentially an expansion of the welfare state (an "extension of the NHS principle") instead of a cash handout: "The UK should provide citizens with free housing, food, transport and IT to counter the threat of worsening inequality and job insecurity posed by technological advances". The appeal to the NHS indicates that this is a proposal concerned as much with political credibility as practicality (there are aspects of the NHS that you really wouldn't want to replicate), while the linked spectres of inequality and technology are insubstantial gestures towards the zeitgeist. It should be stated at the outset that housing and food would only be provided to the poorest in society, meaning that the truly universal element of the proposal is mainly bus passes, broadband and the TV licence.

UBS isn't just Spirit of '45 revivalism, as the inclusion of IT should indicate, though what it drops is as significant as what it adds. For example, further investment in education, the great hope of the Blair years, is dismissed on the grounds of diminishing returns and a recognition that the benefits to date were disproportionately captured by London and the South East. Another interesting omission is any reference to greater maternity or childcare support, suggesting the secular push of women into the labour market is no longer considered an unalloyed good. Though this isn't a return to 50s-style labourism, the patriarchal overtones of UBS compared to UBI are worth noting. While the LSE authors worried that UBI might reinforce traditional gender roles, essentially by providing wages for housework, they underplayed the possibility that a reliable income might encourage greater female independence and even household breakup (which is not necessarily a bad thing, either from the perspective of the individual or the labour supply). A UBS, by substituting household goods for cash, might have the opposite effect, which would presumably please Blue Labour types for whom family stability is synonymous with social cohesion.

The paper talks of the threat of technology to employment yet places great emphasis both on the social importance of work and the need for the tax system to make "previously marginal work viable", suggesting that it envisages a continued rise in employment. It is not clear how the "System would preserve incentives to work while building a more cohesive society" in the face of either technological unemployment or continuing job polarisation, though this is partly because the proposal does not analyse either development beyond the anodyne. While it recognises the paradox that increased automation has occurred alongside record levels of job creation, it provides no interpretation beyond the hypotheses of a transitional lag or displacement of labour into low-wage work. Were unemployment to rise, one possibility is that UBS could be combined with a job guarantee, though the mechanics of this would be complicated if rent-free social housing was available to only some of the unemployed. Should employment stay high but precarity and low wages increase, UBS might simply serve as an "in kind" extension to existing tax credits, thereby subsidising crap jobs. The latter seems more likely. Tellingly, the proposal suggests that UBS would help deliver "a more flexible labour market", without stopping to question what the drive for such flexibility over the last 30 years has actually produced (i.e. precarity and polarisation). This indicates the extent to which contemporary social democracy has absorbed neoliberal shibboleths.

The discussion paper by Jonathan Portes that provides the substantive backing to the proposal includes a number of liberal tropes, from the greater political acceptability of "necessities" (which echoes the myth of the fairness of wartime rationing) to the equalisation of capabilities (which echoes the 1980s approach to welfare economics championed by Amartya Sen). Central to this liberal tradition, which connects Beveridge to Blair, is the idea of rights and responsibilities. Consider the parenthetical aside in the following: "UBS – particularly if conditional on contribution or citizenship – is aligned more closely with public attitudes to citizens' rights and responsibilities, and hence are more likely to be politically sustainable over the medium term". This may well be true as a reflection of the grip of ideology, but it doesn't lessen the jarring contradiction of a supposedly universal system being conditional. It also ignores the tendency for those "necessities" to be downgraded (the poor don't deserve flat-screen TVs etc), which is likely to keep the principle of "less eligibility" central to discussion of universal basic services. The method of funding UBS - a reduction in the personal allowance from £11,500 to £4,300 - is progressive, but it will also create a conflict of interest with relatively low-paid workers who do not expect to fully benefit, such as stereotypical white-van drivers who never use buses and prefer Sky to the BBC.

Indicating another departure from historical social democracy, the proposal frets about incentives, using the language of the "benefits trap" critique that was pioneered in the 1960s by the anti-welfare right: "Common to both UBS and UBI is the idea that minimum wage levels denigrate and crowd out a multitude of small activities that are the foundation of prosperous and sustainable human society, by raising the lower limit on any activity that delivers less monetary value. Basic Services, on the other hand, actually deliver on the promise of a common floor to the standard of life of any citizen, replacing living costs for those that use the services, and increasing retained pay. This lowers the limit on marginal activities, making all kinds of small work worthwhile". The clumsy wording points to fuzzy thinking. The premise is that pro-social work is discouraged by a minimum wage, though no evidence is provided to support this "idea". The implication is that both a UBI and UBS would allow minimum wage rates to be reduced or even abolished as marginal pay would largely be retained rather than clawed-back through tax-credits or reduced benefits. This is arguably true of a UBI, but it is less obviously the case for a UBS where some goods are targeted. If most low-paid workers continue to have to pay rent, we'll still need a minimum wage.

The proposed model is a mixture of universal services, targeted services and a small supplementary basic income. The universal services are focused on communication (broadband, a basic phone and the TV licence) and transport (primarily buses but also Tube and light rail where relevant). The targeted services are rent-free social housing for 1.5m households (including a utilities allowance and zero council tax) and food support for 2.2m households. The former presumes the building of 1.5m new homes while the latter assumes that charitable food-banks would be largely replaced. The paper envisages that the services "might be provided publicly, by private companies, or by the voluntary sector", which tells us little. It's possible that the infrastructure of the communication services would be nationalised, perhaps by folding BT Openreach into an expanded public corporation with the BBC, but most of the application-layer services are likely to remain within the private sector. Likewise, the bus companies might be generally brought back into public ownership, mirroring the successful model of Transport for London, not least because this would accommodate the need to expand services to hitherto less profitable routes to satisfy the reasonable demand for equality of provision.

The obvious danger in the revival of social housing as a service for the poorest, rather than a truly common offering for all social classes (as originally envisaged by Aneurin Bevan), is that the new properties will be seen as "sink estates" from day one, regardless of their build quality or the calibre of the tenants. Unless maintenance costs are ring-fenced, future pressure for council spending cuts is likely to turn the myth into a reality. A better strategy would be for councils to build a lot more than 1.5m new properties (ideally two to three times that number) and then simply vary rents based on household circumstances. In other words, a property might be charged at a standard rent for someone in work and at zero rent for someone who is temporarily unemployed, thus flipping the housing benefit dynamic to one in which a charge is waived rather than money handed over to a landlord. Of course this would significantly increase supply (and encourage housing benefit claimants to quit private rentals), leading to at least a stagnation in house purchase price and private rent growth. This might be healthy in the long-term, but it will be unpopular in the short-term with homeowners.

The supplementary income - a mini UBI - would be £20 a week. This is expected to provide flexibility for citizens with needs outside the scope of basic services and existing benefits, though the odds must be that it will simply disappear into routine living costs rather than providing the basis for building a fund. It is too small to have the beneficial effects suggested by proponents of a full UBI, such as the ability to turn down crap jobs or commit to further education. The cash would be offset by increased tax on the employed and reductions in child benefit, JSA, pensions and disability payments for others. In theory it still represents a net gain as UBS removes the cost of certain basic services, such as a phone or TV licence, that have to be met out of benefits or income today. Of course this cost isn't equivalent in all cases, because of individual variation in service usage. Pensioners, many of whom already get free buses and the TV licence, will benefit less than the young, which may well be fair but isn't likely to be politically popular. I suspect this is one area that may be vulnerable to further refinement, to the point that the mini UBI will simply turn into a means-tested credit, as obscure in its rationale as NIC thresholds.

People tend to be both in favour of the collective provision of public goods and sceptical about the collective provision of welfare. This is why the NHS is popular while attitudes towards social insurance continue to harden. The distinction appears to reflect different perceptions about free-riding. The NHS is thought to be generally fair, hence the power of the myth of "health tourism" as an affront to the principle of entitlement. Sympathy for benefit claimants is grudging, but once a claim is judged legitimate there is an expectation of fair-dealing by the state, hence the disgust at the Universal Credit 6-week lag, which strikes most people as punitive. Parallel to this is a related perception of efficiency and value for public money, hence rail renationalisation is seen as sensible while the "principle" of Universal Credit (all benefits combined into one) remains persuasive even as the evidence mounts that it is impractical. In this environment, advocating increased public goods would appear to make more political sense than advocating "free money", so UBS looks like a more achievable goal than UBI. In practice, it may prove to be more problematic because it demands just as much of an intellectual victory to secure support, but also requires a degree of state activism that is likely to be resisted by vested interests, from transport firms to the BBC. A key selling-point of UBI is personal autonomy. £20 a week pocket-money sends an altogether different message.

Sunday, 22 October 2017

Revolutions in Economic and Political Thinking

Are we in a revolutionary phase, comparable to 1979? Or, to put it another way, does the "surprising" success of Corbyn suggest a turn in the economic and political tides? The assumption that there was a paradigm-shift in the late-70s between Keynesian demand-management and neoliberal (or "market liberal") thinking in economics is dubious. This is not only because there is often more continuity than change in a revolution, but because Keynesianism has been mischaracterised as the quintessence of social democracy rather than just a variety of technocratic liberalism. As Simon Wren-Lewis has noted, the changes in macroeconomic theory were largely methodological, with the policy shift being driven by politics rather than economics, not just in the willingness to allow unemployment to tame inflation but in a conscious revision of the role of the state. Despite its claims to be a theory of society, postwar social democracy was essentially a pragmatic of government, hence it proved intellectually vulnerable to a challenge that questioned the state's role. In the words of Avner Offer, "Social democracy and market liberalism offered different solutions to the same problem: how to provide for life-cycle dependency. Social democracy makes lateral transfers from producers to dependents by means of progressive taxation. Market liberalism uses financial markets to transfer financial entitlement over time".

This suggests that a compositional change occured between public and private sectors starting in the 1980s, but in practice the state has barely shrunk in size, with the notable exception (more striking in the UK than elsewhere) of a retreat from mass housebuilding. The key difference between classical liberalism and neoliberalism is that the latter is constructivist: it believes that markets have to be built and (crucially) actively maintained by an enlightened state. While there are differences between the varieties of market liberalism (the Austrian School, the Chicago School and the Ordoliberals), what they all share is this belief in the necessity of the state. This is not just the resigned acceptance of historical contingency or a compromise with the complex demands of modernity. Though neoliberalism appears to hark back to Locke's Two Treatises of Government, it is equally informed by Hobbes' Leviathan and the ideal of a sovereign. For neoliberals, the sovereign exists to create the market system, which is an admission that, over-and-above petty trading, markets are artificial, not natural and spontaneous. An implication of this is that the justification for any market must be utilitarian - i.e. one of effectiveness and efficiency.

The current "crisis of capitalism" in British political rhetoric has arisen because the neoliberal approach - universal marketisation - has failed to deliver the goods, not because millennials have lost faith in market mechanisms or private ownership tout court. In that light, not much has changed over the years. The public has always been sceptical about the universal applicability of markets, most obviously in areas such as the NHS and railways, even while it paid lip-service to market principles more generally. Consider for example the persistence of the "contributory principle" in the popular conception of the welfare state, leading to the erroneous belief that National Insurance contributions go into a fund for later drawdown, rather than current expenditure being met by current revenue: a lateral transfer treated as if it were an intertemporal market. Or bear in mind that prescription charges were introduced in the NHS as early as 1952. In other words, the clean theoretical distinction outlined by Offer was always muddier in practice, while the serial break between social democracy and neoliberalism masked considerable continuity.

The key change that occurred around 1979 was in the assumption about whom the state should primarily seek to satisfy. Despite right-to-buy and relaxations on household credit, this constituency was not the "aspirational" population at large but business leaders who had been concerned by declining profits from the 1960s onwards (a result of increased global competition and relative under-investment by UK capital in the postwar years). If the Butskellite consensus meant the government trying to balance the competing demands of capital and labour in the 1950s, Macmillan's application to join the EEC and Wilson's commitment to the "white heat of technology" suggested a desire to transcend this binary in the 60s, with an appeal to trade and innovation respectively. The failure to progress either would lead the state to opt decisively for the interests of capital in the 1970s, provisionally under Heath and then irrevocably under Thatcher. However, this commitment was still seen in terms of the efficiency of industrial production, rather than promoting the interests of rentiers, and would continue in that rhetorical vein with Thatcher's "let managers manage" mantra and the cult of the entrepreneur that would be adopted as enthusiastically by New Labour as by the Tories.

It seems obvious now, post-2008, but a significant number of those "business leaders" were bankers and other financial intermediaries, rather than the productive managers and wealth-creators restrained by dinosaur unions that the media portrayed. The loosening of credit and other financial controls that started in 1971, together with the US abandonment of the Bretton Woods exchange system, marked the point at which social democracy started to cede political control to neoliberalism (you could also make a case for the emblematic importance in the UK of the privatisations of Lunn Poly and Thomas Cook). Thatcher's further financial deregulation and the full-on monetarist experiment of the early-80s were the culmination of a process that had started a decade earlier with the Bank of England's first steps away from qualitative control towards quantitative, market-oriented monetary policies. Jim Callaghan's conference speech in 1976 ("We used to think that you could spend your way out of a recession") was an acknowledgment of the strategic implications of this change for fiscal policy, even though it was presented in terms of a tactical response to inflation. His famous words from 1979 - "You know there are times, perhaps once every thirty years, when there is a sea-change in politics" - described an apparently mysterious and sudden process that he had played a major part in preparing over many years.

Far from being a sea-change, the election of the first Thatcher administration marked the culmination of an intellectual struggle that had started in the 1950s following the 1949 devaluation of Sterling. While most histories of neoliberalism now point to 1968 as the year when it gained intellectual momentum, reflecting a growing scepticism about the state and grand political narratives and an appetite for personal liberation, you could argue that the pivotal year in Britain was 1956 when Suez ended any lingering delusions about the UK as a global power and obliged it to turn its attention to Europe (it was also the year of Anthony Crosland's The Future of Socialism, which pointed Labour towards the social market economy and "soft" neoliberalism). There are clear echoes in current politics of those earlier years, not just in the imperial nostalgia of the right and the fetishisation of trade and innovation, but in the Labour Party's oscillation between internationalism and isolationism and the pervading sense of a governmental system that is out of touch and lacking in self-confidence (and no, that isn't just down to the trauma of Brexit). Such antique echoes are not necessarily a bad sign: the original meaning of "revolution" was the revival of an earlier, better state, and the theme of lost liberties restored was central to revolutions from 1642 through 1789 to 1989.

The persistence of neoliberal hegemony after 2008 does not mean that neoliberalism is in rude ideological health. After all, social democracy managed to limp on after 1971 and arguably didn't give up the ghost until the late-80s, but there is less certainty now about what is waiting in the wings. Neoliberalism had the benefit of a well-organised network of policy entrepreneurs (the "thought collective", as Philip Mirowski puts it) operating from the 1940s onwards, which meant it could present a plausible and long-honed argument when social democracy was felt to be inadequate in the face of the stagflation of the 70s. In contrast, the alternative visions emanating from the political left in recent years have tended to be tonal, such as the communitarianism of Blue Labour or the "networked worker" of post-capitalism, with policy substance largely limited to social democracy's greatest hits: socialised assets, market interventions, universal services etc. But the absence of any "neo" element, like neoliberalism's volte-face on the utility of the state, doesn't invalidate the social democratic programme or suggest a refusal to engage with the modern world. "Socialism with an iPad" may be a risible slogan, but it highlights that socialism was always more comfortable with modernity than classical liberalism was.

Both social democracy and neoliberalism were responses to the inherent contradictions of classical liberalism and the failures they gave rise to, notably the need for a protective state to mitigate the socially destructive impact of markets and the demands of total war that required the socialisation of capital. Social democracy was the more organic and pragmatic response, seeking to adopt elements of socialism within a liberal framework that preserved property rights - e.g. the pursuit of "public ownership" through state control served as a prophylactic against workers' control. Neoliberalism was always a more coherent theoretical response, which has paradoxically allowed it to live on in academic and media discourse long after its headline claims - that wealth trickles down, that the private sector is always more efficient, that deregulation spurs beneficial innovation - have lost credibility by their failure in practice. We can therefore expect a revived social democracy to try and salvage certain features of neoliberal theory, and it is in that light that much of the "new thinking" on the left should be seen. For example, Hayek's idea of dispersed and fragmentary knowledge can be spotted in postcapitalist musings on dynamic networks and interstitial emergence, while Gary Becker's ideas on human capital inform contemporary left thinking on autonomy and self-actualisation.

Likewise we can expect conservative interpretations of social democracy to push back beyond the Attlee years to connect with an older liberal tradition. For example, this (from before the Stoke Central by-election in February) is typical: "Labour needs to return to 'its roots in a kind of moral and civic critique of the excesses of capitalism'. This was the core thrust of Merrie England, and the original spirit of a Labour party that had its roots in religion, not Marxism. But during the 20th century, the 'ethical tradition' faded as the parliamentary party became more pragmatic and managerial, while the left pursued the more confrontational Marxist route of class struggle" (Robert Blatchford's Merrie England of 1893 popularised William Morris's romantic criticism of capitalism). Corbynism, insofar as it can be so styled, has exhibited the organic and pragmatic instincts of classic social democracy, but to date it has also carefully avoided both the Scylla of nativist nostalgia and the Charybdis of "market confidence". If it does lead to a significant shift in British politics, this may well centre on its attitude to personal wealth (i.e. inequality), where there is a very obvious contrast with the "relaxed" attitude of New Labour. In other words, a revival of lateral transfers remains more likely than a challenge to the ownership of capital, which is a revolution of sorts.