Executive Competence

Simon Wren-Lewis points out that one major political party in the recent general election was vocally anti-austerity, pro-immigration and pro-welfare - and they won big. The party, of course, was the SNP. While there are obviously other factors at play, this shows that a "leftish" stance in these three policy areas is no impediment to popularity. Assuming that Scottish exceptionalism is a myth, and that social attitudes are not so very different in Coatbridge and Chipping Norton, this suggests that Labour's electoral problem is less about left-versus-right than coherence and plausibility. What Blairites like Liz Kendall appear to have forgotten is that the popularity of New Labour in 1997 was not about being pro-business (which is not the same as neutralising the charge of being "anti-business"), but in offering the hope of greater competence and probity after years of ineptitude and sleaze. Lest we forget, aspiration was defined as a better education for all, not free schools for the sharp-elbowed.

Most people have no idea how the economy works, not because they're thick, but because they lack the interest, which in turn reflects the narrow focus of their own experience. Related to this, we instinctively understand microeconomics, but have to reason through the counterintuitive nature of much macroeconomics (e.g. the "paradox of thrift" is not that difficult to understand, but why would you even make the effort?). The result is that many of us rely on anecdata and media expressions of "confidence". The latter privileges not only business leaders, per Michal Kalecki, but media owners who can orchestrate the mood music. Structural factors such as investment and productivity are poorly understood and treated superficially in public debate. Instead, the media bias towards the human-scale of small businesses and commuters. In this environment, opinion on whether a party can be "trusted with the economy" is usually a proxy for wider executive competence rather than a judgement on fiscal or monetary policy, let alone industrial or commercial policy.

The classic modern example of this is the Tory victory in the April 1992 general election. This came on the back of the 1990-92 recession, which in turn had revealed the hubris of the Lawson Boom of the late 80s and undermined the claim that the UK economy had been transformed for the better under Margaret Thatcher. Despite the evidence of both long-term and short-term failure in the management of the economy, the Tories were rewarded with a majority of 21 seats. Though Labour had been ahead in the polls since 1989, its lead was slender during the period after Major succeeded Thatcher in November 1990, indicating that popular attitudes were little influenced by actual economic performance. All this changed after Black Wednesday in September 1992, when the UK was forced out of the European Exchange Rate Mechanism and the government was left looking incompetent. Not only did Labour quickly restore its lead in the polls, but the margin steadily grew, reaching double figures in 1993. It stayed that way until 1997.

Objectively, the Tory party is wholly undeserving of a reputation for economic competence. If you divide the great disasters of the last 100 years between those occasions when the government shot itself in the foot and those when it was the victim of external events, the greatest self-inflicted wounds were the result of foolhardy decisions by Tories, notably Churchill's return to the Gold Standard in 1925 and the ERM debacle. And those are just the uncontentious ones. Many would also cite Thatcher's monetarist experiment in the early 80s and the moratorium on council house-building, which, together with financial deregulation, condemned us to the structural weaknesses that are all too evident today. Similarly, Osborne and Cameron's "talking down" of the economy in 2010 ("we could end up like Greece") and advocacy of austerity ("expansionary fiscal contraction") was mendacious, negligent and wilfully stupid.

Labour has never been guilty of a policy decision in government as deluded or as damaging, which explains why many of the examples of Labour's incompetence turn out to be myths, such as Jim Callaghan's "Crisis, what crisis?" quote and Gordon Brown selling-off our gold reserves too cheaply. Labour's historic misfortune was to be in power during the two great global recessions, in 1929 and 2008. Its timid adherence to economic orthodoxy contributed to depression on the first occasion, while its flexibility and initiative were instrumental in stabilising the global situation during the second. Ironically, it was then undone again by its timidity in the aftermath, failing to adequately challenge the lurch to austerity in 2009-10. In contrast, David Cameron (Norman Lamont's bag-carrier at the time of Black Wednesday) appears to have absorbed the lesson of 1992 only too well, using the flimsiest of props (Liam Byrne's "no money" note) to bang home the message that Labour lacked executive competence. It's crass, but it works.

But perhaps a more robust defence of fiscal stimulus in 2010 by Labour would not have made any difference. The evidence suggests that the electorate punishes whoever was steering at the time, regardless of whether the crash was due to drunk-driving or another vehicle. It is the impression of not being in control that seems to matter most, hence the terminal damage of Black Wednesday. There are paradoxes aplenty. The neoliberal premise was that only by following a global orthodoxy could a government avoid accidents, but this orthodoxy demanded the ceding of much government control over the economy, which thereby increased the likelihood that an accident would be politically fatal. Gordon Brown's career in government was bookended by acts of letting go (the independence of the Bank of England in 1997) and intervention (the Keynsian resurgence of 2008-9), but it was the former that communicated the greater sense of control to the public.

The lesson for Labour is that a reputation for economic competence does not depend on cosying-up to business leaders or developing detailed plans for long term productivity improvements, even though both of these may have tactical value in occupying media bandwidth as well as strategic significance. The crucial factor is to avoid being on duty when the ship hits an iceberg. If you're off-duty, your priority is to point the finger and shout loudly about the incompetence of the other guy, with minimal regard to the facts. If Cameron and Osborne knew this, then I suspect that messrs Brown, Balls and Miliband did too. Was the intellectual lassitude of Labour after 2010 the result of this learned helplessness? Was the focus on the "double-dip" recession in 2012 evidence that Labour was waiting for the Tories to screw up, and was the "35% strategy" (assuming there actually was one) an acceptance from 2013 that a game-changing cock-up wasn't likely before the end of the parliament?

What this reading suggests is that Labour's fortunes may well revive simply because the Tories are likely to screw up, and because there isn't a credible alternative government beyond Labour. History tells us that the Conservative Party is prone to cavalier misjudgements, while Labour (absent external events) is cautious and risk-averse. George Osborne will not be able to blame future economic performance on the last Labour government (though I'm sure he'll try), while even the EU is no longer a credible excuse. The danger for Labour is that we've been here before, but the period in question was not the early 90s but the early 80s, when the Tories were able to exploit a war in the South Atlantic to build an unassailable poll lead despite a record of economic mismanagement that stood comparison with the early 1930s. Following Marx's maxim, "the first time as tragedy, the second time as farce", my money's on a border dispute over Berwick-upon-Tweed.