April 13, 2005, 3:47 p.m.
Of Money and Manifestos
The election-watching continues.

Banking on the Economy

If Labor has one overriding advantage in this election, it is the economy. Almost all the economic indicators — steady growth, low inflation, and low unemployment — are strongly favorable. On present trends in both countries, Britain is poised to overtake Germany as the largest single economy in Europe within a decade. It has already done so in terms of per capita income. As a result Labor now has a healthy lead over the Tories as the party most trusted to deliver good economic management. If Blair wins, that record will be the reason. An American cannot quite grasp how bad that is for the Tories; economic competence had been their main advantage over Labor since 1931!

These headline statistics, however, obscure three underlying truths about the recent performance of the British economy:

As the Economist points out in its excellent election briefing, the recovery for which Blair and co. now claim credit began not in 1997 when they were first elected, but in 1992 when the Tories still had more than four years to run. All the favorable economic trends began in that year; they were kick-started by Britain’s departure from the ERM (exchange realignment mechanism) in that year; and they had their roots in a series of economic policy decisions taken either in the 1980s under Mrs. Thatcher or during the chancellorship of Norman Lamont. The one policy change contributing to Britain’s current success that Labor brought in was Finance Minister Gordon Brown’s decision to give the Bank of England independent control over monetary policy. This change, as the Economist notes, was “the culmination of a process that started” under Lamont. (And it has long been rumored that Brown granted independence to the Bank after strong private urgings from Lamont, whom, significantly, he criticizes only on strictly partisan occasions when it doesn’t really count.)

The Tories lost their reputation for economic competence as a result of first joining and then falling out of the ERM. ERM membership had inflicted a much more severe recession on the British economy from 1990 to 1992 than would otherwise have occurred. And the Tories made a virtue of this severity — Prime Minister John Major at the time saying “If it isn’t hurting, it isn’t working.” When Britain was forced out of the ERM, however, the economy began the strong recovery that now benefits Labor. Inevitably the blame for this needless hurt fell on the Major government that was in office at the time. In reality, support for joining and staying inside the ERM had been strong across the political spectrum, including moderate Tories, the Labor party and Gordon Brown!

While Brown has presided over a flourishing economy, he has also been quietly weakening it by piling a large regulatory burden on businesses, shifting resources from the public to the private sector, increasing the costs of pensions, and imposing a range of “stealth taxes.” According to the British Chamber of Commerce, for instance, the regulatory burden between 1998 and 2005 was equal to approximately $75 billion. Business profits are low for this stage of the business cycle. Productivity is static too. So the financial pages of the newspapers are making three predictions: There are likely to be tax hikes, a pensions crisis, and a fall in house prices early in the next government.

Neither Brown nor Labor has been much worried by these likelihoods. Newspaper articles and Tory attacks could be easily brushed off. Indeed, in the first economic skirmishes of the campaign, Brown and Blair had great sport denouncing the Tories for promising to spend too much and cut too much simultaneously.

Today, however, an economic concussion grenade landed in the middle of the Labor campaign disorienting everyone. A report from the International Monetary Fund predicted that the economy would expand by a slow 2.6 percent compared with Brown’s targeted figure of 3.4 per cent. Public finances were thus, it argued, spiraling dangerously out of control. The chancellor would have either to slash spending or to raise taxes.

The economic and budgetary assessment was bad enough. What made it worse was that it came from the IMF. Again, no American can really appreciate the tribal memories that an IMF intervention stirs up in Britain. It was in the 1970s, under the Old Labor government of Jim Callaghan, that the IMF briefly took over the management of the British economy from the Treasury and insisted on public-sector cuts in return for a substantial loan. The news that the IMF was calling for such cuts again briefly reminded everyone of those years when the British economy was rent by strikes and stagflation, when rubbish piled up in the streets and the dead went unburied. Was it all happening again?

Almost certainly not. We live today in a post-socialist world. The labor unions no longer have their old powers. Brown and Blair moved swiftly to reassure the markets that all was well. For a moment, however, doubt about the economy’s future under Labor had been ignited. Reality about Britain’s shaky public finances had intruded into the manifesto dream. And once reality intrudes, then the picture of Labor’s economic superiority is bound to be seriously amended.

Borrowed and Blue

My reason for being in London is to write political commentaries for the London Evening Standard for the duration of the election campaign. Today, my assignment was to comment on the Labor manifesto, presented to the media by Tony Blair and a line of New Labor ministers. With the permission of the Evening Standard editor, Veronica Wadley, here is the column:

”How does the Labour manifesto look from the inside? Not exactly from the inside, of course. That perspective could be provided only by the scribblers in Labour HQ — and they aren't talking. Yet.

And while I'm not turning Queen's Evidence myself, I will confess that I used to be a manifesto-writer for the Tory Party. In fact I wrote the 1987 Tory manifesto.

That gives me, I think, two privileged insights into Labour's production. First, I know some of the tricks of the trade. Second, I was writing — like Labour's current authors — for a party that was seeking its third election victory after eight years in government.

That presents a very obvious dilemma. If your manifesto is chock-full of fresh ideas, then the punters may wonder what you were doing in the previous two terms. And if it isn't full of fresh ideas, maybe that means your leader and government are clapped-out old warhorses who should be put out to grass.

We solved that problem — as the Economist generously acknowledged recently — by presenting Thatcherism as a rolling program. In the first term, we had put the economy right; in the second, we had restored the capital-owning democracy through council house sales, privatization and savings incentives; in the third, we would extend ownership and choice to those still trapped in poverty, dependency, and inadequate state provision. It was a good story — and basically true. And it enabled Mrs. Thatcher to slip neatly between both horns of the dilemma.

Labour realizes that it faces the same dilemma well enough. Thus, Mr. Blair says he wants to make the changes introduced in his first two terms "irreversible." He also wants to "accelerate the pace of change." And he declares, in a slightly curious metaphor, that Labour's policies have been "refreshed."

All this serves to reconcile his overall claim that "never has a governing party proposed a more wide-ranging programme of change for the country" with his eight years in office.

But there is a snag. By this stage in her government, Mrs. Thatcher had tamed the trade unions, broken inflation, won the Falklands War, defeated the miners' strike, reformed and privatized loss-making state industries, cut taxes substantially while achieving budget surpluses, and gone three-quarters of the way to winning the Cold War by both installing U.S. missiles in Europe and pioneering a warm diplomatic relationship with Mikhail Gorbachev.

That was quite a trampoline from which to launch a third term.Not only does Mr. Blair lack such a substantial record. Not only are his most substantial achievements either manifestly unpopular (the Iraq war), still controversial (Lords reform, tuition fees), or pale versions of their original radicalism (foundation hospitals.) But many of the programs in today's manifesto are promises he advanced in the two first terms but fulfilled only at considerable expense but with disappointing results: shorter NHS waiting lists, a greater parental say in running schools, stricter measures against anti-social behaviour, and after foundation hospitals — foundation schools.

This dressed-up return of old New Labour ideas reflects the very different political situations of Mrs. Thatcher and Mr. Blair at the end of their respective second terms. In 1987 Mrs. Thatcher was at the height of her political powers. She dominated the administrative machine and the policy-making process. And though squalls lay ahead with Nigel Lawson over "shadowing the D-Mark," she and her Chancellor were as one.

By contrast the prime minister has never been more politically weak. His chancellor dominates the administrative machine and the policy-making process. They are known to differ profoundly on the very "New Labour" proposals that Blair trumpets today as in previous manifestos. Even if Blair remains in Number 10, his programs will be implemented, if at all, only in the timid and gelded form that the chancellor wishes.

That political reality explains exactly why the Labour manifesto is about three times as long as the Tory manifesto. If the familiarity and fragility of the Blair program are to be disguised, they have to be hidden in a large phalanx of standard departmental proposals — the kind of thing that every Permanent Secretary has in his bottom drawer to foist on innocent new ministers or (as in this case) to meet desperate ministerial requests for something "new." Thus we get "exacting targets" for reducing red tape — that one is recycled from Jim Callaghan's day — more sport in schools, and lots and lots of intrusive little government.

I tried to keep that kind of thing out of the 1987 document (I didn't always succeed.) But I intuit that my New Labour counterparts had to be less choosy. As a result along with recycled "New Labour" ideas, you get something old, little new, something borrowed, and something blue. Indeed, quite a lot in the manifesto is borrowed and blue — notably, its ideas on yobbishness, crime and immigration — with Labour being simply less embarrassed about spending money on them.

Maybe Tony Blair's "refresh" metaphor was a Freudian slip. Isn't "Refresh" the computer key you press when the machine fails to obey your instructions the first time?”

”Don’t Mention the War!”

There was a fascinating moment in today’s manifesto press conference that illustrated Blair’s extraordinary sensitivity to media reactions. In the course of extolling the National Health Service, the minister in charge of it, John Reid, said that it evoked extraordinary levels of loyalty and affection from the British people. That is entirely accurate — the NHS is a sort of left-wing version of the Monarchy. It may not cure people, but it makes them proud to be British.

Then Reid went on to illustrate his argument by citing an opinion poll in which respondents had described the NHS as a greater political achievement than winning the second world war. Watching this on television, an Evening Standard writer snorted: “Well, if we hadn’t won the war, there wouldn’t have been an NHS.”

Moments later, when someone in the conference asked about the comparison, Blair quickly intervened, took over from Reid, and said: “Well, let’s be clear, winning the war was more important than the NHS. If we hadn’t won the war, there wouldn’t be an NHS.”

Blair didn’t know what the Sun headline would be, but he was morally sure he wouldn’t like it. And he stopped it in advance.

After which he probably gave some quiet advice to Reid borrowed from Basil Fawlty: “Don’t mention the war!”

Point of Agreement

In one respect, The Weekly Standard and The Guardian, the American Right and the British Left, agree. They all have the same opinion of Tony Blair. Private Eye, the satirical magazine, expressed it as follows:

The Prime Minister has warned that in the run-up to the general election, the British public should prepare themselves for what he dubbed “a rather nasty right-wing campaign.”

A Labor spokesman said: “There’s going to be a lot of unpleasant right-wing campaigning over the next few weeks, and if those wishy-washy Conservatives don’t like it, they know what they can do.”