Sunday, 2 August 2009

Eggs for omelettes

Catastophe, I’m told, hangs over Britain. We’re broke. The situation’s desperate. We have to do awful things about it. And we have to do them fast.

This is immediately followed by expressions of relief at the imminent arrival of the Conservatives in power, because, boy, they’re going to sort things out.

That’s because this kind of clamour is coming from the right, and the right grows more outspoken with the approach of an election most people – including me – believe they’ve already all but won.

At root, though, what they’re saying is based on an outlook that is not just simple but simplistic. Not to say facile. ‘The country’s maxed out its credit card.’

Since countries don’t have credit cards the statement obviously isn’t literally true. It’s trying to establish an analogy between a country’s economy and a family’s. Argument by analogy can be deeply misleading but we all do it. At work, I use far too many car analogies, such as ‘If the customer wants a compact car and we offer them a Jag, they may not want it even if we only charge them the price of a compact.’

We also tend to step up to the base with too many sports analogies. I overuse the image of eight-year olds playing football, rushing towards the ball in a mass of flailing arms and legs, none of them hanging back outside, in space, ready to make the most of the ball when it emerges. In business, we often all fixate on an exciting new opportunity, and neglect the basic work essential to take advantage of the opportunity in the first place. Good management, in business as in football, trains the team to leave players wide, creating the space for an attack when the ball is released.

The problem with analogies is that they only work so far. The glory in a football match often goes to the player who waits for the ball and scores the opportunistic goal when he can. In business, on the other hand, the praise tends to go to those caught up in the storm of activity around today’s great issue, while those who stay outside making sure the company keeps going are left in the shadows with little credit for their contribution. Another responsibility of good management is to see to it that their work is also recognised and properly rewarded.

Analogies are attractive for establishing, highlighting or illustrating one aspect of a subject, but can understate, ignore or fundamentally distort others.

So what about the analogy between the economy of a household, a company or a nation? When a household borrows, it uses the money for spending and doesn’t earn any more as a result. But when a company borrows, it can invest and therefore generate new earnings that exceed the cost of the loan. Unlike the household, it can end up better off, not worse, thanks to the loan.

As for a government, if it tries to reduce its debt by spending less, what it’s forced to do is to fire people from the public sector. They stop paying taxes, reducing government earnings, and they spend less themselves, with an impact on shops and businesses which in turn may have to lay off people with further losses in tax revenue. The economy may go deeper into a recession which becomes still longer. If the unemployed receive state benefit, the government’s bill for social security will also go up, just as its earnings are going down.

The result is that public sector cuts may paradoxically leave the government deeper in debt, not less indebted.

Incidentally, one way of reducing the counter-productive effects of government cuts is to pay less unemployment benefit. I’ll admit this is a personal view, but to me there is something repulsively immoral about adopting a course of action that throws people out of work and then refusing to help mitigate the consequences.

Not everyone agrees with this view, as was illustrated last time we faced a major economic crisis. Following the 1929 crash, most Western governments did just what the right is saying now and cut expenditure. Unemployment rapidly rose to mass levels. At the time, Britain had its first majority Labour government, led by Ramsay MacDonald. In 1931, he decided that it was time to cut the dole (unemployment benefit). Labour is the Party that exists to protect the very people who most need the dole. The Party split and MacDonald found himself in a minority. The Conservative Party, however, was fully behind him; he entered a ‘National Government’ in which he nominally remained Prime Minister though the Conservatives had a majority of the cabinet positions and also a majority of the government’s support in Parliament. In effect, from being a Labour Prime Minister, MacDonald now led an essentially Tory government. Which cut the dole.

What will today’s Conservatives do when they get into power?

There are signs of a fault line running through British conservatism. Many are vociferously demanding cuts. The leadership is mouthing the same platitudes, but it feels to me as though they’re just playing to an electorate that is keen on cuts at the moment. Cuts in general. Cuts in the abstract. When it actually comes to saying ‘we’re cutting your bus service, your school, your police force’ watch them take up arms demanding that the axe fall elsewhere.

The Tory leadership isn’t dumb. It knows that there’s no real stomach for cuts in this country. It can also read the same accounts of the 1929 crash as the rest of us. I think they’re planning on making a few headline-grabbing cuts to look like the decisive, bold leaders they want to appear. When it comes to cutting benefits, they’ll do it by stealth: they’ll try to identify groups of ‘undeserving poor’ to be their victims. Hard luck if you’re a non-working mother whose husband has left you: you’ll be a ‘single mother’, meaning a woman of loose morals deserving to be punished rather than assisted, and you’ll find that the good Christians in the Tory party will turn their backs on you.

In general though I think they’ll avoid doing anything too drastic. I think they already have their eyes on the election after next, 2014 rather than 2010, and they know savage cuts aren’t their way to get back in.

That’s just a view, though. What has shocked me recently is the virulence of those who now demand radical reductions. Many of them are wealthy people who have barely paused to nod to popular anger against the bankers, before going back to awarding themselves huge salaries and astronomical bonuses. And they’re keen to show that they’re prepared for the tough decisions, for the deep cuts that need to be made by a country that’s maxed out its credit card, and are prepared to accept the pain that this entails. Above all because the pain won’t be borne by them.

They may get their way. Then they'll show us that they don’t shrink from bold decisions, that they’re prepared to face up to the truth that you can’t make an omelette without breaking eggs. Specially since they’re going to be eating most of the omelette. And they’re going to make sure that we’ll be breaking someone else’s eggs.


Anonymous said...

how nice to be able to put some concrete in my gut feelings about the tories!


Anonymous said...

I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


David Beeson said...

Sara -

Many thanks for the kind comment - it's much appreciated and encouraging.

San -

It's always good to find one's predispositions can be rationally justified, isn't it?