CAN THE UK ESCAPE A ‘BRITMUDA TRIANGLE’?
If you’ve read the preceding article, you’ll understand how institutionalized thinking – a product of rigid orthodoxy within a closed environment – seems completely to have blinded Britain’s political elite to the very possibility that voters might “defect” en masse to the collectivist alternative offered by Jeremy Corbyn.
This raises at least two important issues. The first is the extent to which the same sort of “institutionalized folly” – the inability to “think the unthinkable” – has been operative elsewhere.
Obvious examples here include the authorities’ blindness to the escalation of risk ahead of 2008 – a blindness which, at least arguably, still persists – the near-unanimity with which the “experts” wrote off Donald Trump as a “joke candidate” with zero chance of success.
The second (and more pressing) question is where Britain goes from here – and the answer to this question must depend, in large part, on whether or not the governing elite is going to remain in the myopia of institutionalized group-think.
Put simply, is this election result going to shock the establishment (in politics, business and finance) into reality? Or will denial go on?
The dangers of denial
When an incumbent regime suffers a shock setback, some of the reactions are predictable, and are far from helpful. There is an almost automatic tendency to try to shift the blame.
So, quite predictably, we’ve been told that the election defeat was wholly the fault of Mrs May and her immediate circle, so is not a reflection of broader failure.
Equally predictably, we’ve heard that the opposition (in this instance, Jeremy Corbyn) didn’t play fair, the implication being that the voters were fooled (which is pretty close to saying that the voters are fools). We saw the same pattern after last June’s referendum on “Brexit”, with defeated Remain supporters arguing that the Leave campaigners cheated, and that those who were duped into voting for “Brexit” were old, poor, poorly-educated and losers (or, in a word, idiots).
This really won’t wash. The failure of an elite to see something coming doesn’t make their opponents dishonest, or the voters foolish. Where expectations and outcomes differ, it’s usually a fair bet that it’s the expectations that were wrong, not the outcome.
We needn’t revisit the causes of popular discontent with the incumbent government. People disliked falling real wages, disliked austerity in the public services, and were angered by a perception that a minority were prospering at the expense of everyone else. They saw no evidence that the Conservatives were going to do anything to address these grievances.
This makes the surge in Labour support wholly rational. Of course, the Conservatives can respond by persisting with the illusion that the voters, duped by unscrupulous opponents, got it wrong.
Doing this would have two consequences. First, it would prevent Conservatives from changing their policies in response to voter demands. Second, and consequently, it would condemn them to protracted irrelevance. Evidence from the past suggests that parties do indeed tend to condemn themselves to marginality in exactly this way.
A ‘Britmuda triangle’?
The practical realities, now, are three in number. First, and despite any deal that Mrs May might put together with the Democratic Unionists (DUP), Britain is condemned for the immediate future to a caretaker administration subject to almost total policy paralysis. No government can undertake any bold policy when a tiny number of its MPs can pull the rug from under it.
Such stasis is bad news at the best of times – and could be desperately bad news now, in what looks a lot more like the worst of times.
Second, and pretty obviously, it is hard to see how a paralysed government, demoralized and frightened of its own shadow, can hope to be an effective negotiator over the post-“Brexit” relationship with the EU.
Third, and despite any claims to the contrary, the British economy is in very big trouble, and now seems virtually certain to deteriorate further.
Last year’s sharp fall in the value of Sterling has now fed through into reported inflation of 2.9%, meaning further declines in real wages. The response of the forex markets since the election result has been comparatively muted, but this does not by any means eliminate the risk of a currency crisis. Indeed, it seems that the comparative stability of recent days may reflect a widening expectation that the Bank of England will have to raise interest rates, primarily to counter inflation, but also to shore-up the pound.
Higher inflation and higher interest rates, plus a waning of confidence and a flight of capital, are the consequences of a currency crisis, but they can also happen without one.
Consumer spending, which has been the engine of the British economy in recent times, is flagging palpably, and can only get worse if confidence wanes, interest rates rise, and property prices fall. The political situation almost guarantees that the fiscal deficit will be larger, for longer.
Even before the election, reported GDP growth had fallen to all-but-zero, and some of us believe that such figures tend to put an over-optimistic gloss on underlying trends anyway. Business confidence at home is said to have crashed since the election result, and there seems no reason why foreign investors shouldn’t take a similar view.
A perfect storm in prospect
In short, the UK now faces a “perfect storm” of stagflation, rising interest rates, weakening confidence and political paralysis – plus, of course, imminent “Brexit” negotiations, and rancorous division within the public.
There are old sayings to the effect that “you bought it, you name it”, and “you broke it, you pay for it”. In this spirit, it is incumbent, both on the Conservatives and on the supporters of the current economic system, to come up with solutions.
Of course, if you believe that the Corbynite programme would rescue the situation, you can afford to be more relaxed about this than if you don’t. If the patched-together minority government falls quite soon, and if the Conservatives persist with denial, then a second election, and a victory for Labour, start to look pretty likely.
Those who doubt the merits of nationalization, an expanded state, higher taxation, higher public spending and bigger fiscal deficits, on the other hand, should be very worried indeed. The economic outlook is more than risky enough to prompt a further swing to the Left by voters in search of solutions.
Can Conservatives respond?
An effective response from the Conservatives needn’t mean an abandonment of the market, because what has passed for pro-market economics in recent years has been far closer to corporatism than capitalism anyway.
Government has done precious little to break-up sectors where over-concentration reduces competition to the detriment of consumers. It has presided over the idiocy of a developed economy trying to compete on the basis of cost rather than on the basis of quality, which is the only viable competitive option for such a country. If anything, the Conservatives need to re-learn the principles of markets that are competitive, free and fair. Policy has exacerbated, rather than tackled, a lamentable bias towards speculation over innovation.
At the same time, Conservatives need to recognize that, in economics, extremes are seldom, if ever, a good idea. There is abundant logical and historical evidence supporting the concept of a “mixed economy”, which blends the best of the private and public sectors, rather than leaning too far in either direction.
There are, then, three things that Conservatives need to do.
First, they need to re-learn the difference between capitalism (in its competitive market sense) and corporatism (which is more “law of the jungle” than Smith).
Second, they also need to re-learn the importance of the mixed economy.
Third, they need to recognize the legitimacy of redistribution, which at the moment is required more in terms of wealth than of income.