by David Steven | May 11, 2010 | UK
Yesterday, I indulged in some late night speculation, wondering whether the only ‘impossible’ election outcome – the Queen being forced to send parties back to the country – might now have an outside chance of popping out of the pack.
Why consider such an outlandish possibility?
It’s important to do so, I think, because that’s the only way to make good decisions under conditions of radical uncertainty.
Look at how David Cameron’s team is said by the Telegraph to have acted even before polls closed last week:
By shortly after 7pm on Thursday, Jeremy Heywood, the Permanent Secretary at 10, Downing Street, received an extraordinary telephone call.
On the line was one of David Cameron’s closest aides, so confident of a Conservative majority that he spent the next five minutes dictating the names of every minister in the new Cameron government and the names of the civil servants who would be sacked the next day.
Even in the midst of the most unpredictable election in a generation, I suspect the Conservatives were far too committed to their preferred outcome to be well prepared for the labyrinth of choices that would soon confront them.
Similarly, I don’t believe Nick Clegg had really gamed out the dilemma his push for electoral reform would place all leaders in, as they became exposed to the unpredictable and shifting preferences of their own and each others’ backbenchers; and – through a referendum – to those of the public.
I wonder too whether Labour ‘strategists’ (most of whom are actually dyed-in-the-wool tacticians) saw credible routes to power if Gordon Brown resigned. Or was this merely a Hail Mary pass disguised as a game-changing moment?
(My first thoughts when Brown used his decision to stand aside as a negotiating ploy were: (i) Which of the leadership candidates were involved in the decision? And (ii) Will this later be seen in the same light as McCain’s surprise announcement that an unknown Alaskan governor was joining him on the Presidential ticket?)
In conditions of uncertainty, parties need what I think of as resilient strategies – ones that are not easily shifted from long-term goals, but blend this with a sensitivity to unpredictable outcomes, and which look beyond preferred outcomes to encompass a ‘plan b’ (c, d, e…) for failure.
So here’s a question for parties. Which of them has a ‘red team’ that has been isolated from the negotiations and has been asked to think simply about how the party should react to a ‘no deal’?
During the negotiations, the Tories have made major policy shifts, which they are going to find hard to reconcile with their core platform. Labour has initiated what is likely to be a long and acrimonious leadership campaign, which is going to turn it inwards at a time of national crisis. And the Liberal Democrats have sacrificed their reputation as standing for something other than the ‘same old politics’.
Each of them – in different ways – now stands on unstable ground. Unless their strategies are resilient to changed circumstances, they could find their support eroding very fast indeed.
[Read the rest of our After the Vote series.]
by David Steven | May 10, 2010 | UK
A week ago, when I tried to map the outcomes that would follow a close UK general election, I found it hard to find any easy path to the Lib Dems getting their primary goal – electoral reform with full PR.
In all scenarios, I suggested you should:
- Expect an extended period of political instability at a time when the government will face a highly challenging domestic and international agenda.
- Give at least reasonable odds for the whole enterprise ending in ignominious failure.
A referendum would de-stabilise any government, I argued. LibCon because ruling partners would campaign on opposite sides. LibLab because there’d be an obvious risk of losing the public vote, especially if the electorate was mostly motivated by a wish to punish the government.
And if a referendum on electoral reform was won, then the Lib Dems would of course want an election as soon as possible. If it was lost, the party would lose its main reason for staying in a coalition.
The fear of these outcomes, meanwhile, would make it harder to form a government in the first place. Why would any party form a deal if it couldn’t be sure what it was going to get for it?
Now we are deep into precisely this mess. The problem has been compounded by the failure of leaders to recognise the first rule of coalition-building: negotiate first with your base.
As I wrote yesterday:
[Cameron] is making a big mistake if he gets out too far in front of his party. He’s going to need every single of his MPs to back his first Queen’s Speech. And he’ll then be vulnerable to any subsequent rebellion turning into a confidence issue.
And what about Labour? […] Assume Brown goes, I simply cannot see how a new leader will have any legitimacy to lead a Lib-Lab coalition and take power as PM. For a start, there’d be a messy and lengthy succession process. After that the new leader would be damaged goods from the get-go – tarred with the ‘unelected’ brush that so damaged his (or her?) predecessor.
Sure enough, Conservative backbench support looks even more shaky now that leaders have suddenly offered the Lib Dems a referendum on electoral reform.
Meanwhile, Gordon Brown’s shock resignation (planned by a small clique) was hailed as a game changer, but a LibLab pact is already facing attack from within his own party (mutual assured destruction for both parties, according to John Reid).
Amidst the uncertainty, too many pundits have tried to maintain the fiction that they know what is about to happen.
How many times have we been told absolute tosh about the negotiations between parties, by people who make it sound as if they have spent the day sitting on David Cameron’s knee, but are actually passing on ill-informed scuttlebutt, or simply making things up?
The truth is this election has left British politics snookered. Four days after the vote, we are still no nearer to knowing what is going to happen.
I’d guess there’s still a good chance that a deal of some sort will be cobbled together in the next few days, but even then, it could fail to make it through a Queen’s Speech (for LibCon a few defectors will have enormous power, while LibLab will need the support or acquiescence of other parties).
So, at the same time, I wonder whether the only ‘impossible outcome’ – the one commentators said could never happen – may now have an outside chance of popping out of the pack.
Maybe we will see no swift resolution, no outbreak of amity, no sudden agreement on what the ‘national interest’ means. Instead, perhaps a fresh election will be the only solution left standing, and not called later this year – but reluctantly – in the next few weeks.
[Read the rest of our After the Vote series.]
by David Steven | May 9, 2010 | UK
One lesson I took from from the Northern Irish peace process was that, when building a complex agreement, trouble results if any party forgets this rule: the first negotiation is with your own base.
Republicans understood this well:
Sinn Féin has emphasised that it is involved in a double negotiation – with its political opponents on the one hand, and with its supporters on the other. ‘For the IRA’s position to have been released or made public without its grassroots having had the opportunity to engage … would have been a total disaster,’ Gerry Adams has argued.
But David Trimble failed to keep his base on side, leading to a long period where Unionists were unable to project a credible position at the negotiating table. Their leaders weren’t taken seriously, because no-one could be sure who they were really speaking for.
Back in 2003, the British government was terrified that stalemate was allowing Ian Paisley’s hard liners to grab power – expecting this to lead to a titanic (and fruitless) ‘battle of the bottom lines’. Their pessimism was misplaced. The DUP was able to advance the talks, precisely because it had a much firmer bond with its own supporters.
How does this lesson apply to today’s post-election shake out in the UK?
Nick Clegg has been forced to by his party’s constitution to keep in close contact with his party – he needs 75% of MPs and 75% of the federal executive to approve any deal. He also went out onto the streets to talk directly to demonstrators backing PR.
[youtube]http://www.youtube.com/watch?v=vp_51lFvRvU[/youtube]
Clegg may end up failing to take his party with him – but at least he seems to be trying to keep them on board.
David Cameron, however, seems much more isolated. The Guardian, of course, has an enormous incentive to sow dissent on Tory ranks (it badly wants a Lib-Lab pact that leads to PR), but its account of rebellion within the Conservative Party has a ring of truth about it.
Most damaging was that not all the dissent came from the backbench MPs (who are said to have heard little from their whips). One ‘senior frontbencher’ was prepared to dish the dirt (off the record, of course):
He ran his campaign from the back of his Jaguar with a smug, smarmy little clique – people like Osborne, [Oliver] Letwin and Michael Gove. He should get rid of all of them. The party will settle for nothing less.
For Cameron, there’s an enormous attraction in binding his enemies, the Lib Dems (or as Alex prefers, ‘the frenemy‘) into a formal coalition. He can dump unpopular policies foisted on him by the grass roots, implicate his coalition partners in all the hard decisions about spending, and leave the Lib Dems too unpopular to ever win the argument on PR.
But he is making a big mistake if he gets out too far in front of his party. He’s going to need every single of his MPs to back his first Queen’s Speech. And he’ll then be vulnerable to any subsequent rebellion turning into a confidence issue.
And what about Labour? I wonder if here, too, the interests of the ruling Brownite clan diverge from those of a (currently silent) faction in the party.
Assume Brown goes, I simply cannot see how a new leader will have any legitimacy to lead a Lib-Lab coalition and take power as PM. For a start, there’d be a messy and lengthy succession process. After that the new leader would be damaged goods from the get-go – tarred with the ‘unelected’ brush that so damaged his (or her?) predecessor.
Maybe, maybe, they might hope to wait out the storm that would accompany them taking office and wait for better economic times to heal the wounds – but they’d have a referendum on PR to fight, and that – as I argued last week – could well get ugly.
Surely better to head into opposition with a decent share of the seats and fight a government that – whether its Tory minority or LibCon – will struggle with some of the hardest political decisions of a generation.
But Gordon Brown has no incentive at all to see things that way – opening up a gulf between the leader and a party he still (just about) leads…
[Read the rest of our After the Vote series.]
by David Steven | May 6, 2010 | Economics and development, UK
I thought I could safely ignore the election for a few hours this evening. I voted days ago by post. And not much normally happens before the polls close at 10 pm.
But the past few hours has seen worrying economic tremors – as a raft of bad news from China and Europe, combined with skittishness over what will happen in Westminster tomorrow, drove a panic in the markets (with a trader’s error possibly fuelling the chaos [for more – see Felix Salmon]).
A 4 per cent drop in Chinese stocks started the downbeat mood, which carried over to Wall Street’s S&P 500 index, which was down 6 per cent to 1,065 – its sharpest correction in over a year, erasing its 2010 gains in one afternoon. The VIX index of market volatility spiked to its highest in a year.
“It’s really shocking,” said Jeff Palma, global strategist at UBS. “Stocks fell to minus nine on the year within seconds, that was a pretty shocking move. This is not your normal every day pull back, this is a pretty full-on collapse in risk appetite.”
As Alex pointed out earlier this week, bond markets will be open at 1 a.m. (in just four hours’ time) – at which they throw fuel onto the fire if they so choose:
Bond traders will be able to react in real time to results rolling in from key marginal seats, in other words: so as well as measuring how the night’s going through the traditional BBC swingometer, we’ll also be able to track progress through yields on three month short Sterling interest rate futures. Well, great.
All this reinforces how the UK – bereft of leadership throughout the campaign – has been sleep walking as a new economic reality (and a pretty disastrous one, at that) unfolds around it.
That’s why, over a week ago now, I called for the Chancellor (for now, at least) Alistair Darling to get off the campaign trail and get back behind his desk:
Election or no election, the UK simply cannot afford to sit on the sidelines while this crisis runs out of the control. Alistair Darling needs to stop giving speeches to activists in Scotland and get back to work at the Treasury.
Lord Adonis stopped campaigning as soon as Eyjafjallajökull erupted. Darling must do the same as the UK faces contagion from Eurozone turmoil.
Let’s hope he is at work now. Until a new PM has the ‘confidence of the House’ (and if results are close, that could take days to work out), he is 100% responsible for the British economy.
If necessary, he needs to haul in George Osborne and Vince Cable, and hammer out a consensus behind any short-term fire-fighting measures that might be necessary.
Once we have a new government – and assuming we have weathered any immediate post-election crisis – the team (of whatever political colour) will need to take an extremely active approach to economic policymaking.
Gordon Brown may have got the UK into this mess (he did), but there can be little doubt that the British government has played an important, and at times pivotal role, in trying to patch things back together again.
You just have to look at the absolute mess that the Germans and French have made of responding to the Greek crisis to see that this is a time when any half-way competent hand needs to be called onto the bridge.
I continue to believe that we’re seeing the latest stages of a crisis that stretches back until at least the late 1990s. This long financial crisis should force leaders to admit that they are part of an economic system that (i) they don’t understand; and (ii) seems to becoming more volatile, rather than less.
So how should the new PM and his Chancellor react? Here are three pointers – each of which cover the UK’s international economic policy (and its domestic policy, insofar as it is important to broader global financial stability).
First, the new government needs to balance the risks inherent in high levels of public and private debt.
We have heard a lot about the government’s deficit in this election, and quite a bit about its overall debt. But almost nothing has been said about colossal levels of private debt.
Private citizens owe much more than the government – most of it in the form of mortgages, secured against a residential property market that is significantly overvalued. (I wrote at length about the election and the housing crisis here.)
It’s no good trying to appease the global financial markets simply by cutting spending or raising taxes. Stall the recovery and unemployment will shoot up, while property prices will head down, threatening the banks again, and sending the tax take much lower.
No-one is going to be fooled into believing that the government can repay its debt, if we are hit by the twin nightmares of a double dip recession and housing market crash. That really would be game over.
So what can the government do?
There is so little room for manoeuvre that the unfortunate answer may be: nothing. However, I think the best strategy would be as follows:
- Take immediate and dramatic action to cut the structural deficit (I’d raise retirement age immediately, and then peg it to life expectancy – but any package of credible long-term tax or spend commitments would do).
- Avoid raising taxes or cutting spending by much in the short term, as the economy is still too fragile to take it (the government should probably make less of a song and dance about its caution here).
- Be explicit with the markets that interest rates will be kept low (propping up the housing market and boosting growth), even as the economy recovers – that the government’s main weapon against inflation will be its own spending. Think of this as a piece of reverse-Keynesianism.
- Take action to ensure that today’s secondary bubble in the housing market is not allowed to inflate further. Plans to cut stamp duty, for example, should definitely be put on hold. We don’t want housing prices to fall too fast, but neither should they be allowed to rise above today’s totally unsustainable levels.
Second, the government needs to get stuck into the Eurozone crisis, as I recommended in my post on Europe earlier this week, when I recommended that it should be:
…aiming for (in order of preference): (i) A strengthening of the Euro with greater sharing of economic sovereignty among Eurozone members (but with the UK left on one side); or (ii) An orderly removal of the weaker economies from the single currency.
Even on the Euro, the UK has some influence as an honest broker, given its position as an interested party, but not a full player. Cameron should adopt this role wholeheartedly – reminding British voters that the disorderly breakup of the single currency would be absolute disaster for the UK economy.
Third, we need to get the G20 back on track.
It briefly emerged as the forum for tackling the global economic crisis, but has now gone AWOL for, I suspect, a number of reasons:
- Obama is embroiled in a political system that cannot make foreign policy decisions.
- The Chinese are still bruised after Copenhagen.
- The Eurozone powers have utterly lost their nerve, and
- The Brits have left the field as the election approached.
Only the G20 has any hope of steering the global economy through what seem certain to be some exceptionally rocky times. If it is allowed to become a hopeless talking shop like the G8, then I think we are probably screwed.
Over the next year or so, the UK’s G20 policy will be its foreign policy. It’s essential that we have some radical new ideas to put on the table.
[Read the rest of our After the Vote series.]
by David Steven | May 6, 2010 | Global system, UK
It’s a fitting end to the British general election.
We have had thirty years of entrenched majorities – as a dominant party defined the terms of the debate, and the media made sure the opposition never caught a break. In 1997, the swing from Conservative to Labour dominance was sudden and decisive.
Now we have an utterly unpredictable polling day. Tiny shifts in the share of vote between parties and, especially, its geographical distribution could have a disproportionate impact on the political landscape that emerges on Friday.
If it’s close, it will all come down to spur-of-the-moment decisions by three very tired men. Constitutionally, Brown remains Prime Minister until someone else can command ‘the confidence of the House.’
As incumbent, he also should get first dibs on forming a new government, though it is widely expected that Cameron will declare victory early, and use the media to establish his right to govern.
As Alex has warned, there’s also a possibility that the bond markets will push the pace, as they open at 1 a.m. tomorrow morning to react to election news. Yields on UK 10-year bonds have spiked this morning, but are still lower than they have been for much of the year.
If Cameron gets the most votes and the most seats, he’ll surely go on to form a government. If not, a period of Florida-style uncertainty seems more than possible. What, one wonders, will be the UK’s equivalent of the hanging chad?
Either way, we can expect some exceptionally close Commons votes, perhaps a referendum on electoral reform, and – surely – a Parliament that won’t last for a full term. That means more elections for parties that have bankrupted themselves during this one.
This unaccustomed volatility in the electoral system seems curiously appropriate. As the past few years have shown, we now live in an era where the UK is far from being in control of its own destiny.
Look forward and we can expect the following forces to frame the government’s strategic choices.
First, global risks will continue to drive domestic policy. Voters will not actively call for a more effective foreign policy, but they will notice and bemoan its absence.
Global forces will continue to have considerable impact on their lives, with the main sources of strategic surprise coming from beyond the UK’s borders.
Over the next ten years, moreover, most risks will be on the downside. We have lived, as I have argued, through a volatile decade. There is every reason to expect risks to continue to proliferate.
Each new crisis will create political aftershocks with demands for governments to clear up the mess, matched by inquiries into why they failed to prevent the problem in the first place.
Finally, the government will find that, in most cases, it does not have the levers to manage risks as effectively as it would like to.
Whatever the next Prime Minister wants to do, he is going to find that global volatility, a lack of money, and government mechanisms that are equipped for the problems of another age, constrain his scope for action.
On top of that, he’ll only be able to solve problems if he can rustle up a coalition of other countries, all of whom will be beset by the same problems.
If – and it’s a big if – there is to be a new dominant paradigm in British politics, replacing those established by Thatcher and New Labour, then it will be because a leader emerges who has the skill to govern well in an age of global uncertainty.
I can’t imagine a more exciting time to pitch up in Downing Street, but it’s going to be a bumpy ride.
[Read the rest of our After the Vote series.]
