Lewis Page
ABOVE: A British arms industry exhibition in London
Britain’s next government will be forced to reduce spending. But given the wide agrement that these cuts should not affect the NHS or social security, the smallish departments, like the ministry of defence (responsible for about 5 per cent of spending) seem the likely targets. A 10 per cent cut at the MoD (some £4bn a year), is on the cards. At the same time, the main political parties agree that the 1998 strategic defence review (SDR), still the main guide to policy, also needs rewriting.
This worries many in the defence sector. The SDR promised that Britain would keep the ability to intervene militarily around the world. A secondary document, the defence industrial strategy (DIS) of 2005, guaranteed the continued existence of Britain’s arms industry. But with a new defence review and cuts in funding, one of those will have to go. And the arms industry is right to fear that the British people would prefer to keep their excellent armed forces, and jettison their economically insignificant, parasitical defence industry.
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Vijay Joshi
Delegates at Copenhagen will be bitterly divided on how the cost of tackling climate change should be shared between advanced and developing countries. After all, the concept of ideal fairness is highly controversial: philosophers have debated it for centuries. When it comes to a deal on global emissions, is such a thing even possible?
Developing countries (DCs) make two arguments about fair burden-sharing. The first is based on historic responsibility for the accumulated stock of carbon emitted by advanced countries (ACs). The ACs have used up a large part of the safe carbon-absorbing capacity of the atmosphere and should compensate the DCs for this—a persuasive point. Even so, it runs up against some powerful moral intuitions. The ACs did not expropriate knowingly. They acted in the belief, universally held until recently, that the atmosphere was an infinite resource. Moreover, the expropriators are mostly dead and gone. Should their descendants be held responsible for acts they did not themselves commit? True, ACs benefit hugely from their past carbon-intensive industrialisation, but should they be liable for all of this?
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Martin Taylor
At the crisis point of the credit crunch last autumn, policymakers faced three challenges. First, they needed to stop the panic. Secondly, they needed to recreate the conditions for economic growth. Finally, they had to take steps to ensure the disaster was not repeated.
The first of these tasks was eventually achieved, though it proved more difficult and costly than many had imagined. Policymakers were criticised both for being slow to respond to the scale of the problem and for giving too little attention to international co-ordination. But you cannot point both these fingers at once, so to speak, since the search for international co-ordination slows response times. On the whole, governments and central banks performed their daunting job pretty well. The proof of that is that the banking system, although challenged in its long-term funding and risk averse in its lending, is still functioning today. It was not certain last October that one would be able to write those words in mid-2009.
Overcoming the first challenge is a good start on the second challenge—getting the world economy going again—since the restoration of confidence is indispensable for growth. The paradox, though, is that the more rapidly confidence is restored the harder it is to address the third and, in the long run, most vital question: how do we stop it happening again?
The panic is now clearly behind us, and the worst of the inventory shake-out in manufactured goods has also taken place—two fundamental conditions for a cyclical recovery. We are also benefiting from a monetary stimulus of biblical proportions. This must and in due course will be withdrawn. The universal response of governments to the emergence of budget deficits on a scale that could never have been imagined has been procrastination. And overall, things will feel worse, probably much worse for much longer, before they feel better. This should concentrate minds on the “how do we stop it happening again?” question. Political will to tackle this is likely, after all, to fluctuate according to how bad “it” is felt to be. Read more »
MG Zimeta
To discuss this article visit First Drafts, Prospect’s blog
These are dark times to be a politician or a banker. Hedge fund managers, newly relegated to the social wilderness reserved for sex offenders and arms dealers, may or may not be pleased to now be joined by their MPs. The recent national anger at our political and financial elite has been unprecedented: but are we right in our rage? “Anybody can become angry,” warns Aristotle, “that is easy. But to be angry with the right person, and to the right degree, and at the right time, and for the right purpose – that is not in everybody’s power, that is not easy.” In the furore about the failed morals of our political and financial institutions, are we in danger of compromising our own moral standing, or missing a valuable opportunity to fix what went wrong?
The easiest response to wrongdoing is retribution. Several of our expense-fiddling MPs and senior failed bankers have been subject to humiliating public scrutiny of their finances and lifestyles. Such vengeance can feel good, but it plays to the lowest parts of our own character. And establishing guilt, unfortunately, does not always mean establishing remorse: “I pleaded guilty, a secular plea,” says JM Coetzee’s fallen academic David Lurie in his novel Disgrace. “That plea should suffice. Repentance is neither here nor there.” “I accept responsibility for that which I was responsible,” wrote Sir Fred Goodwin, former CEO of RBS defending his £16m pension after the treasury used £20bn to bail out the crippled bank. “[T]o voluntarily accept a reduction… is not warranted.”
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James Dodd
Fool’s Gold
By Gillian Tett (Little, Brown £18.99)
The Storm
By Vince Cable (Atlantic Books £14.99)
As the western world limps towards the end of the new century’s first decade, it’s worth pausing to consider three successive, self-inflicted blunders the last ten years have seen. The first was the dotcom crash of 2000-02. The second was the debacle of Iraq which—at enormous cost in lives, morals and money—bluntly proscribed the limits (and utility) of western military power. The third is the credit crunch of 2007-09, still unfolding before our eyes.
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Mark Hannam
Fifty years ago in May 1959 scientist and novelist CP Snow gave his famous “Two Cultures” lecture, arguing against what he saw as the divide between literary and scientific intellectuals. Snow worried that their mutual incomprehension made for bad policy, and that not enough was done to harness the benefits of science for the world’s poor. He did not advocate government by technocratic elite, but he thought that politicians were insufficiently educated for their responsibilities. Their scientific illiteracy, he said, made them prone to bad decisions, often on the basis of bad advice.
If Snow were alive today he would draw his distinction somewhat differently. Among the policymakers, political advisers and public intellectuals there lies a new, equally dangerous divide; one all too clear in the recent financial crisis. It is between the numerate and the innumerate.
Very few people understand arcane theories of maths, or the complex models of statisticians and econometricians. But policymakers do need to understand basic concepts of risk: what it is, how it is measured and how it can be managed. This lies at the heart of many contentious debates, from the future of nuclear power and pension deficits to the management of epidemics or demographic changes. And it’s key to the regulation of the financial sector, and monetary and fiscal policy.
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George Magnus
In mid-March the Bank of England unveiled a radical departure from conventional monetary policy. With interest rates at a record low of 0.5 per cent, it announced plans to buy up $75bn of government bonds in a process that became known as quantitative easing (QE). Two months later the bank expanded the programme further, this time to £125bn. The move surprised some in the City, and was widely seen as indicating scepticism over the much anticipated economic green shoots. But what is the real goal of the easing policy?
Conceptually, easing is designed to stop a deflationary spiral. A collapse in credit and asset prices lowers wealth, which leads to falls in consumption, which in turn lowers asset prices again. Ultimately prices and wages begin to fall. Easing works by expanding the money supply directly, encouraging banks to start lending, stabilising demand, and encouraging investors to stop hoarding cash.
That’s the theory. Is it working? We don’t yet know. The original easing announcement caused gilt-edged security yields to fall sharply, in anticipation of the bank buying up lots of government bonds. But they have recently bounced back, driven in part by the recent stock market rally.
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David Willetts
View the details of the Prospect/YouGov poll on Margaret Thatcher’s legacy here; and discuss this article at First Drafts, Prospect’s blog
The election of the Conservative government 30 years ago on 3rd May 1979 is one of the key dates in Britain’s modern political history. That anniversary is not being marked by careful analyses of monetarism or privatisation but a focus on the character of Margaret Thatcher, with old animosities and caricatures out on display again. It is still very difficult to get a measured judgement of the 1980s without it all turning on what you think of Her.
There are many reasons for challenging this focus on her personality. For a start it fails to give adequate weight to the formidable intellects and political operators around her. Even in opposition in the late 1970s the process whereby Geoffrey Howe and Keith Joseph argued their way through key documents such as “The Right Approach to the Economy” turned out to be an effective way of preparing for government. A recent BBC play presented her as driven by the need to humiliate the men around her. But this is to misunderstand her argumentativeness—she believed in truth through conflict. She challenged and tested people and their arguments but, at least until her final period in power, there were always ways of arguing back which the key people around her mastered and which she respected. I know because I saw it. I was a middle period Thatcherite. I had been a junior treasury official during the battles of the early years when we just had to get a grip on public spending and stabilise the finances. Then for three years in the mid-1980s I was a member of her policy unit. The challenge, one of the hardest for any government, was to develop new ideas after years in office.
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Colin Crouch
Most people thought that the economic policy regime that succeeded Keynesianism in the late 1970s—usually called neoliberalism—was an attempt to get as close to the free market ideal imagined by neo-classical economics as possible. We now know that it wasn’t that; a part of what passed for a market system was in fact irresponsible risk trading that embodied important corruptions of the neoclassical model.
Nevertheless, the system of mortgage, credit card and other debt, backed up by secondary and derivatives markets, did also have a positive function. It enabled many people on low incomes, particularly in the US, to continue consuming and purchasing even when their jobs were insecure and wages static. This in turn kept demand stable at a time of global economic uncertainty. People in countries like the US, Britain and Ireland, with rising property markets and easy credit, benefited most directly. But they, in turn, helped Europe, Japan and the emerging economies by buying their exports. Without gross irresponsibility in the financial markets, we would all be poorer today than we are—though there is now, of course, a big correction under way.
I call this phenomenon privatised Keynesianism. Under true Keynesian policies, government took on the obligation of stimulating demand during periods of low confidence in private markets (and of doing the opposite during inflationary periods). For the past two decades this has been replaced by poor people engaging in their own deficit financing, replacing government debt with private debt. Making people with weak financial resources play a role previously carried out by governments served a useful collective purpose. But it did so because of unsustainable market distortions.
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Judith Mackrell
In 1921, when John Maynard Keynes admitted to his friends that he had fallen in love with the Russian ballerina, Lydia Lopokova, it was assumed he was indulging in an eccentric, even a perverse peccadillo. Not only was the near exclusively homosexual Keynes declaring passion for a woman, but the woman herself was in every sense a foreigner to his world.
The painter Duncan Grant, who had formerly been the love of Keynes’s life, expressed the view of most of his circle when he commented,”until I see them together it beggars my fancy.” Yet not only would the affair lead to a happy, stable marriage, it would also play an unforeseeably productive role in Keynes’s professional life. And, given Lopokova’s importance in sustaining her husband’s failing health as he negotiated American war aid and attended the Bretton Woods conference, Lopokova arguably played a rather central part in securing Britain’s position in the postwar world.
Keynes met Lopokova when she was dancing in London with Diaghilev’s Ballets Russes. She seemed a creature from a fascinatingly different world. The daughter of a Russian peasant, she trained at the Imperial ballet school in St Petersburg and spent most of her adult life dancing across Europe and America. By 1921 she was one of the world’s greatest ballerinas, so popular that fans chanted her name during performances. She was well connected too, counting Stravinsky among her lovers, and Picasso and JM Barrie among her friends. Her witty, poetic style of Anglo-Russian chatter was considered among the more diverting entertainments in London.
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