The Liberal Democrats - a party at war with itself

The Telegraph reports:

Charles Kennedy announced a shake-up of his front-bench team yesterday in the first major reshuffle since he assumed leadership of the Liberal Democrats.

One of the main casualties is Matthew Taylor, who cedes the post of Treasury spokesman to Vincent Cable, a former chief economist with Shell who served as an adviser to the Labour leader John Smith when he was a minister in the Callaghan government.

During the Liberal Democrat conference I posted a couple of comments querying why the economically illiterate Matthew Taylor was still in his post and commending Vincent Cable, and it would be churlish of me now to refrain from saying that Charles Kennedy has made a good decision. The decision nonetheless raises an interesting question about the Liberal Democrats' collective identity. As The Times' highly astute political commentator Peter Riddell pointed out during the conference, and as I quoted:

Dr Cable's free market and free trade message clashes with the instincts of many Lib Dem delegates, and MPs. They often call for government help when a local business is in trouble… Today’s Lib Dems do not feel like the party of Cobden and 19th-century Manchester liberalism.

In fact Riddell understates the point. It isn't just Manchester Liberalism that today's Lib Dems oppose, but Keynesianism as well. Keynes's central economic insight was that modern economies, being cyclically unstable, required automatic stabilisers, and that an excess of saving might prevent the effective operation of one of those stabilisers (fiscal policy). The corollary of this view is that the budget should balance over the course of the business cycle, with surpluses being run during an expansion and deficits during a recession.

Contrast that premise with the approach of the Liberal Democrats to date under the Blair Government: Matthew Taylor's predecessor as Treasury spokesman, Malcolm Bruce, used the absurd term 'war chest' to describe the budget surplus in the late 1990s, six years into the post-ERM expansion, and urged the Chancellor to spend this 'windfall of extra funds'. Malcolm Bruce has now been appointed Trade and Industry spokesman in succession to Vincent Cable.

It's hardly been noticed, but Cable has been consistently advocating an approach that is thus alien to his own party's views. On 14 April this year he argued in the House for exactly the (consistent) Keynesian approach I’ve just outlined. Eschewing his party's earlier nonsense about 'war chests' and 'fiscal flagellation', he criticised the Government for not being assiduous enough in creating an independent institutional arrangement, comparable to that established for monetary policy (i.e. central bank independence), for securing budgetary balance over the business cycle:

Absolutely critical to the credibility of the Government's fiscal policy is balancing the budget over the cycle. However, who defines the cycle; who decides when it begins and ends? The answer is, the Chancellor. What is missing—in a sense, the Chancellor himself can remedy this—is some form of independent mechanism of assessment, such as the United States Council of Economic Advisers or our own National Audit Office, to create an independent base for establishing the credibility of forecasts. If such a mechanism is not established, the problem will be not merely the Government looking a little foolish in a year or two's time, but a loss of confidence in the markets.

In international economics too, Cable's views have nothing in common with those of his party. I know this, because a few years ago he wrote an excellent book on Globalisation and Global Governance. In the course of a thoughtful argument for political integration to accompany increasing economic integration, he made some well-judged criticisms of the anti-globalisation campaign:

It is difficult to maintain seriously the view that global economic integration is inexorably creating growing inequality. Those countries in southern Europe and East Asia which have sought most actively to develop through international economic integration have seen their income levels converge with those of the rich world. The largest concentration of global poverty is in India and China, both of which, while now growing rapidly under the stimulus of economic reform, opted for several decades to pursue isolationist economic policies.

In Parliament, instead of making facile and equivocal noises about the benefits of globalisation relative to the drawbacks, he has been refreshingly direct. At the time of the World Trade Organisation (WTO) summit in Doha two years ago, he said:

May I add my welcome for the Secretary of State [for Trade and Industry, Patricia Hewitt]'s timely statement, and take the opportunity to reiterate my belief that an open and liberal trading system, strengthened by this round, is exactly the way to counter the present crisis of confidence in the international economy, and particularly to help developing countries to progress through trade, which, as she rightly says, is the primary objective of the new round? I also ask her to go a little further and condemn some of the weasel words of her fellow Trade Ministers and Commission officials in Europe, who are still resisting the idea that radical trade liberalisation in agriculture and other protected sectors, such as textiles, has to happen, and that those product areas are crucial for all developing countries, not just the least developed. Will she also make it clearer than she did in her statement that although it is right to strive for enhanced environmental and labour standards, there is no economic or moral justification for allowing such barriers to be used as an obstruction to trade with countries that are too poor to afford those standards?

Finally, as the Secretary of State for International Development has joined her on the Front Bench, may I ask the right hon. Lady to emulate her colleague's forthright and occasionally courageous stance against some of the myths of the anti-globalisation movement, which are influential and do great damage? In particular, will she dismiss the fashionable myth that the World Trade Organisation exists to undermine public health and education, when it does nothing of the kind?

This admirably robust statement reflects my own view in every respect. It's worth noting that, contrary to the myths of the anti-globalisers, such views are shared by NGOs, trade unionists and economists in the developing world, as this influential 'Statement Against Linkage [of environmental and labour standards to trade agreements]' signed by more than 100 of them (and drafted by the trade economist Jagdish Bhagwati) makes clear:

It is time to raise our voices and call a spade a spade. The WTO's design must reflect the principle of mutual-gain; it cannot be allowed to become the institution that becomes a prisoner of every developed-country lobby or group that seeks to advance its agenda at the expense of the developing countries. The game of lobbies in the developed countries seeking to advance their own interests through successive enlargement of the issues at the WTO by simply claiming, without any underlying and coherent rationale, that the issue is "trade-related", has gone too far already. It is time for us to say forcefully: Enough is enough.

Yet Cable's views are contradicted at every turn by his party. Here's a gem from the International Development Policy Review, under the chairmanship of the then International Development spokesman Jenny Tonge MP, presented to the Liberal Democrat Spring Conference in 2002:

WTO rules need to be adapted to ensure that global environmental agreements like the Kyoto Protocol on global warming are compatible with trade rules.

Clearly if Jenny Tonge had thought about Cable's warning of 'countries that are too poor to afford those standards', then it did not trouble her. If you asked 56 Liberal Democrat MPs and the entire party membership whether they believed that trade rules needed to be 'adapted' to meet global environmental standards, I predict you would find a 'yes' response of something approaching 100 per cent, excepting only Cable and his deputy David Laws.

The Liberal Democrats' new Treasury team is thus in a comparable position to, though of course on a smaller scale and with much lower stakes than, that of Denis Healey and his Cabinet colleagues Edmund Dell and Joel Barnett in the Callaghan Government of 1976-9. They are well-qualified for their posts and advocate sensible positions – in a party that is entirely unready to face up to those economic realities.

No issue contributed more powerfully to Labour's disastrous 1980s foray into extremism and powerlessness than the split engendered by a responsible economic stance in Government and the revulsion it caused within the wider party. I have a shrewd suspicion that at what they believe to be this moment of triumph, the Liberal Democrats are set for similar ructions.

UPDATE: It's started already. The Guardian reports:

Lord Greaves, the Liberal Democrat environment spokesman in the Lords, described MPs Mark Oaten [new Home Affairs spokesman], Vince Cable and David Laws as "pseudo-Blairites with little following in the wider party" as the party reeled from their promotion and the sacking of the shadow chancellor, Matthew Taylor, and sidelining of the home affairs spokesman, Simon Hughes, in the weekend's reshuffle.

'Pseudo-Blairites' is, of course, intended to be derogatory - a more technically accurate term would be 'consistent Keynesians' - but I have no doubt at all that Lord Greaves is right to say Vincent Cable's ideas have little following among Liberal Democrats.

Here, by the way, is a picture of Lord Greaves.

Comments

[David Duff]

For a more detailed discussion on the philosophical pros and cons of Oliver's belief that "Keynes's central economic insight was that modern economies, being cyclically unstable, required automatic stabilisers,..",
I urge you to try
www.frontlinethoughts.com/index.asp
and read John Mauldin's thought-provoking essay on the nature of economic imbalances and the differing approaches of what he calls the "Ought to" Austrian school and the Keynsians.

I would welcome Oliver's thoughts on that essay - but not if it interferes with his efforts to drive a stake through what passes for the intellectual heart of Stephen Marks over on Beatniksalad!.
David Duff

[Mark T]

We can of course adapt the "statement against linkage" to apply to the Liberal Democrats - or any other party, to wit (my CAPS and brackets):

It is time to raise our voices and call a spade a spade. The POLITICAL PARTY'S (WTO's) design must reflect the principle of mutual-gain; it cannot be allowed to become the institution that becomes a prisoner of every (developed-country) lobby or group that seeks to advance its agenda at the expense of SOCIETY AS A WHOLE (the developing countries). The game of lobbies in WESTMINSTER (the developed countries) seeking to advance their own interests through successive enlargement of the issues at PARLIAMENT (the WTO) by simply claiming, without any underlying and coherent rationale, that the issue is ABOUT BETTER PUBLIC SERVICES/CONSUMER SAFETY/THE ENVIRONMENT ("trade-related"), has gone too far already. It is time for us to say forcefully: Enough is enough.

If we are to look on the positive side we might hope that Vincent Cable use his position to influence both his own party and the debate in general. A party which has a spokesman making clear, consistent and common sense remarks and exposing the existing short term "lobby fodder" would, in my view, begin to attract some deserved attention from the wider public. Common sense economics appeals to those of us left in the real world not dependent on central governmnet for our living. But maybe I'm kidding myself?

[john b]

David: while Mr Mauldin may have interesting things to say, I'm entirely reluctant to read anything by a man who insists on spamming you with his newsletter before he lets you view his website.

I am, however, looking forward to Oliver's demolition of the Austrian School. Literally would be ideal, although verbally would suffice.

[David Duff]

John b,
Whilst I'm happy to bluff my way on various topics I suspect that economic philosophy is best avoided to save my blushes - particularly on this site!

So go ahead and tell us why the Austrian school is such an abomination.
David Duff

[Jackie D]

Nice photo -- I can smell the patchouli from here.

[Simon]

100%-David Laws and Vicent Cable? Well, you can add me for a start!! Seriously though Oliver, I am glad that you think that these appointments are a step in the right direction. There is one way that you can guarantee that Vince cable will win out, and not Jenny tonge or Tony Greaves...join the party!!

[Peter Cuthbertson]

Oooh the suspense, Simon.

I think this reshuffle is a signal that Kennedy knows he did make a strategic error in Brent East. Appealing to the loony left and Islamofascists might win you Ken Livingstone's old seat, but it isn't going to be much good in the rest of the country. So Kennedy has shifted his frontbench rightwards to counteract this impression. It will be interesting to see if it makes much difference.

[A.E]

Actually the Lib Dems picked up Brent East(where London's inner-suburbs start), due to the very, very low turnout in the poorer areas of the seat, and the decent turnout in the affluent parts of the seat.

[Matthew]

The thing I don't understand about this 'Lib Dems made a strategic error in the way in which they won Brent East' is to whom? I live[d] in the constituency that bordered Brent East, I followed the by-election reasonably closely, and yet I had NO idea what policies the Lib Dems were proposing in their Brent East literature. Thus why would someone in Surrey, or Hampshire or wherevere else the Libs want to take Tory seats have any idea?

[Phil Rodgers]

A.E, I don't think you can attribute the result to differential turnout in affluent areas - after all, shouldn't that have helped the Tories, who had nearly twice the Lib Dem vote in Brent East in 2001? Rather, ISTM the main factor was widespread disaffection with both the government and the local council, ruthlessly exploited by the terrifyingly efficient Chris Rennard by-election machine.

If there was a differential turnout in less affluent areas, it was presumably due to residents of HMOs being unable to leave their homes on polling day due to the snowdrifts of literature of their doormats.

Phil Rodgers [Lib Dem, Cambridge]

[Jimmy Doyle]

I simply can't imagine why you thought that the picture of Lord Greaves might be relevant to the issue of whether his utterances are to be taken seriously.

[john b]

Jimmy - I'm sure it's nothing to do with the use of the ad-hominem fallacy that Oliver is so quick (and entirely correct) to point out in others.

[Jimmy Doyle]

(Actually, I was kidding. I thought that linking to the photo was a rhetorical masterstroke. I mean, could anyone look more like a beardie Lib Dem peer?)

[Oliver Kamm]

John b - Naturally I do not mean to imply that Lord Greaves's personal appearance is in any way relevant to the content of his argument, After all, how could it be? I meant only to add human interest to my story, and I'm glad to have the opportunity to make this clear.

[Simon]

Peter Cuthbertson...strategic error? Don't make me laugh!! Ooops, too late.

[A.E]

Most discontent with the present Government, is amoung the middle classes.
So if turnout is significantly higher in the posh parts of a very mixed seat, like Brent East, then it will naturally cause the government to lose the seat.

The result is actually only bad, bad for the Tories, as they failed to pick up a seat, with said demographic and turnout factors, that they came within 4% of winning in 1987.

[Simon]

Peter? Are you there Peter? Peter? No....