The Great Debate UK

Thank you, Gordon Brown

–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–

If the economics profession has sunk in public estimation in the last two or three years, it would hardly be surprising. Our failure to predict the crisis is something which cannot be simply brushed aside lightly, as some of my colleagues would love to do.

To ordinary folk, claiming to be quite good at explaining and even forecasting events in normal conditions, but admitting we simply can’t handle crises makes us about as much use as a doctor who knows how to treat ingrowing toenails and flatulence, but hasn’t a clue about how to deal with heart attacks or cancer.

Nor is that the only charge which could be levelled at the British profession. One could forgive any politician who felt bewildered by the sheer fluidity of the positions taken by the hordes of macro-economists offering advice, solicited and unsolicited, on the direction policy should take. After all, the overwhelming majority of the profession appears to be in favour of expansionary monetary policy (aka QE2) with an eye on keeping sterling weak against the euro and, if possible, the dollar (hence also against the yuan). Yet most of the same people were enthusiastic advocates of Britain joining the euro zone, in spite of the fact that the option of driving down our exchange rate in the way they advise is only open to us because we have stayed out of the single currency.

Likewise, many colleagues are equally confident in opposing too rapid a reduction of our budget deficit  – “After all, we aren’t Ireland/Greece/Spain/Portugal……” they snort, whenever anyone points to the possible risk of delaying the cuts, as they  would like us to do.

On this point, they are right, of course – we are in a very different situation from Ireland and the sunkissed PIGS. But why are we so different?

It’s certainly not because we have been running a tighter ship – in 2009, our deficit was 11.5% of GDP, compared to 14% in Ireland and Greece, 11% in Spain and a mere 9% in Portugal, and by election time, in May this year, our deficit was estimated to be running at 12% of GDP, compared with only 9% for Greece and less for every other EU member. Moreover, our accumulated debt, although less than many other European countries, still stood at 68% of GDP last year, 4% higher than Ireland, which is under intense pressure these days.

Why I have to sleep with the enemy

-Laurence Copeland is professor of finance at Cardiff University Business School. The opinions expressed are his own. -

A week or two ago, I posted a blog bemoaning the size of Britain’s public sector and expressing the fervent hope that the ill wind of the financial crisis would blow much of it away, leaving room for private industry to expand in its place.

In response, I received a number of mildly wounding (but fair) comments pointing to the fact that, as I myself work in the public sector, I was perhaps in a false position.

Now I could offer a defence along the lines that, when I started work, the City was a club which was closed to youngsters without money or contacts, that I have spent a few years in the private sector, albeit some years back, and that even now my main occupation involves teaching students, mostly from East or South Asia, who are almost without exception paying their own fees, which makes me a one-man export industry. I also keep the wolf from the door with the help of a little freelance consultancy and some book royalties.

However, instead of an apologia pro mea vita, I want to offer myself as an example of how corrupting government spending can be – or could be if I followed the advice to refrain from biting the hand that feeds me. After all, this view amounts to me being told to show my gratitude to my benefactor, HMG.

The lesson for politicians is clear. If the government of the day can buy my support (and presumably my vote) by the simple expedient of giving me a job, the way to retain power is obvious:  buy a majority.  Tax people so as to pay their wages. Every job “created” in this fashion is another household partly or totally indebted to you for its standard of living, and – more importantly – ready to vote against any party that dares to threaten it. No wonder the percentage of the labour force employed in the public sector keeps rising inexorably!

Coalition government alarms British Muslims

-Javaid Rehman is a professor of law at Brunel University. The opinions expressed are his own.-

For British Muslims, the new coalition government of the Conservatives and Liberal Democrats represents an alliance of strange and awkward bedfellows.

Muslim communities – historically supportive of the Labour party – are sceptical of the claims of Prime Minster David Cameron, to protect the interests of ethnic and religious minorities.

Admittedly, there was considerable disillusionment of the Labour government under former Prime Minister Tony Blair: British Muslims strongly disapproved of Blair’s decision to side with U.S. President George W. Bush in the so-called ‘war on terror’.

There was scepticism over the decision to aid the U.S. in the bombing campaign in Afghanistan post 9/11.

Blair’s alignment with Bush in the invasion of Iraq in March 2003, not only provoked serious dissent amongst British Muslims, but foreign policy grievances became a rallying point for Muslim extremists in order to justify suicide attacks, such as the July 7 bombings in London.

Further anger and resentment was provoked through such draconian legislation as the institution of the ‘control orders’ regime during Blair’s time and continued by his successor, former Prime Minister Gordon Brown, in attempts apparently to counter ‘home-grown’ terrorism.

A dangerous indulgence in post-electoral optimism

-Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -

It really is hard to resist the temptation to take a hopeful view of Britain’s new government.

I say this not because I am a fan of coalitions. They are an unfortunate necessity, something to be avoided at all cost in normal times – but these are not normal times.

In fiscal terms, we face a wartime situation, and the fact that there are no enemy aircraft overhead just makes it all the harder to get people to accept the need for austerity.

I have no idea how former Prime Minister Gordon Brown would have reacted to this threat if he had won re-election, because I never once heard him or his Chancellor of the Exchequer (or indeed Vince Cable) asked the $64-billion-dollar question: what if the markets won’t wait a year or two till you decide the time is right to deal with the deficit?

After all, the Greeks no doubt feel they should be given a year or two more, as do the Spanish and Portuguese governments, and no doubt the Irish too. What if the price of UK gilts drops precipitously, driving yields up to 6 percent, 7 percent, 8 percent . . . ?

This question may yet be directed at Business Secretary Vince Cable if he rebels over the fairly modest scale of the cuts proposed by the new government, as some commentators predict he will.

Gordon Brown: flawed saviour of financial system

– Hugo Dixon is a Reuters Breakingviews columnist. The opinions expressed are his own –

Gordon Brown may go down in history as the flawed saviour of the global financial system. Brown had many faults including overseeing a public spending splurge in his decade as the nation’s finance minister. But he did make one big contribution. He galvanised other leaders to save the bank system during the post-Lehman <LEHMQ.PK> meltdown.

Brown, along with Tony Blair, was the main architect of New Labour — an initiative that dragged the former socialist party away from the fringes and towards the centre-left of the political spectrum. After New Labour took power in 1997, Brown devoted himself to the economy. His main achievement as finance minister was to give independence to the Bank of England. That depoliticised monetary policy.

Unfortunately, Brown didn’t have nearly as responsible an approach to fiscal policy. Despite telling the country in numerous budgets that he was pursuing “prudence with a purpose”, he actually allowed state spending to balloon — with the result that, when the credit crunch hit, Britain’s finances were not as strong as they should have been.

After Brown became prime minister, he dithered when depositors started a run on Northern Rock. That said, after Lehman went bust in September 2008 and the banking industry faced Armageddon, Brown was fast to move. Washington failed initially to provide leadership, largely because George Bush was a lame duck president who didn’t appear to on top of the issues. Meanwhile, Germany’s Angela Merkel was slow to recognise that there was a problem. Brown, by contrast, understood the issues and was able to persuade other leaders to put together well-crafted bank rescues.

Brown also helped persuade his fellow leaders in the G20 to engage in coordinated fiscal stimulus. Although this helped avoid the recession becoming as deep as it might have, it also landed governments with bigger fiscal deficits — something that has contributed to the sovereign debt crisis now roiling markets. Yet again, Brown allowed his achievements on financial and monetary policy to be neutralised by his failings on the fiscal front.

Cliff-hanged

- Professor Christopher Harvie is a historian, teacher, political writer and SNP MSP for Mid-Scotland and Fife. He is the author of “Broonland: The Last Days of Gordon Brown.” The opinions expressed are his own. -

I

Outside 10 Downing Street at 7.29 on Tuesday evening, Gordon Brown announced his resignation as UK premier. Off to the Palace, where he would ask Her Majesty to send for David Cameron, ending five cliff-hanging days – or inaugurating many, many more?

On Monday morning Cameron’s Conservatives and Nick Clegg’s Liberal Democrats seemed to be engaged, about to form a coalition. By the evening they’d called it off, and when Brown announced his resignation as Labour leader, though not as Prime Minister, this gave the impression that a ‘progressive coalition’ of Labour/LibDem/SNP coalition was now a runner, under someone else.

Only for Clegg to turn up later and announce that the Conservatives were prepared to hold a referendum on a ‘fairer voting system’, their non-negotiable demand. The ‘progressive coalition’ vanished, as did Premier Brown.

II

It was not unknown for the Tories to become reformers to ‘dish’ the opposition. Disraeli, their greatest peacetime leader, had done so in 1867, going further to enfranchise the workers than his Gladstone, his Liberal opponent, was prepared to do. Had the toff outmanoeuvred the would-be radical?

Tory-LibDem pact looks good for UK, but is unlikely

-Ian Campbell is a Reuters Breakingviews columnist. The opinions expressed are his own.-

The UK’s third political party faces an ugly dilemma. Which way it turns will be critical for the British economy.

The Liberal Democrats trailed the Conservatives and the Labour party in Thursday’s general election.

But the lack of a majority for either of the other two parties leaves them powerful now. Entreaties to team up with either of the LibDems’ main rivals mean they could now help create a government.

The Conservative proposal looks the best for the UK: a coalition with a clear majority and the moral authority to tackle the fiscal deficit. That is now vital after the warning sounded by Greece. By contrast, a deal with Labour would partner the LibDems with a party that shares their gradualist approach to deficit reduction. But Labour has a strong suit: it offers a referendum on proportional representation. The Tories probably can’t match that. Their less appetizing carrot is a commission on electoral reform.

To back Labour, however, is an ugly option for the Liberals. It would mean they prop up a government voters have rejected. Still, the two parties’ electoral platforms were not poles apart. And if a referendum on proportional representation went their way, it could double the party’s future representation in parliament.

The better offer for the Liberals is the lesser one for the UK. The combined Liberal and Labour seats would still be short of a parliamentary majority, so the pact would be politically weak.

Breaking up banks is no silver bullet

– Hugo Dixon is a Reuters Breakingviews columnist. The opinions expressed are his own –

Breaking up the banks is no silver bullet. Politicians on both sides of the Atlantic — including two of the party leaders fighting the UK election — want to separate so-called casino investment banks from utility lenders. But such simple rules would create arbitrage opportunities and rigidities without curbing excess risk-taking.

In the last of the UK’s election debates, the Liberal Democrat and Conservative leaders vied with one another to see who could be tougher on banks. As a soundbite, the notion that nasty, risky investment banking should be split from nice, safe retail banking may well be a winner. Gordon Brown, the Labour leader who has a more nuanced position, was left looking like a defender of big banks.

The politics are similar in the United States, where the Obama administration has proposed the so-called Volcker rule, which would prevent banks from engaging in proprietary trading. Some version of this rule may yet emerge in the financial regulation bill now going through Congress.

But these initiatives ignore the fact that excess risk-taking was a feature of all types of financial institutions during the credit bubble. Utility lenders — such as the UK’s Northern Rock or Washington Mutual of the United States — bit the dust. So did casinos like Lehman Brothers.

Politicians also risk missing the main target. Take the Volcker rule. It wouldn’t do anything to curb “non-proprietary” trading, where banks trade but not on their own account. What’s more, as soon as the regulators define proprietary trading, banks will find ways of doing the same business under a different nomenclature.

The other problem with structural separation is that it would create rigidities. This is most obvious in the type of “narrow banking” proposed by John Kay, the British economist. Under his scheme, deposit-taking institutions would only be allowed to invest in government securities. While this might appeal to governments that need to fund their deficits, it could gum up the flow of savings to industry — and it won’t give savers a good deal either.

Oratorical skills proxy for leadership skills in debates

- Timothy Clark and David Greatbatch are professors at Durham Business School. The opinions expressed are their own.-

The three televised party leader debates in the UK show that live oratory is still a powerful tool and remains an important source of the public’s perception of a politician’s image and abilities.

They have perhaps raised awareness of the importance of effective political oratory as the party leaders and their messages are exposed to an audience of millions rather than thousands and the instant critical scrutiny of bloggers, commentators and the “worm”.

Apart from their novelty a key reason for the importance of these debates is that they provide audience members with an opportunity to use the verbal and non-verbal cues of each party leader to ascertain their leadership ability.  Therefore each party leader’s oratorical skills become a proxy for their leadership skills.

The polls after the first debate showed Clegg the clear winner.  Up until that event he had not been treated as an equal in parliamentary exchanges between party leaders, such as Prime Minister’s Questions.

These were conveyed generally as exchanges between Labour and Conservative party leaders with the Liberal Democrat leader marginalized.  Brown and Cameron’s experience was therefore largely of one another.

Suddenly, they were required to deal with him on an equal footing.  The fact that Clegg’s performance after the first debate was deemed so much better than that of Brown and Cameron must have come as a huge surprise.

Such stuff as political careers are made on

- Mark Kobayashi-Hillary is the author of several books, including ‘Who Moved my Job?’ and ‘Global Services: Moving to a Level Playing Field’. He is participating in the Reuters Election 2010 politics live blog during the leaders’ debates and on election night. The opinions expressed are his own. -

The veteran Channel 4 presenter, Jon Snow, lamented to the Guardian on Wednesday that the fire has gone out of the election campaign because of the televised leader debates.

His view is that instead of a month of constant policy analysis and scrutiny by the press and public alike, as politicians race across the country in coloured coaches, we have a news lull between each televised debate.

And I do have some sympathy with his views – debate does seem to peak every Thursday. It’s been a one-month campaign running up to the election on May 6, with three leader debates on ITV, Sky, and tonight on the BBC.

Snow joked that Channel 4 also wanted to host a debate, but the politicians were not impressed by their plan to allow cheeky chef Jamie Oliver to ask the questions.

Yesterday’s ‘bigotgate’ is an example of what Snow is talking about. It’s not really a major event when compared to John Prescott punching the egg-throwing electorate, or former Prime Minister John Major calling his cabinet ‘bastards’ in a similar microphone-left-on gaffe.

Yet, immigration is a hot topic in this election, so the bigoted-woman saga has been elevated to front-page news.