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The Day After (the election) and An Economics Lesson

8th May 2015

For what it’s worth, my tuppence on the last 24 hours. Before the election, I said there were only 2 things we could predict. One was that Nicola Sturgeon would be a winner. Check that box. The other was that whatever the outcome, someone would scream about a crisis of legitimacy. Wrong for the most part — though UKIP with almost 4 million votes, and the Greens who only got 300,000 votes fewer than the SNP will forever wonder what might have been but for the FPTP system. But against all the expectations, odds and last minute moves in betting money, the Conservative Party achieved an unlikely victory, and we cannot pretend otherwise. It got 36.9% of the vote or 11.3 million, against polling expectations of 32-34%, and compared with 36.1% and 10.7 million in 2010.

Labour, for the record, also got more votes than in 2010, 9.3 million, compared to 8.6 million, but its percentage of the vote was only 30.5%, compared to 29% in 2010. To be beaten by over 6%, 2 million votes and roughly 100 parliamentary seats was not in the script and underscores the distraught feelings running through Labour in the immediate aftermath of the election.

How did it all happen? It was not because the nation outside Scotland had been secretly infatuated with the Party all along. And the Party leadership would do well to remember this. It is true that the Party and the PM maintained their high ratings for economic competence and leadership, respectively, throughout the campaign. Perhaps they counted for more than pundits generally acknowledged. But on most other issues the Tories were not rated well or highly. Their election campaign by most accounts was poor and uninspiring. Cameron’s TV and radio appearances were professional but unconvincing — and several people questioned even wondered if he was otherwise distracted. And when the polls seemed to suggest that Plan A (the long term plan) wasn’t resonating with voters, the Party had recourse to a succession of random policy gimmicks and promises, such as the law not to raise taxes, and the unscripted £8 billion of NHS spending.

So, success in the popular vote and in the HoC needed some additional assistance. To state the blindingly obvious, this came in the form of the collapse in the Labour vote in Scotland and the stunning results of the SNP, and of the Lib Dem vote in England, much of which seems to have gone to the Conservatives. But it would be wrong also to attribute the Tories’ success only to the tactics that were designed to, in effect, pump up the SNP in Scotland, and worry English voters that a vote for Labour or the Lib Dems was a vote to increase SNP leverage at Westminster.

In the end, the focus is going to have to fall on why Labour failed in England, especially in 2-way marginals. Lots of reasons have been floated in the last 24 hours including a failure to emulate SNP left-ishness effectively, the media bias, the Miliband factor, the Tories scaring voters with Scottish nationalism, and other factors that all share degrees of arrogance and inadequacy. The fact is Labour couldn’t make inroads into the southern part of the UK, where the lion’s share of GDP and GDP growth reside. And it couldn’t really make enough inroads in the northern part of the country, where the rise in the UKIP vote was more than a nuisance. If it’s impossible to out-Scottish the SNP, Labour is going to have to figure how to beat the Tories in England, and win back the loyalty of the kind of voters who preferred UKIP.

Where do they begin? I’ll leave that to those who are far savvier than I am politically, not least in the Party itself. They will examine the implications, elect new leaders and adopt new political strategies. I just want to make one point as an economist, which harks back to the Tories’ perceived reputation on economic competence.

The Conservatives were allowed to dictate the narrative on the financial crisis from the moment they campaigned in 2010 to the moment the exit polls came out on 7th May 2015. There was a brief moment when public discussion focused on whether Labour had overspent while in office under Gordon Brown. It was intense (on social media), and momentarily in the traditional media, but it was too late. Labour should have grabbed this issue by the scruff of the neck much earlier and done so with gravitas and authority.

When the debate broke following a question on the screened Question Time, the focus was almost exclusively on the fiscal deficit and the spending levels Labour left in 2010. There were weaknesses and problems with both, but by general agreement — except the Conservative propaganda machine  — the Great Financial Crisis was not a fiscal crisis, nor caused by excessive fiscal laxity. Labour tried to argue the point but this didn’t seem to cut much ice with the electorate that acknowledges that the banks caused the crisis — true but over-simplified  — on Labour’s watch. Ergo….

And that is correct. The build up in private sector debt and in mortgages, including those belonging to people who could ill-afford them, did happen on their watch. The collapse of private sector savings, which is the counterpart of this, ditto. The fraternising with finance, and extraordinary eruption in the size of bank balance sheets, ditto. The liberal attitude to governance and regulation in the City, and the non-financial sector, ditto. There is no question at all that Labour left its fingerprints on the financial crisis, but not for the fiscal reasons the Tories claimed. By the time Alistair Darling and others were obliged to intervene in the autumn and winter of 2008  — and they were among the first to recognise the problem for what it was and address it appropriately — it was too late. The damage of neglect built up over a decade was too powerful.

But fast forward and what if Labour had launched a national conversation early in the last Parliament, acknowledging all the above and explaining the mistakes made in allowing private sector credit to run out of control? What if the Party had come clean on what specific decisions and policies allowed finance to grow amok, why they were taken, and what lessons the Party had learned now?

Importantly, what if the leadership had focused like a laser beam on the systemic causes of the crisis, and not focused exclusively on banker-bashing, and punitive policies on people in the industry and on the well-heeled in general? This may have played to the gallery, but didn’t do anything to alter the perception of populist grandstanding. This is not to dismiss higher tax, merely the obsession with punishing people, rather than trying to ‘fix’ the system. If it had persuaded people successfully, and had gone into this election with a clear strategy as to what  actions it would take to try and protect the real economy from finance, and change the structure of corporate governance and short-termism so as to benefit investment, I wonder if the electorate would have been more accepting, and more believing in Labour’s alternative economic strategy? Yes, there would still have been the issue of fiscal credibility but instead of fighting the Conservatives on ground already occupied, it would have been staking out its own claims on virgin territory in ways that politicians mostly shun. We need a robust Labour Party, and it should heed some economic lessons quickly.

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