Counting Cost Of Chameleon Cameron?

The weight of history ways heavy on British Prime Minister Mr David Cameron shoulders. And so it should, as 2012 the Olympic year which initially promised so much joy, could prove to be the most turbulent one since 1973 for the United Kingdom (UK) and potentially the whole global economy.

In the year the movie, “The Iron Lady”, brings back into focus some of the lesser social and economic achievements of his eminent

Oh Hello, any ideas how we resolve our very British Economic Problems Picture © New Statesman

predecessor, Margaret Thatcher, (i.e. policies allowing erosion of the manufacturing base, monetarist experimentation that sacrificed communities for individual rather than collective gain, and the elevation of profit over principle as core UK companies were sold without consultation and key others¹)  it is ironic that David Cameron, supported by his “cabinet of coalition millionaires” now finds himself in the invidious position of having to unravel, and solve, the long tail legacy of many of these social and economic policy decisions in the space of a single term of office, if he wants to be re-elected.

Any detractors from this point of view will probably ask, why if the germination of these policies was so destructive did Labour not reverse or correct them within three consecutive periods of office? The best explanation of this conundrum has appeared recently in a remarkably insightful and introspective piece by Emma Burnell in the New Statesman. The article “Thatcher shaped Labour’s left as much as its right” is worth a read, not just by Labour supports but by all sides of the political spectrum. Labours failure to engage and represent “Labour”, by promoting responsible capitalism, protect British interests within British Companies (Cadbury’s factory closure fiasco), failing to introduce a points system and curbing immigration (particularly from the third world) and educating the working class for the 21^st century, is a question only time and history can answer.  However before that, history will have chance to pose a few more questions of the current administration in terms its support of Labour and apparent unfettered support of Capital.

David Cameron, having started the second wave of the Conservative assault on employment prospects in the North of England by savaging the public sector jobs on which those regions increasingly depend – he is being pressurised to implement policies that are both socially inclusive, proportionate and in the distribution of their impact, “fair”. However the Conservative campaign against the economic future of the North of England, where outside the rural areas they attract little support, is not where the media focus currently lies; no that is still reserved for the bankers.

The greatest scrutiny has been reserved for the banking industry, who have been credited with the burden of responsibility, because of recklessness and lack of control of complex financial products, with creating the causes of the global recession. Regulating the banking industry has been a major undertaking, and one that appears to be an intractable one for this administration. Even when an institution is 83% owned by the country (i.e. RBS) and the tax payer, David Cameron appears impotent in his attempts to legislate for  fairness, proportionality and public opinion.

Stephen Hester appears to be doing a reasonable job to rebuild and reposition RBS, but what cannot be ignored is that whilst RBS has sold insurance arms and retreated from markets where it believed itself to be uncompetitive, much of the profit growth is being driven by cost savings resulting from cutting employees – a lot of employees! Downsizing by reducing labour is a classic tactic from the management consultants book, and the quickest way to reduce cost. It has not always been the most beneficial tactic for medium term business strategy and long-term profitably and it is certainly not good news for the tax receipts of UK plc.

Whether history will be kind to Mr David Cameron will ultimate depend on the events of the next two years; and of course the perception and political persuasion of the person writing it. However what it will show is three simple matters of record (albeit the jury is still out on (2)):

1. David Cameron’s Conservative Government oversaw, and potentially orchestrated through their austerity plan the first breaching outside war-time of the £1 trillion threshold for UK National Debt .

2. David Cameron’s Conservative Government paid the first £1 million bonus to a public sector worker, Stephen Hester at RBS (Royal Bank of Scotland), in the shares of the entity for which he was working.

3. David Cameron’s Conservative led Coalition Cabinet includes the highest number of millionaires since the Second World War within its ranks and possibly since the First World War.

The Devil is in the Detail of these statements. After breaking the cycle of Conservative Governments being in power at the start of all recessions since the war, 1973-1975 (Heath 1973), 1980 – 1982 (Thatcher), 1990 – 1992 (Major), with Labours starring role in the most recent one (Brown 2008), David Cameron and his chancellor George Osbourne are set to be the principle architect of the first double dip recession (Daily Telegraph: UK heading for first double-dip recession since 1975) since the one inspired by the oil crisis and industrial unrest in the 1970’s.

A whole host of eminent economists and financiers (including George Soros) have queued up to caution the UK Government against such severe austerity measures, and so far they’re “not for turning”.  As the USA economy accelerated in response to a variety of stimulation packages to 2.8% (Jan 2012), the UK economy was seen to have slipped back by 0.2% in the last quarter of 2011.

The inference now being drawn by the UK media is that the individual members of the cabinet are too removed from the realities of a seriously troubled economy.  Over 2.68million, or 8.4% of the working population is unemployed, and retailing a traditional high employer is in retreat. If the UK economy is trending toward recession it is doing so already in fairly bad shape, and with other dark clouds in the shape of further reductions to tax receipts, and increasing pressure from Europe’s financial crisis, on the horizon.

The orthodoxy of Keynesian economics would at this point of the cycle be encouraging spend on a variety of infrastructure and capital projects. It would also encourage gentle stimulation of the economy via tax and as Nick Clegg (Liberal Democrat leader and Deputy Prime Minister), predicates a raising of lower threshold tax allowances, coupled with increased higher rate taxes for the wealthy, would increase disposable income and offer stimulus to the economy as the money would be spent, and therefore not lead to decreased tax receipts overall, but this is not the path George Osbourne is following.

Going forward the most direct comparison of performance will be made between the US and the UK. The fiscal policies have the

Could this be a British “Excuse Me” Dance Not an US one? © Robert Carter

sense of a reverse polarity, with the US deficit accelerating to 75% of GDP, driven by stimulus initiatives, the UK’s over 65%, affected by the interest on the debt burden negating much of the benefits of the cuts, one economy is in recession and the other is growing by over 2.5%.

The jury is out on the direction of economy policy and the outcomes, and whilst the problems of the Euro zone persist, the backdrop is not an easy one. The United Kingdom is not quite yet in the position of Italy or Greece, however what is certain is without attempting to stimulate growth Britain could start to share more of their problems. The Devil is in the Detail and there is certainly a lot of detail to come, but one fact that stands out from the United States of America experience is that whenever growth falls below 2%, the cold wind of recession follows. should the UK take note. Oh I do think so.

¹Thatcherite monetarist ,and the socio-economic policy it informed, has defined modern Britain: in fact to such a great extent that the Labour Party in a full three terms barely deconstructed any of its edifice. Its philosophical tenets were in fact barely challenged as the Labour Party opted to operate within them, rather than confront them when trying to create a fairer distribution of wealth and avert child poverty (running at almost 30% during the Thatcher years). The benefits to the economy of a more commercial mentality after a challenging start quickly accrued, however the increased prosperity came at a price and required the free market attitude to financial matters to be extended to other assets classes (i.e. property), capital, and Labour. Many policies were enlightened and necessary for a moribund Britain to compete, however some were retrograde steps and informed by pettiness, class politics and the small mindedness often found in the established upper middle classes.

By waging war on the unionised mining industry (and by default the working class who as Owen Jones ² writes were demonized and labelled “Chavs”), with a savagery and speed that caused significant long-term unemployment, Thatcher effectively enabled the economic dismantling – and some intstants disintegration – of many northern towns (France dismantled its mining industry over a period of 20 years and retrained the miners as it went). Though her “Big Bang” financial deregulation policy certainly elevated Britain’s stature as a financial centre, because of the inadequate regulation that accompanied it is argued, that she sowed the seeds, by unleashing the hounds of banking hell, of not only the last 20 years of  UK economic “boom and bust” but the 2008 credit squeeze and subsequent recession. What is certain is the wealth that flooded in after deregulation ignited the culture of greed, which to a society now effused with the profit motive, has seen the sale or demise of many British Companies  (particularly within the manufacturing base of the United Kingdom), rampant financial speculation (i.e. shorting of shares) and the consequent destruction of stores of individual (i.e. pensions) and corporate wealth.  by allowing the mores of short-term profit and competitiveness to triumph over conscience.  

Other memorable Thatcherite strategies included the introduction of the poll tax, which was almost universally reviled , and energising oand redefning of the “Stop and Search” Police powers (SUS Law). In the protests which ignited as street riots we can see a template for the more recent riots and the source of the enduring legacy of friction between some communities and the Police.

² Chavs: The Demonization of the Working Class by Owen Jones, is an interesting work on the social dynamic and how political forces can inform and redefine societal meaning. And much more!