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Report by Prateek Buch

As detailed in a letter to the Observer, the campaigns group Compass has helped piece together a Plan B to boost the stalling economy, having declared the Government’s Plan A to have failed.

I was at the event that marked the launch of the Plan B document, and would suggest that whilst it marks a welcome addition to the emerging discourse on how to spark a recovery from our current economic malaise, much of the detail needs to be scrutinised if it is to be put into practice. Many of Plan B’s measures echo what the Social Liberal Forum have been calling Plan C for some months
and what Vince Cable prefers to call Plan A+ – semantics aside, there is now a pluralist debate on alternatives to the neo-liberal agenda and that is welcome.

The meeting began with a précis of how Plan A had failed from economist Howard Reed, who edited the Plan B document along with Compass Chairman Neal Lawson. Reed detailed how Chancellor George Osborne’s insistence on expansionary fiscal contraction – the hope that cuts to public spending would ignite private investment and growth – had not only failed to drive economic
recovery, it had failed to achieve even its most elementary objective of reducing the government’s deficit.

This was, according to Reed, largely due to the negative effect on demand that austerity measures were having through job losses – the immediate answer to which was to halt the deficit reduction programme in favour of ‘emergency recovery measures’ such as more quantitative easing (QE) directed at a Green New Deal, raising benefits for those out of work, and the implementation
of a financial transactions tax to cover the costs of these measures.

I welcome the forthright assertion that Plan A isn’t working, but would have to question some of the narrative that Reed pursued – not least the simplification in blaming public austerity for depressed economic output when the former has simply accelerated and deepened the latter which occurred for reasons largely independent of the state of the government’s finances. Calling for a complete
moratorium on public spending cuts is ill-advised, although many of the measures (both short- and long-term) that accompany this call are thoughtful, economically and politically sound and should be seriously examined.

Anna Coote of the New Economics Foundation then followed with an exploration of Plan B’s overall aims, which is to foster a Good Economy for a Good Society. This centred around growing what she called the ‘core economy,’ with a particular focus on ‘the human resources that comprise and sustain social life’ such as good parenting, caring for the vulnerable and maintaining social
networks and civil society.

Coote rightly argued that a narrow focus on GDP as the only indicator for economic progress ignored the core economy in favour of a purely financial measure – and that too an aggregate one that doesn’t acknowledge the unequal dimensions of how the proceeds of said growth is distributed. Coote made some welcome proposals around job-sharing and measuring the unpaid work of parents and carers as a valued part of the economy, as well as advocating the fairer distribution of time for people to carry out such functions. As all the speakers acknowledged, there is much work to be done before the principles set out in Plan B can be translated into effective policy.

Will Hutton responded to the Plan B document by welcoming its direction of travel and encouraging its authors to be bolder, to go further and to consider much of what he’s been advocating in both his latest book and his Observer columns. Hutton reasserted that the drive to eliminate the deficit in four or five years was a political aim not an economic one, as was the requirement to have the government’s debt-to-GDP ratio falling by then – he went as far as to say that the Ricardian equivalence between current debt and future tax rises as being ‘for the birds.’

Hutton called for a number of radical measures not mentioned in Plan B, including changing the Bank of England’s remit to focus on nominal GDP growth, creating the institutional conduits to allow QE and credit easing to small and medium enterprises (SMEs), and crucially to encourage equity-based finance for innovative firms and not just debt-driven credit. He also reiterated his support for an innovation strategy through which the State could foster economic dynamism along the lines of what Ha-Joon Chang suggested at the Institute of Public Policy Research recently.

The meeting then split into parallel sessions on various topics, and I took part in one centred around the State’s role in fostering sustainable growth. Mariana Mazzucato emphasised that the State can encourage entrepreneurship and innovation without price-fixing by creating new markets where the private sector can become involved latterly – she gave the example of the nanotechnology sector as how this has been done in the past. Mazzucato warned however of the need to ensure adequate returns on any public investment into such ventures, which in many cases had been ignored in the past. I added that the transfer of public investment into private profit without a return to the
public realm was often replicated in the scientific research and development sector with decades of taxpayer-funded research being capitalised on by private firms and that in the future investment in green technology should proceed such that all stakeholders in get a fair return on their investment. David Hall-Matthews and I both spoke of the need for the welfare state to focus on retraining and lifelong skills acquisition, with David emphasising the role that both the State and trade unions could play in the formation of a ‘flexicurity‘ model of the labour market. Kamaljeet Jandu of GMB said that unions do play something of a role in retraining but could go further.

Finally the meeting ended with a plenary given by Professor David Blanchflower, who started by focusing on the disastrous effects of the depression on the under-25s amongst whom the unemployment rate is 21%. Raising the probability of the UK experiencing a prolonged depression following the crash of 2008 along the lines of Japan’s Lost Decade, Blanchflower attacked the Prime Minister’s insistence that Britain was on the verge of bankruptcy like Greece. He called for a more lucid economic policy that would include a two-year National Insurance holiday for firm hiring young workers (as well as tax breaks for any firms hiring more than they’re firing), investment in infrastructure done in a way that creates jobs, and a massive expansion of university places for science, engineering and technology courses.

Much of what Plan B sets out is to be welcomed, and shares a direction of travel with Plan C as mentioned above. Although Osbornomics has lead us to the edge of a precipice, if we focus on the creation of a sustainable, equitable and flexicurity-based economy we can repair the damage done to date, especially if we acknowledge that economic dynamism and the creation of meaningful work
is a joint enterprise between an enabling State and a fairly constituted private sector. The discourse continues.

The Autumn 2010 edition of Renewal – a journal of social democracy – sees the Chair of the Social Liberal Forum David Hall-Matthews writing about the formation of the Coalition government from a Lib Dem perspective.

The Liberal Democrats have always believed in coalition government – not just out of necessity, but also on principle. You cannot believe in proportional representation without thinking that rule by consensus is inherently desirable. Perhaps less obviously, if you believe that coalitions make for good politics, you have to be willing to try and find common ground with parties who may not seem to be natural allies. A party that is only willing to form alliances in one direction would have few bargaining chips – and would quickly become an adjunct.

In addition, the process of negotiating a possible coalition itself threw up all manner of surprises. It forced all party leaders to reveal intriguing things about their beliefs and ambitions – as well as their capacities to take their supporters with them – that had not been evident. In that respect, coalition politics has already proved itself to be very good for British democracy. Activists of all parties, in reacting to events, also had to examine what their priorities were. Close political friends suddenly realised that the basis of their allegiance was not certain – that they had different motivations and different taboos. Even more uncomfortably, some long-standing enemies were forced to look beyond the easy demonisation of each other and recognise common ideals.

The process of realignment looks set to last for months, if not years. It is far more complex than how far left or right each party – or individual – is willing to shift. It might take more than one coalition parliament for British politics to re-find its feet. Indeed there will have to be at least one more for it to be established that a coalition government is not the same as a permanent alliance (obvious though that is in many other countries). Strategically, both Labour and the Liberal Democrats should be making quiet efforts throughout this parliament to ensure that a coalition between them is at least possible after the next election. But that will not be easy.

David then goes on to describe the important lessons to be learnt regarding the Conservative and Labour parties as a result of the Coalition negotiations:

Least surprising, perhaps, were the Tories – of whom it has long been said that they will be willing to swallow anything from a leader who delivers power. The unexpected twist was the positive enthusiasm with which David Cameron embraced the possibility of cooperation. His ‘liberal conservatism’ had always seemed acquisitive if not outright phoney, but his stance since the election has been genuinely open-minded in many areas. If he remains the right-wing wolf who wrote the thoroughly nasty 2005 Tory manifesto, he has somehow found a very impressive ovine tailor. His may still turn out to be sheep’s clothing, but it should be acknowledged that it may not. He seems genuinely pleased to be able to use the need to keep Lib Dems onside to face down the far right of his party – which can only be a good thing for the country.

As for Labour, it was not a surprise that they lacked the energy to try and make a difficult ‘progressive’ coalition work, with the arithmetic and media stacked against them, after thirteen increasingly bruising years in government. But there was a more general sense of unwillingness to stay in power too. Unlike the Tories, and despite three extra days, their negotiators went in to meet the Lib Dems almost unprepared.

There follows a raft of lessons for the Lib Dems, including a neat summation of Social Liberalism and its centrality to the party’s ethos:

Like all parties, the Lib Dems are an eclectic bunch of separate interests. Unlike other parties, their coherence has not previously been tested in the furnace of government. Many commentators have emphasised the differences between the Gladstonian economic liberalism invoked in The Orange Book (Marshall and Laws, 2004) and social liberalism, as set out in Reinventing the State (Brack, Grayson and Howarth, 2007). In truth, the two are not incompatible. Indeed both David Laws, setting out his stall in The Orange Book, and David Howarth, in Reinventing the State, are at pains to argue for their compatibility. Laws insists that his goals are social liberal ones, but that the state is not always the best means to achieve them. If Laws is a social liberal, despite co-editing The Orange Book, then surely Howarth is justified in arguing that so is every Liberal Democrat.

Social liberalism emerged from the New Liberalism of T. H. Green and Leonard Hobhouse, which informed the creation of the welfare state between 1908 and 1911, driven by David Lloyd George. But the key political forebears of the modern party are John Maynard Keynes and William Beveridge. Liberal Democracy is defined by a concern for fairness – not as opposed to freedom, but as a necessary corollary of it. People are not free to fulfil themselves if constrained by poor education, health, living conditions, poverty or lack of opportunity. For social liberals, it is the raison d’etre of the state to make sure those ‘five giants’ are attacked. Most liberal philosophers since the war have focused on social provision by the state, from John Rawls’s A Theory of Justice to Amartya Sen’s Development as Freedom.

Every Liberal Democrat is a social liberal – but some are also economic liberals and some are not. The distinction is therefore subtle but nonetheless real. The key differences are over means rather than ends. Lib Dems are naturally closer to Labour than the Tories because social justice is a higher priority than economic growth and because, on balance, Lib Dems trust the state. But for classical liberals like Laws, the state is only sometimes the best guarantor of people’s rights. Pointing out the failures of Labour’s best efforts to reduce child poverty through central programmes, for example, indeed puts some Lib Dems on the same page as the Conservatives – but also as Frank Field, and arguably in the same public sector reform tradition as Peter Mandelson and Tony Blair. Further, it is widely recognised that in the liberal fight against unchecked power in all guises, the state can sometimes be part of the problem.

David ends with an exploration of how Liberal Democrats can make this Coaltion with the Conservative party work – not jsut for the party but for the country.

Having chosen coalition with the Conservatives over the purism of opposition (and it is fair to say that some activists are unhappy with the notion of being in power per se), the Liberal Democrats nonetheless have a thorny strategic problem. They have to try and do three things at once that are related but also contradictory: maximise their influence on policy, make the coalition work as a stable and coherent government, and retain a distinctive voice in British politics. So far, their greatest success has been in emphasising common ground. It is obviously necessary for a small centre party whose only hope of influence is through coalition to sell the idea of coalition itself to voters. The difference between the Lib Dem vote share on 6 May and their opinion poll ratings the day before represented perhaps a million people who liked the party but feared coalition government. If that can be reversed, Lib Dem electoral prospects will be respectable and the possibility

of an extended era of coalition will be greater. However, in combination with the undeniable personal chemistry between Clegg and Cameron, the apparent coherence of the Coalition government – based on a shared economic liberal philosophy – sticks in social liberal craws as much as it antagonises the Labour Party.

The Liberal Democrats urgently need to start showing how they are different. What they would like to do is publicise their preferred policies before government plans are formed. It has been accepted (perhaps too readily) that the principle of collective respon- sibility applies fully in a coalition, so decisions must be supported once made. However, if the Lib Dem position is clear before that, the public will be able to see which battles they have won and lost – and give credit for their so far insufficiently visible efforts. There are dangers, though, in publicising your losses. A Lib Dem parliamentary committee could end up calling for one thing and then be obliged by the whips to vote for the opposite. On the other hand, if the strategy worked and the media started to highlight the Lib Dem influence in popular policy while blaming the Tories for the nasty bits, the coalition could be fatally undermined. There are signs, though, that the Liberal Democrat leadership is willing to take some risks in order to be distinctive. Tory attacks on Vince Cable’s call to explore the idea of a graduate tax arguably strengthened his position in the debate – though of course they reduced his chances of turning it into concrete policy. Even Nick Clegg’s condemnation of the ‘illegal war in Iraq’ during his first Prime Minister’s Questions was strategic, not accidental.

If the Liberal Democrats succeed in being distinctive, influential and loyal all at once, they have much to gain out of the Coalition. Of course they will be judged on their record in government – and even if they are judged unfairly, that is a better position to be in than any living Liberal can remember. But they have to keep their eyes on a fourth goal too. Like

Labour, they need to prepare a long-term strategy that at least keeps options open. Of course the Lib Dems and Labour cannot negotiate openly, but some quiet diplomacy would be wise. In the current climate, such rapprochement sounds difficult. Once again, the answer may lie in public policy debates outside the realm of government. If the Lib Dems declare where their aspirations differ from the Coalition agreement, or suggest new policy ideas that are not taken up, it would be helpful for them to be considered by Labour. The reverse is also true. Multiple conversations on policy similarity and difference can bloom, without tying either side down.

This article was originally published by Renewal – a journal of social democracy, and can be viewed in full here.