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‘Muscular liberalism’: how to make it work

By Simon Goldie
July 29th, 2011 at 11:18 am | Comments Off on ‘Muscular liberalism’: how to make it work | Posted in Liberal Democrats, Liberal Philosophy, Uncategorized

If Nick Clegg is to continue his pursuit of ‘muscular liberalism’ at the Lib Dem party conference there are two ways he can make it work.

While the term ‘muscular liberalism’ was used by the deputy prime minister to describe how the party would differentiate itself to its coalition partners, it is how that is done that will lay the ground for the party’s electoral proposition in 2015.

It is commonly accepted that there is a rough divide in the party between social and economic liberals. This is crudely seen as a difference of opinion between liberals who favour social justice over liberty and liberals who favour letting the free market work so that liberty and fairness are achieved spontaneously. Yet, both groups agree on some fundamentals about the concentration of power and the freedom of the individual.

Perhaps what really separates the two is how to tackle the problems of a modern society. For instance, the financial crisis has led to calls for greater regulation in order to ensure that the taxpayer doesn’t have to bail out a bank ever again. Government’s supporting banks, or any other business, goes against the liberal grain.  With an already complex, regulated system that gets price signals from a central bank the idea of putting in more regulation to deal with the problem seems very logical. This policy answer could well be part of Clegg’s ‘muscular liberalism’. This response is certainly part of a social liberal agenda.

But as the joke goes about asking directions, would you start from here? A liberal might prefer to be in a different situation in the first place. If there was a way of tearing down the barriers to entry for new financial organisations, freeing up the market so that when a bank failed it could fail and removing perverse incentives to borrow money when one shouldn’t be borrowing money, economic liberals would raise their hand and say yes to that. In fact, if such a system satisfied the policy objectives of the ‘social’ wing of the party, it is hard to see why they would object either.

Could this type of ‘muscular liberalism’ work? If Clegg and others decided that this was the liberal direction of travel they wanted to follow, they may still have to temporarily accept some form of regulation of the banks to deal with the current situation while working towards a liberal approach that John Stuart Mill would be comfortable with.

This approach could use Jock Coats’s ‘rigorous liberalism’ as its template.

What all of this comes down is making a choice between trying to make the economy and society more liberal by using policy tools that led to the current status quo or by using liberal mechanisms to achieve liberalism.

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Tories call on David Brent to save the UK economy

By Tom Papworth
July 27th, 2011 at 8:12 am | Comments Off on Tories call on David Brent to save the UK economy | Posted in Book Review, coalition, Conservatives, Debt, Economics, Liberal Democrats, Liberal Philosophy

Politics makes strange bedfellows; coalitions especially. In the 1970s the Liberals made a pact with socialists despite socialism being the antithesis of liberalism; in 2010 the coalition finds us in bed with Conservatives despite the Tories opposing liberalism for centuries.

Coalitions therefore require us to remind the voters how we differ from the parties with which we are aligned in government. This week a new report from the Conservative-leaning think tank Civitas reminds us of one crucial difference: the Tories have always opposed free trade.

Reviving British Manufacturing: Why? What? How? appears to be a throw-back to a former time, when the Tories banned wheat imports to protect the interests of their landed backers. Between fawning praise for Margaret Thatcher (“No one doubts Mrs Thatcher’s commitment to a market economy, [Er… Yes they do – Ed] but she was no market fundamentalist and her pragmatic patriotism is often forgotten“) Civitas suggest that the UK should indulge in one of the most fundamental economic blind-alleys in the Handbook of Bad Government: protectionism.

The reason that Civitas cite for this bizarre and dangerous policy is the UK’s balance of trade deficit, which measures the net flow of payments for goods and services into/out of an economy. Civitas argues that “We already have a balance of payments problem… With the annual trade deficit in goods now at a new record of £97.2 billion… only radical Government action will prevent Britain’s permanent decline as an industrial society“.

In fact, they later admit that the real trade deficit is £46.2 billion, but that they are choosing to ignore the trade-surplus from services. This is an absurd confidence trick, which ignores the fact that the UK’s comparative advantage is in services (Yes, even financial services! – try to contain your disgust). This attempt to make us focus only on one part of the economy is risible: I suspect that if one ignored manufacturing and focussed solely on services one could argue that China is running a trade deficit; if so, the politburo do not appear too bothered.

Even accepting that there is a trade deficit, this does not matter. As Milton Friedman noted, £100 billion is only of use to foreigners because it enables them to buy £100 billion worth of British goods. The pounds themselves are useless to them: “they cannot eat them, wear them, or live in them. If they were willing simply to hold them, then the printing industry – printing [pounds] – would be a magnificent export industry… [that] would enable us all to have the good things in life provided nearly free by the” nations foolish enough to swap perfectly good goods and services for paper adorned with the Queen’s face.

In fact, many foreign nations seem quite prepared to do that, and worse: they then lend the money back to the UK. This has created twin problems: on the one hand, it enabled us to buy even more of the good things in life (such as the public services spending splurge from 2001 to 2010), but only by borrowing against our future and that of our children. Secondly, it kept our currency high and theirs low, thus making our exports less competitive and theirs more attractive, and so exacerbating the balance of trade problem.

The solution, one might therefore think, is to stop borrowing the money. If they can’t lend it to us, they will have to spend it in the UK, and so we will achieve equilibrium in our balance of trade (but with a weaker pound). However, if you are a Tory think tank, there is an alternative: protectionism.

“the Government should encourage an increase in manufacturing output by about £10 billion per year”, the report argues, (why not £11 billion? 12 billion? What’s so special about £10 billion?), but crucially, this should not be done through promoting exports (itself dodgy, but now is not the time), but by import substitution: “exporting is costly… in the short run … it will be much easier to focus on the home market and out-compete importers.”

Import substitution is economic madness: not even Labour recommends this sort of thing anymore. It completely ignores the Law of Comparative Advantage(aka. the Ricardian Law of Association) and indeed undermines the whole basis of trade, which is specialisation and the division of labour.

And what are the four industries that Civitas wants the UK to specialise in over the next few years? Where should we focus our efforts, expanding domestic supply by throwing up walls to prevent cheap foreign imports?

In a companion essay, Civitas cite four particular industries that might not strike the average reader as particularly promising: Paper; Glass; Steel and Motor Vehicles. Admittedly, we have some good companies operating in each of these industries, but the idea that Wernham–Hogg paper merchants will become engines of the British economy is hopelessly naive.

Add to this the suggestion that Britain should establish a “Ministry for Economic Growth, focused purely on reducing the trade deficit through increasing production” (where to begin with this one?) and a tacked-on side-swipe at the European Union and you have a classic piece of Tory wonkery.

In 1962 Milton Friedman argued that “It is not too much to say that the most serious short-run threat to economic freedom… is that we shall be led to adopt far-reaching economic controls in order to ‘solve’ balance of payments problems. Interferences in international trade can seem innocuous: they can get the support of people who are otherwise apprehensive of interference of government into economic affairs… yet there are few interferences which are capable of spreading so far and ultimately being so destructive of free enterprise.”

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Reflecting on liberalism

By Simon Goldie
July 26th, 2011 at 12:35 pm | Comments Off on Reflecting on liberalism | Posted in Liberal Democrats, Liberal Philosophy

The summer months are always good for reflection.

Parliament is in recess, the party conference season has yet to start which means that politicians and commentators get the chance to take a holiday and think.

A bit of thinking time is important for politicians. In the 24/7 news cycle and the push to make their arguments and counter the arguments of opponents, the Westminster village is an unforgiving place.

Nick Clegg, and Liberal Democrat MPs, have a lot to reflect on. The party has been in government for over a year now. In a bold move it went into coalition with a party that it did not feel a natural affinity with. There have been tensions but despite that the coalition is getting on with an agenda that both sides, more or less, agreed.

Nick Clegg has talked of ‘muscular liberalism’. Perhaps as he takes a break he should begin to think hard about what liberalism means in the 21st century. He has made many speeches on the topic but his vision, understandably, is a mix of different strands of liberal thought. Perhaps it is time to be bold. At its core liberalism is about people running their lives: this is seen by liberals as a good in itself and as the best way to organise society. That view is shared by social and economic liberals. Both strands believe that you can achieve that by different policy routes.

The Liberal Democrats are not about to return to being the party of classical liberalisms. But Clegg can take that political tradition, the tradition of Locke, Adam Smith, Mill and others, and weave it into a liberal philosophy that recognises that technology like the web allows for greater voluntary co-operation than ever before. He can return to the ideas of radical community politics of the 1960s an 1970s and argue for power to be taken from the centre while limiting government through constitutional checks and balances.

If his party members are wary of the free market, he can argue that public services can be delivered politically but by the people who use them and they should have the right to organise themselves as they wish. And if they happen to want to use free market mechanisms that should be up to them.

At the Lib Dem party conference, Clegg has the opportunity to set out what liberalism means to him and how it can be delivered in coalition with the Conservatives and in the future.

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Edmund Burke (1729-1797) Reflections On The Revolution In France (1790)

By Barry Stocker
June 25th, 2011 at 5:17 pm | Comments Off on Edmund Burke (1729-1797) Reflections On The Revolution In France (1790) | Posted in Liberal Philosophy

Edmund Burke is often referred to as the founder of modern conservatism.  Nevertheless,  he certainly has a part in the history of liberal thought (as understood by classical  liberals and libertarians).  How much is a matter of discussion.  Two of the reasons for  considering Burke in the liberal tradition are William Ewart Gladstone  and Friedrich Hayek.

Gladstone (1809-1898) one of Britain’s most distinguished Prime Ministers in four  terms adding upto 14 years, and the greatest political figure in nineteenth century British  liberalism.  Gladstone was a life time reader of Burke from his early ultra-Tory years, to  his later years as a Liberal with a contempt for the Tory British establishment that it  returned.  Gladstone’s progress can in part be traced to his belief that the aristocracy  pursued sectional interests, in betrayal of its legitimate role as provider of disinterested  national leadership.  In some degree, Gladstone was the converse of the stereotypical  socialist whose view changes on encounter with harsh reality.  He did not agree with  everything in Burke, seeing him as too resistant to political change, but did read him  frequently, maybe daily, for a large part of his life.

Hayek as in the economist and political thinker, who was probably the greatest figure in the twentieth century revival of classical liberalism.  As we have seen in earlier posts, Hayek also had a highly appreciative view of John Rawls, the political philosopher often associated with  left liberalism and social democracy.  One lesson here is that traditions of political thought overlap and interpenetrate, so that we cannot, and should not, try to isolate liberalism as an immaculate doctrine with a completely self-contained existence.

The issues on which Gladstone disagreed with Burke included the French Revolution.  Burke was a fierce opponent of the French Revolution, which began in 1789, passed through its most radical  phase in the years 1792 to ’94 , and came to an end with Napoleon Bonaparte’s rise to power in 1798 (or maybe Bonaparte’s coronation as Emperor in 1804).  Burke’s opposition came as a surprise to many, and alienated him from the more radical Whigs in Parliament, like Charles Fox and the playwright Richard Brinsley Sheridan, with whom he had been associated.  Whig refers to the more parliamentary of the two main political forces of the time, along with the Tories.

Burke himself, like Sheridan, came from Ireland, spending his adult life in England.  He made a name as a writer early on, particularly for his 1757 book on aesthetics, A Philosophical Enquiry into the Origin of Our Ideas of the Sublime and the Beautiful.  The connection between that book and his political ideas is that Burke, like many Enlightenment thinkers, including his friends David Hume and Adam Smith, thought of a taste for beauty and for the sublime, as growing in history, in conjunction with the growth of commerce, law, and civil society.  Burke moved to England and became one of the great parliamentarians of British history, though more for the content of his speeches than any capacity for exciting delivery.  He was often on the most radical side in parliament, most famously with regard to the treatment of Ireland, India and the American colonies.  Nevertheless, this did not extend to a wish to change the aristocratically dominated  political system, or challenge national traditions.  This became clear in his reaction to the French Revolution.  Though he claimed to be still a Whig, he was closer to the Tories now than to his old Whig associates, or the radicals, republicans, and liberty lovers of the time, who were often what we would now call classical liberals.

Burke’s attitude to the French Revolution surprised many, but also came to seem prophetic.  Burke might be taken to have exaggerated the violence of the first three years of the Revolution, but the Jacobin Terror of 1792 to ’94 and the rise of the young army officer Bonaparte to absolute power, also made Burke seem like a seer, who grasped the violent forces that the Revolution was unleashing.  Burke encountered ridicule when he famously lamented the failure of French men to follow medieval traditions of chivalry in defending Queen Marie Antoinette, but also correctly perceived that the Revolution would brutally crush any royal, or aristocratic opposition, and that of the most humble people whose rights it claimed to advance.

Burke explained that he thought liberty must be an ordered liberty, which requires the rule of law, and that the rule of law requires respect for traditional institutions, and authority.  The state needs to be restrained from exercising absolute power, through the plurality of dispersed, and localised, institutions and customs, which grow over time.  Those restraining forms also required deference from the lower classes, and a sense of mystique, to reinforce intellectual and moral respect.

Burke claimed that the radicalism and violence of the French Revolution was in contrast with British history, where even revolutions came in legal forms respectful of legal traditions, and which reflected the understanding of most people of all classes about rights and authority.  This claim of continuity, and unity, in British history certainly does not command universal assent. All the horrors that Burke identifies in the French Revolution have equivalents in British history, from Henry VIII’s confiscation of church lands (1536-41), through the Civil War (1642-51), the Glorious Revolution (1688), the crushing of the 1745 Jacobite Rebellion, and so on.  Where Burke refers to such events, he goes to implausible lengths to describe them as legal, and as continuous with time worn traditions.

Whether we think these thoughts belong more to the liberal or conservative tradition, Burke certainly had an impact on liberal thinking.  He ought to be read by anyone who cares for the use of good English literary style in presenting political ideas, the history of political ideas, and a rounded understanding of liberal thought.

 

 

Labour VAT move is half right

By Andy Mayer
June 16th, 2011 at 9:50 pm | 1 Comment | Posted in Economics, Labour, Liberal Philosophy

Shadow Labour Chancellor Ed Ball’s call for a permanent or temporary VAT cut puts him half into the same camp as liberal think tanks who opposed the VAT rise in January. Philip Booth, Programme Director at the Institute of the IEA wrote 

“Today’s VAT rise is simply bad economics… If the government insists on increasing taxes, there are better candidates than a general VAT rise.”

 Where Balls and Booth part company however is on the flipside of the balance sheet. Booth writing:

“Today’s news should be a wake-up call that the spending cuts are insufficient. If the government wishes to prevent growth from stalling, it will cut spending further, not burden the population with an unnecessary tax rise.”

Balls, a Keynesian of sorts, remains convinced stimulating demand alone can restore growth.

Economic growth fundamentally is based on doing new things and more commonly doing old things more efficiently. It is a supply-side issue.  If you increase the money supply without improving productivity you just increase inflation. Interest rates rise, we are all worse off.

Two important element of Keynesianism are also missing from the Shadow Chancellor’s analysis . Firat that the last government, of which he was a leading player, should have been running a surplus during the long boom in the last decade. Not a deficit in every year since 2001. The surplus would have taken some heat out of the boom, and provided a fighting fund for the crash.  

Second Keynes did not confuse government spending with government investment. Investing in infrastructure such as roads, or development such as scientific research is clearly a very different growth proposition to spending on welfare and public sector pensions.

In that regard Balls is not a very good student of his own economic philosophy, Keynes did not advocate profligacy. A VAT cut without corresponding reductions in unproductive spending would be just that.