Month: August 2010

The government was right to go to India to carve out a new relationship based on the changing balance of economic activity and power in the world.

The world Stock market index still reflects the world as it was in the last century. The USA is dominant at 42% of the total, the EU next with 27%, whilst China has just 2% of the total value and India 1%. This is the comfortable world of old fashioned diplomats, who want the UK to cosy up to the US superpower in a special relationship, and strengthen her links through the EU with the continent.

It is a very different world from the one we see based on population. China with 19.5% of the world’s people and India with 17.3% each dwarf the USA with 4.5% and the EU with 7.3%. Both India and China have more people each than the total in both the USA and the EU . Taken together, India and China have three times as many people as the USA and the EU combined.

As the Indian and Chinese economies grow at three times the rate of the EU and USA, their GDPs are catching up fast. All the time most of the people in these two large countries were poor, and all the time China was an inward looking communist state keen to keep out western influences, the west could proceed on the assumption that it was dominant. Today it looks very different.

At current exchange rates the US accounts for 24.6% of world economic activity and the EU 28.3%. In contrast China commands 8.3% and India just 2.1%. In conventional GDP terms the USA and the EU still account for five times as much world output as China and India.

However, if you examine the origin labels of products in many shops in the UK today, you get a rather different feel. So many of the products have made in China or other parts of Asia on them. You have to ask, do these overall output figures reflect accurately the new reality? Attempts to allow for different price levels and for undervaluations of eastern currencies produces so called purchasing power parity figures for world output. In these figures the US has 20% of the total, the EU 21%, China 13% and India 5%. These are nearer to the truth, with India and China approaching half the level of output of the USA and the EU. In some industries China is now dominant, and determined to achieve the same in a range of other areas where the west and Japan were once unchallenged.

My feeling is that India and China will continue to outpace the west and these figures will continue to change rapidly in their favour. That is why we need to reorient our economic and diplomatic thinking. Asia has the people. She now has a lot of the world’s money. Europe is mired in slow growth and population decline. The future lies in the east.

There has been much written about the decline of the Liberal party during and after the First World War.

The facts are stark. In 1914 the Liberals were running the government under Prime Minister Asquith, and were used to being one of the big two, often in power. In the October election of 1924 they were reduced to just 40 seats, and stayed at such low levels as the third party ever afterwards.

The biggest drop occurred in the 1918 election. 426 Liberals stood for election. Of the 267 who stood as independent LIberals, only 26 were elected. Of the 159 Liberals who stod in support of the coalition government, 134 won. In 1922 they won 117 seats, and in 1923 159.

Various theories have been offered for the collapse, based on social change, the rise of organised Labour and the Unions support for the new Labour party, and the damaging split between Asquith and Lloyd George to run the LIberal party.

I normally disagree with those who argue that factions and divisions in great parties prevent them from winning elecitons or from being in government. Nearer our own time the war between wets and dries in the Conservative party did not prevent Margaret Thatcher from winning three elections in a row. There was no shortage of anti briefing from her party throughout most of her tenure. Nor did the deeply damaging and public rows between Mr Blair and Mr Brown prevent Labour from winning three times in a row. Most majority parties in government have people challenging the leader and have rival views of what is the best course of action. Some degree of division and debate is healthy to ensure the governing party is alive and thinking. Even undesirable levels of vituperation as with the Thatcher and Blair critics need not be terminal.

However, the fact that Lloyd George was prepared to press his claim to run the Liberal party to the point where two parties fought the 1918 election under different Liberal banners, and the fact that Asquith did not acdept the passage of power from himself to Lloyd George did take leadership struggles to new public levels which was electorally damaging.

I think the other distinguishing fact about the background to the Liberal collpase is that the Liberals under Asquith had taken the UK into such a dreadful war. The slaughter, and the sense of incompetence at high levels – “lions led by donkeys” – especially in the eartly stages before the coalition was formed and got to grips with issues like shell supply and how to fight in trenches made a huge impact on the public consciousness. The war is in my view the main reason for the collapse of the old Liberal party. Why did they take us into it? Why did they prosecute it in the way they did? Why did it take such huge slaughter on the western front? Why did many of them not see LLoyd George as he saw himself, “the man who won the war”, and just get behind him?

History does not repeat itself. Reading some and understanding it helps people and parties avoid making the same mistakes.

Some Lib Dems are currently worried that belonging to a Coalition will lead to unpopularity. As the party which has argued long and loudly for coalitions and has told us they can be better than majority party governments, they could not avoid picking up the burden of coalition government in the difficult circumstances of 2010. No-one said government is easy, and governments rarely inherit the legacy they would like from the outgoing team. Few have inherited such a strong economy as Labour in 1997. The debt and recession legacy of 2010 is more common, a bigger version of 1974 and 1979. The Liberals had a period in coalition with Labour in the 1970s doing unpopular things, but survived it with no obvious damage from the fact that they had been in government.

Today I wish to argue that belonging to a coalition is not of itself likely to make a party unpopular. Tomorrow I will look into the resons for the collapse of the old Liberal party as a governing party between 1914 and 1924.

From May 1915 to July 1945 the UK was governed by a coalition for 21 out of the 30 years. In the early period it was largely a Liberal/Conservative coaliton, in the later period a Labour/Conservative coalition. During this period we had a coupon election, where Liberals stood as pro coalition candidates or stood as independent Liberals, with the Conservatives not standing against the coupon Liberals, and later elections where candidates made clear their adherence to a “National” government to tackle the 30s crisis. In wartime there was general acceptance of the need for cross party government, and no elections.

Coming out of those coalitions, both the Conservative and the Labour parties in their turn were able to win convincing majorities to govern in their own right. Being associated with a coalition government was not terminal for them, even where the coalition government had had to do difficult things or was not especially successful. Coalition governments like majority governments need to govern well to woo the public. They are not of themselves bound to lead to the demise of a party in them.

After the Coaliton government formed and made clear its intention to cut the deficit further and faster, the pound has risen. This will start to cut the high inflation rate the old policy of devalue, print and borrow was bringing about. The main inflationary force was the falling pound.

It is true there remain two other inflationary forces at large. Rising taxes will add again to price rises when the new VAT rate comes in – but we did have the same effect this year which is already in the figures. There is also some inflation developing in manufacturing, as the world’s supply lines and capacities are already stretched a bit by the surge in Asian activity over the last year. It is now in many areas a global market.

I do not recommend any more quantitative easing as some of you seem to think I want. I criticsed the way they did that last time and forecast it would lead to a weaker pound and faster inflation. I do want functioning banks that lend to smaller borrowers on the High Street. The international regulators have started to back off, as I hoped. They do seem to be realising that demanding more cash and capital too soon will prevent decent recovery and impede the restoration of bank balance sheets as well.

Boom and bust are largely manufactured by governments and monetary authorities. The last boom was made from lax cash and capital rules and easy money policies. The last bust was made from too sharp a tightening of money markets and expecting too rapid an improvement of bank balance sheets after the excesses. Now we need to get it right to have the right pace of recovery. That requires the authorities to move on from austerity mode, but not to pump up more devaluation and inflation from simply printing public sector money and spending it on more quangos and CEOs.

So many of you do not grasp the reality of the situation, and then lash out against people most likely to sympathise with your views. I voted No in the referendum of 1975, and have ever since tried to get the political classes to accept that British people only voted for a common market, not for an ever more powerful EU government. That is why I support powers back, a sensible set of trade arrangements, and a referendum to ensure the popular will is affirmed. As a democrat I have to accept the will of the people in a referendum, unless and until that is reversed by another referendum. This has all proved impossible in recent years because we have had a succession of Parliaments with Euroenthusiast majorities, chosen for whatever reason by the British electorate.

There are UKIP supporters and other strong Eurosceptics who still do not seem to grasp the voting arithmetic and the reality of the modern House of Commons. It is no good writing to me to say you want out of the EU or want major powers back, because the British people have once again voted for a Parliament that does not want that.

In the General Election the large number of UKIP candidates got less than one million votes, or 3% of the total. It did not win them a single seat. They put up in Buckingham where the three main parties withdrew to allow the Speaker to stand uncontested. Ukip not only failed to beat the Speaker, but were driven into third place by a Euro enthusiast. This was a major blow to their cause. If there are a large number of people in the UK who want immediate withdrawal from the EU they do not turn up and vote for that in elections.

I believe the majority in the Uk wants considerably less costly government from Brussels than we now get. Unfortunately, in the Commons today there are 650 MPs, with a majority for more EU not less. If you take away from the total the four Deputy Speakers and Speaker, and the five Sinn Fein it gives you a possible voting total of 641. The majority needed to carry a proposal is therefore 321.

There are just 306 Conservatives. The party fought the election on getting powers back from the EU and saying No to new transfers of power. There are 258 Labour and 57 Lib Dems, giving them a pro EU total of 315. There are also Nationalists who favour more EU power who could give the pro EU forces the majority.

Now you can rightly point out that the Lib Dems are in coalition with the Eurosceptic Conservatives, so that prevents them creating a pro EU coalition. It also comes at the price of meaning the Conservatives have dropped their plans to bring powers back, as they could not get the agreement of their new allies to such a policy.

Sovereignty is not the same as power. Sovereignty means the right to make your own decisions without a higher authority telling you what to do. It does not mean you can do whatever you like. Any sovereign individual, family, company or nation is constrained by their wealth, influence, moral authority, knowledge, international law, views of their neighbours and much else.

Defenders of more European integation deliberately confuse the two. They argue we will be more powerful if we combine our efforts with other countries. That could be true if the other countries agree with how we want to use the combined power, and if the combined power is then used well. That is the argument used by Welsh or Scottish Unionists to support their countries within the Union of the UK.

It only works where there is a strong feeling that the larger Union is a natural area of government or a country in its own right. The UK has been a largely successful Union because most of the people most of the time within it have thought that. Where people did not share that feeling, as in Ireland, it caused rows, riots and the creation of an independent Irish state.

The probem for the EU is that most people in England do not regard the EU as a natural area for government and do not wish to help create a European country. That is why many of us are alarmed by the avalanche of new legislation the EU is still planning, on top of the many rules, regulations, directives and legal requirements they have already spawned. Ministers tell us they will concede no more powers. However,any new law can widen the range of EU power. The larger the EU, the more majority voting there is the less able any given country is to govern itself in all those areas where the EU holds sway. The Foreign Secretary’s support for a wider EU diplomatic srvices is also worrying Eurosceptics, who feel now more than ever we should concentrate our diplomatic activities on furthering UK interests through UK diplomats, and saving more on excess EU bureaucracy.

This matters especially for the UK now the EU is determined to increase the amount of regulatory control it exercises over financial services and banking. The UK has the largest presence in these areas within the UK. Some in the City who used to be enthusiasts for more EU integration are now worried that the EU may legislate in ways they do not like. That is the cruel dilemma when you give away sovereignty in important areas . You may not end up more powerful because you are acting collectively. You may end up far less powerful, if the rest of the group disagree with you and will not accommodate your wishes. The