Author: johnredwood

Many western democracies in the second half of the twentieth century had two main parties competing for power – a centre right party and a centre left party. This model is being blown apart by Euro membership and the austerity policies it has generated.

The most extreme outcome so far is in Greece, which has arguably the worst experience of Euro membership to date. There latest polls for the forthcoming General Election put Pasok, the old centre left party, on just 5.8% of the vote, with electors put off by its implementation of EU austerity when it was in government. The centre right party is in second place on just 29% of the vote, also damaged by its association with the iron discipline of the Euro. The relatively new left wing anti austerity party, Syriza, currently leads in the polls on 33%. So the two old parties that used to alternate as governments command just 35.2% of the vote.

In France a recent poll for the 2017 Presidential election showed Hollande’s socialist cause struggling on just 15% and the recent version of the Gaullists, Sarkozy’s team UMP, on 27%, both behind the National Front. So there the two main old parties (and successors) on this particular poll were on just 42%.

In Spain PP, the right of centre party is on 28.6% and PSOE, the left of centre party on 23.4%, before the onslaught of Podemos, the left wing anti austerity party on 23%.

In Italy, with no tradition of stable majority governments, the present left grouping is polling well at 37% whilst the right of centre alternative, Forza Italia, languishes on 14%. The 5 Star challenger movement is on 19%. The latest surge has come for the regional party , the Lega Nord, with 13% of the overall vote, concentrated in the north where they seek a largely independent Padania under a loose federal structure. In both Italy and Spain the richer parts want to split from their nations, or at least control more of their own money.

Even in Germany, where the Euro has worked well for the country and where recent economic performance has been much better, the CDU and SPD only marshall 65% of the vote between them and have ended up in grand coalition as neither can win outright or win in coalition with similar allies.

The interesting question is why do these traditional parties across the zone remain so keen on the whole project, when increasing numbers of their electors reject it or want it modified, and when electorally it is so damaging to these parties? It appears that the southern countries cling to the idea that Germany will pay more of the bills and they need to stay in and try and change it, whilst Germany makes clear she can only put up with it if the Euro is on German terms of no bail outs, no cross guarantees, and tight control of spending and deficits.

It is also interesting that none of the challenger parties so far have managed to win a majority, and none of the challenger parties outside Germany (save in France) want to get out of the Euro anyway. The Euro has helped make a mess of the old parties, but has so far not triggered its nemesis with strong anti Euro parties. The Greek election will be fascinating, to see if Syriza can win as a challenger, and then to see if they can stay in the Euro and deliver their promise of debt cancellations and less austerity.

The Coalition when it came to office had sensible aims to rebalance the UK economy. It wished to cut the state deficit, and create a better balance between the productive sectors paying the taxes, and the state sector spending them.  It wished within the private sector to increase manufacturing as a percentage of the whole.

Almost five years on the government has made progress in cutting the share of GDP spent  by the state, but has further to go to eliminate the deficit altogether. The private sector in the second half of the Parliament has grown much more quickly than public spending, adjusting the balance between the two in a welcome way. It has also seen a  manufacturing revival with some notable success stories,  but not sufficient to increase the proportion of manufacturing in the total.

Rebalancing the private sector is more difficult for a government to achieve than rebalancing the state sector versus the rest. The government has considerable control over the size of the state sector, so can vary that as it sees fit. It has little control over the sizes of the manufacturing and service sectors. When trying to shift the balance it should want to do it  by helping grow the manufacturing sector more rapidly, rather than by cutting the size of the service sector through adverse taxes and regulations.

As someone who has led manufacturing businesses in the past, with more than a decade of experience in senior positions at  industrial groups, and who believes in making things, I do not need convincing of the desirability of expanding industry here. Nor is it difficult to say what other measures would help. As I have often pointed out, the single biggest stimulus to more industry here would be more reliable cheap energy, as the USA is discovering. Better purchasing by government would also help, so that more state spending could be used to buy things we need that are made here, without infringing competition rules. France and Germany seem to find ways of buying more of their own goods.

The boundaries between service and industry are not well defined. If a large industrial business decides to contract out its cleaning, catering and other back office services, the national accounts are likely to report a decline in manufacturing activity and a rise in service activity, though nothing real has changed. If an engineering business decides to buy in engineering consultancy to design its next product or solve some of its technical problems, again the figures flatter services and reduce manufacturing.

Sometimes the UK discovers that some of its engineering talent is drawn to the city where they can command higher salaries. Some people think this wrong, but they are adding value and earning  their living. If those same engineers are better paid by working for an engineering consultancy, which in its turn can be hired by UK manufacturers, that may be a sensible model for advancement.

Labour hit a new low in its presentation of figures in its dossier on the NHS. It is common and acceptable for parties to highlight accurate figures that most serve their case, but not acceptable to get figures deliberately wrong. The Conservatives have already highlighted Labour’s  mistake over numbers of medical staff. The numbers have gone up since 2010, whereas Labour said they had gone down.

Worse still is Labour’s continuing abuse of the percentage of national income figures supplied in the Red Book for total state spending in 2020.  This is forecast at  35%, after five more years of modest cash increases in total state spending and the economy growing faster than the public sector.

In their health brief Labour argue that the Conservatives wish to cut state spending “to levels in countries where up to half their health service is privately funded. ” They cite Mexico and Korea as two such examples. They then argue that this proves the Conservatives must have plans to privatise parts of the NHS and by implication people will have to pay for their health care.

The figures are wrong. They later have a table showing that Mexico has state spending at 27% of GDP, not 35%, and Korea at 20.6%. It is clearly not the government or Conservative plan to get UK state spending down to Korean or Mexican levels, not even as a percentage of their respective economies, let alone in real terms, as the published figures show. The Conservatives plan a much larger state sector than Korea or Mexico. They also ignore the fact that the UK is a lot richer than these two c0untries, so 35% of our GDP is worth more than 35% of their GDP. UK GDP per head of nearly $40,000 is  50% above South Korea and 3.6 times Mexico’s. So even if these two countries were at 35% of state spending to GDP, they would be able to afford a lot less healthcare.

The whole lie that Conservatives want to take state spending back to 1930s levels is bizarre. The UK is a much richer country than it was in the 1930s, so 35% of our national income now will buy us a lot more state service than it bought us then.

I was interested to see that Labour’s press release said at the bottom “Designed and built by Bluestate Digital. Hosted by Tumblr, 35 E 21st Street, 10th Floor, New York City, 10010 USA”.  Such is Labour’s confidence in our country and contribution to our economic success.