Today’s announcement by Nick Clegg of measures to facilitate more employee share ownership has been leapt on by Labour media darling Chuka Umunna as an endorsement of Ed Milliband’s ‘Responsible capitalism’ idea. Leaving aside the somewhat audacious claim that Ed Milliband came up with the John Lewis model of business, Umunna’s response demonstrates that Labour have failed to understand the intellectual direction of this Government – and the implications of that for the Labour Party.

I have previously written about how the parties of the Coalition are expressly aiming to use Government to overhaul the way in which the public perceives the private sector, by putting the burden of demonstrating the ethical worth of private enterprise squarely on its shoulders. A drive for greater employee ownership must be seen in this context – co-operatives and mutuals have always been perceived as more ethically sound than models of ownership which concentrate more shares in fewer hands. It puts the cost of an ethical stance on the company, rather than enforcing ethics through legislation. In doing so, it reduces the scope for dissatisfaction with capitalism, limiting the political space open to the likes of the Occupy protestors. It overcomes a very specific challenge: if wages represent a falling share of GDP compared to returns on capital, then the way to overcome this is not simply through higher wages, but the redistribution of capital itself. The share of GDP accorded to wages becomes an insignificant issue.

British liberalism has always recognised that the condition for a free society is the consent of all its members. By moving towards a model which places the burden of securing that consent upon business, Clegg is diminishing the space available for a Labour Party that would seek to secure that consent via the State. Labour’s complicity in this may yet be their undoing.

The Data Protection Act makes provision for anyone to access information held on them by a given organisation. However, it has several exemptions from this, including:

Personal data which are processed only for the special purposes are exempt [if] the processing is undertaken with a view to the publication by any person of any journalistic, literary or artistic material.

You don’t have a right to find out what information newspapers have on you. In other words, if a newspaper has hacked your phone, you don’t have the right to find that out.

I don’t think journalists can be trusted with that exemption. I think it’s time for it to be removed.


Disclaimer: Everything I know about economics is almost entirely derived from people like Joseph Stiglitz and random educated blogs on the subject. What follows may very well likely be wrong and will take the form of me thinking outloud (or outblog, however we have to use words these days), as it’s entirely based on received knowledge, but to me seems a logical explanation of why now is an appropriate time to begin cutting the deficit.

Let’s begin by defining our terms, starting with the deficit. The huge, scary deficit that’s coming to eat your babies, or so the Conservative election campaign appeared to claim. The deficit is the difference between the amount of money the government spends this year and the amount of money they receive in taxes, border duties, pocket money and extortion. This differs from the debt, which is the accumulated total of deficits over the years the government has been running a deficit, as well as all public sector borrowing. This is an important distinction, but one which appears to be lost on many journalists. The deficit is currently about £145.4 billion, and the debt is about £893.4 billion.

This deficit is different to our balance-of-payments deficit. Balance-of-payments refers to the difference between how much money we send overseas to buy things or just out of the goodness of our hearts, and the amount other people send to this country to buy knick-knacks and support the British victims of the great Marmite Famine. This stood in deficit at the end of 2009 to the tune of 0.5% of GDP, or about £1.7 billion. It’s probably different now.

Gross Domestic Product is the sum total of the market value of all the goods, products and services our country produces each year. It’s someone’s job to add all that up. I assume they use a very big calculator. Currently this is about £1438.6 billion. It’s been increasing by tiny amounts like 0.2% and 0.3% since around mid 2009. Despite the small percentages, 0.2% of £1438.6 billion is still quite a lot of money.

How does GDP get bigger? This is a central question in economics, and one I won’t answer in any real way here. However, broadly it’s a question of demand and supply. In our glorious capitalist system, the value of any good is given by the complex interplay between seller and buyer and all the factors therein. The seller attaches a value to the product based on what it cost him or her to make it, and the amount they want to receive in profit. The buyer attaches a value to the product depending on how much they want it and how much they want to pay for it. Somewhere between these values, the story goes, a deal is struck and the market price of the product is given.

It’s therefore clear that if no-one wants to buy the things we produce (or the consultancy services we offer), GDP will fall. Similarly, if we’re producing too many things for the number of people who want to buy them, GDP will also fall – the value the seller attaches to the good has to decrease in order to reach accommodation with the buyer (as there’s lots of the same product they could buy instead), so the market value of our goods decreases. The first situation is an example of insufficient demand, the second excessive supply, but they’re both two sides of the same GDP-reducing coin.

So why are we in our current pickle? While lots of big words have been tossed around (sub-prime mortgages, collaterised debt obligations, Mervyn King), it comes down, in the end, to insufficient demand. No-one wanted to buy the exciting debt products our clever chaps in the city had been putting together, because they’d realised they had a tendency to not produce any returns when the poor people who’d been sold expensive mortgages couldn’t afford to pay them back. The market value of one of our main exports, ‘financial services’, collapsed, and so did our GDP. All of a sudden, the vast amounts of money flooding into banks and bankers’ pockets slowed to a trickle, and so the demand that bankers generated – for fine wines, fast cars, and lovely cheeses – collapsed too. Naturally, this meant that demand generated by cheesemongers decreased too, if one takes cheesemongers as representative of the workers of our nation as a whole. GDP fell, which is what’s called a recession.

The Government pushed money into the banks, which increased the value of their debt products by ensuring that they had enough money to not default on them, thus making these products a good thing to buy again. Alongside various regulatory measures designed to ensure (although not really) that the banks couldn’t make such bad products again, the Government also created money from nothing (‘Quantitative easing’, hem hem) and used it to buy debt products, reducing the supply of bad debt on the market.

The value of these products (and hence all the products dependent on bankers being rich) rose again, and our GDP began to climb, albeit marginally. Then came the election, and the question of £6 billion of cuts.

Gordon Brown made a big play during the debates of ‘taking £6 billion out of the economy’ and hence risking the recovery. This is a reference to the implications for GDP of the Government stopping spending £6 billion on public services, including the cost of staff, the cost of equipment & premises and all the various externally provided services things like the Child Trust Fund required. The argument is that this removal of demand will decrease the market value of these services (and all the services purchased by those staff whose jobs were dependent on that £6 billion of funding) and hence decrease GDP. It’s fairly clear that this will have this impact upon that particular part of our economy; it will decrease demand for these services and for the services purchased by staff, and so will decrease GDP.

The question is whether that GDP decrease will be compensated for elsewhere in the economy, and here’s where we get to the crux of the issue. You see, national debt isn’t like household debt, even though that’s the metaphor most conservatives (with a small ‘c’) feel instinctively comfortable with. If you don’t pay your household debts, bailiffs can come and take away your plasma telly to make good on your poor financial management. However, if we don’t pay our debts, no-one can come and repossess the Isle of Mann. They just won’t lend us any more money – or if they do, they’ll demand an extortionate rate. This is what happened in Greece – everyone suspected them of not being able to pay back the money used to buy their government debt products, and so they demanded higher rates of return to compensate for the perceived risk. It therefore became more expensive for the Greek government to pay for the debt they already had, as much of their Government debt needed to be refinanced – which means the time limit on the original debt product (‘bond’) was up, the Government needed to repay it, and so they had to take out another loan to repay the first loan.

The argument put forward by the Tories is that if we don’t start cutting now it’ll cost us more to refinance our debt, wiping out any increases in GDP that have arisen from the Government spending that’s raised demand. However, this argument only works if private demand is such that it can take the place of Government demand in maintaining economic growth. Otherwise, the increase in GDP from increased demand is lost, and the cost of refinancing our debt rises regardless as it becomes clear a shrinking economy is less able to repay its debt.

It’s therefore clear that the crucial in determining whether to cut or not to cut is the strength of private demand. It’s important to be clear that all demand is ultimately private: debt-generated Government demand is ultimately sourced from the private investors who buy Government debt. The questions is whether the private demand for fairly secure Government debt products can be translated into demand for private debt products or for other products, both financial (e.g. shares) and physical. To understand this, let’s look at who owns Government debt now.

Pulling this information out of the Office of National Statistics has proven extremely tricky, as I suspect it involves a significant amount of work in pulling together different figures from different accounts. I don’t really have the expertise to do that reliably, so I’m forced to go to the BBC for some work they’ve done previously:

‘Gilts’ is the name given to Government debt products. The bar that includes the Bank of England includes all the debt that the Government bought itself by printing money. The price of gilts varies over time:

This is a price chart of gilts with a 5-10 year redemption period – the time until the Government has to pay the gilt back. It represents – amongst other things, including future changes to the interest rates paid out for gilts – demand for medium-term UK Government debt products. As you can see, demand for these products has risen dramatically since the start of May, following the election of the coalition Government.

It’s therefore clear that private demand for government debt products is high. But will that demand be pushed into the rest of the economy when, as a result of the cuts, the Government lowers the expected supply of gilts?

To answer this, let’s quickly look at the two largest holders of gilts. The first, insurance companies & pension funds, are organisations who’ll be naturally looking for long-term, stable investments with a guaranteed rate of return, to service their customers. It’s interesting to note that high government debt results in a rising proportion of taxes being directly transferred to those who hold private pensions in the form of interest payments on gilts – i.e, a direct transfer from the taxpayer to the better-off. It’s not clear how this can be considered ‘progressive’ in any sense of the abased term.

These organisations will be looking to pay back their UK customers in sterling, so will most likely opt for financial products held in sterling with a significant level of stability in the absence of new gilts being put onto the market. We can therefore – perhaps – assume that this demand will be moved into debt products issued by major UK banks and into shares in reliable FTSE 100 companies (like, err, BP). These organisations can’t stop investing just because there’s no gilts for them to buy – they need to service their customers.

The second big holders of debt are overseas purchasers of gilts. To look at where this demand will go, we need to look at exchange rates – overseas investors will need to convert their currency into sterling to buy gilts as well as other products produced by the UK. Let’s look at the Euro and the dollar for this purpose. First, a chart of how many pounds you need to buy one dollar:

And one of how many pounds you need to buy one Euro:

The picture is obviously mixed. While there’s been a general flight from people buying things in Euros to people buying things in sterling, there’s been a similar flight from people buying products in sterling to those in dollars – although the latter appears to have plateaued since the start of May. We can therefore anticipate that overseas demand from the Eurozone will either increase or remain constant, while demand from the USA will either decrease or remain constant. I don’t know enough to anticipate the relative volume of this demand from both currency areas, although the majority of our trade is within the EU.

From this brief discussion, we can gather several things. Firstly, economics is endlessly complicated but sometimes needlessly so – if the terminology of the subject were cleared up and made more accessible, it would greatly aid the debate. Secondly, on balance from the information I’ve presented above, it would appear that now is, if not a good time to cut, certainly an acceptable time to cut, as it doesn’t place the economy in significant risk of further decline. However, it’s important to consider the human impact of all this high-brow chat about gilts and similar pompous re-labellings of relatively simple concepts, which will be on families, on jobs and on deprived areas. But it’s better to minimise the pain now rather than causing much greater pain in the future.

Post-mortems there will be aplenty in the coming weeks; it seems to be a near certainty that regardless of the outcome on May 6th the present Labour Government will not continue in its present form. Even if Brown somehow defies predictions and Labour remains the largest party following the election, it seems near-impossible on present showing that they will end up with anything like a workable majority. I would therefore like to anticipate this and launch into a pre-mortem study of the impact of Labour upon our society over the last thirteen years. I will then argue that this impact makes it impossible for any Liberal (with a big ‘L’) to consider an electoral pact with Labour, and that claims that the Lib Dems are closer to Labour than the Tories are false.

I wish to argue that there has been a clear theme running throughout much of Labour’s legislation, which can be interpreted via the work of the philosopher Michel Foucault. The headline of this piece is a reference to the role that Jeremy Bentham’s model prison plays in Foucault’s 1975 work Discipline & Punish. The Panopticon is a prison in which a warden may observe every prisoner without that prisoner being aware of whether they are being watched. The intent is to instil a forced obedience; an obedience based on the constant fear of observation. A prisoner will be punished if they transgress, but naturally that punishment is predicated upon being observed in the act of transgression. The knowledge that they may be being observed at any time forces the prisoner to internalise their obedience – they must act as though they were being observed, regardless as to whether they are.

Now, it may appear that I am making a rather obvious point about the surveillance society Labour has engendered; the level of control lent to the state by the expansion of CCTV, the parameters of the Regulation of Investigatory Powers Act, the centralised ID database and ID cards themselves all point to a clear policy agenda of curtailing civil liberties in the name of security and public order. It is certainly true that each one represents a new avenue by which the Government may observe the lives of its citizens, opening up entirely new ways in which a law-breaker may be caught. But this is a familiar point; while the seriousness of the above policies in terms of our freedoms is not to be underestimated, the arguments around these new rules and regulations have been bandied around for years.

I am arguing for a stronger conclusion: that the philosophical approach to government taken by Labour is entirely antithetical to the Liberal stance. That philosophy may be summed up in a single sentence: the individual is not to be trusted. This attitude, I will demonstrate, lies behind much of the major legislation and public sector management practices Labour have implemented, which can be demonstrated to be constructed on the Foucaultian lines given above.

The most clear-cut examples of this approach that are not derived from legislation are the ever-multiplying targets Labour has imposed on the public sector. These constitute the ‘discipline’ aspect of Labour’s approach to management; they are designed to determine the behaviour of public sector workers in the absence of observation. The reporting requirements laid upon each constitute, in this sense, observation. The bureaucratic requirement of reporting progress towards a target after every effort to reach it produces this form of being observed: the individual charged with achieving the target is unaware when their performance may be assessed by someone higher in the hierarchy. It therefore has the impact of changing their behaviour to focus on achieving the target rather than achieving the ostensible objective of their organisation.

To give an example: one of the targets placed upon the Ambulance Service is to reach all Category A cases (i.e. having a heart attack/similar risk of imminent death) within eight minutes. The reasoning behind the target is that survival rates dramatically decrease following the eight-minute limit. This would, on the outside, appear fair enough. However, this approach has been criticised for the very obvious reason that it matters little to the ambulance service whether the patient reaches hospital alive under this target, only that they reached them within eight minutes. The data presented by the DoH to justify this target involves, bizarrely, assuming that it saves lives and then estimating the number of lives it has saved based on services reaching their targets. And this is not the only controversial target.

This discipline distorts the way in which individuals act; instead of setting trusts a general objective (i.e. ‘Respond to 999 calls and get people to hospital alive and well’) and allowing them to determine how they achieve it, these specific targets (and the monitoring associated with them) produces very specific patterns of behaviour. This, of course, is the intent, but that intent itself is based on a lack of trust in the individuals employed to provide public services. It is fair to say that Labour has implemented the principles of the Panopticon in the public sector, as well as for the members of the public affected by their curtailment of civil liberties.

But we need to go deeper than that. Labour has fostered a society based on radical mistrust of the individual, in which only the collective can be seen as a moral authority. But to assume that the collective refers to the state in this philosophy is to misinterpret how deeply this approach is embedded in Labour’s attitude to the role of the individual in making moral judgements. This approach is again demonstrated by one of the darlings of Liberal policy, the Freedom of Information Act.

The ostensible intent of FoI is to hand citizens the power to know how their money is being spent, about actions the state is carrying out of their behalf and to ensure that the ultimate arbiter of the worthiness of state action is public opinion. This is all fine and Liberal; it is clear that those to whom we entrust our taxes to provide services for us should be accountable to us. We must know whether our interests are harmed by the state. But the mechanism by which we do so is equivalent to the one presented above; it is through observation, its consequences, and the constant possibility thereof that the public now holds the state to account. We no longer trust our public sector workers to provide our services unless we can see exactly how they do so. Non-transparency is a dirty word, and trust in the state is at a low ebb.

How can, you may be asking, this be something a Labour government might want? How can a Labour government want a constant air of suspicion to hover over the public sector? You may as well ask why Labour implemented FoI legislation in the retrospective knowledge that it would inevitably lead to the expenses scandal (even without the leak to the Telegraph, the content of MP’s expense returns would have eventually been prised from the House of Commons under FoI). It all leads to the same conclusion: the individual is not to be trusted. The individual, be they a member of the public, a doctor, a civil servant or even an MP cannot be trusted to behave unless they are observed to do so. This is an inversion and a culmination of the Panopticon: the guard watches the prisoners, and each prisoner in turn watches the guard to ensure that he is watching their fellow prisoners.

It is telling that one of the key proposals of the Walker Review – Labour’s effort to improve banks’ corporate governance – is of increased transparency in the banking sector, both to the public and to shareholders. Stronger regulatory measures are available to Labour, but instead Labour have worked to bring banking within the Panopticon, to counter the lack of trust in bankers by putting their actions before the public.

The end point of Labour’s impact on our society is a nation that is radically non-hierarchal; made of interest groups that exercise control over one another through observation and discipline. The public watches the state and the media. The media watch the public, and the state. The state watches the public. More recently, bloggers now watch the media, the state, and each other. This is a generalisation of the array of interest groups in operation, but it serves to illustrate my point: in a society in which no one individual can be trusted wholly, hierarchies are impossible. The authority to give commands rests upon a trust in that person’s ability to give the correct commands. If that trust does not exist, then someone claiming an entitlement to rule or command cannot be taken seriously. Only the aggregate of the interest groups, what might perhaps be called society or public opinion, can be a source of authority. In Britain today, only the collective has power, not the person.

Labour’s lack of trust in the individual and its expression in legislation has led to a country in which traditional Tories can never achieve power again. There can be no such thing as a ‘natural party of government’, or deference to the well-bred and well-educated. This is their aggregate achievement: a country in which without paying due heed to the common interest the Conservatives cannot achieve power. Much as the consequences of Thatcher’s policies forced Labour to accept the effectiveness of the market in the 90s, Labour has now forced the Tories to accept that the common interest, the Public Good, should be a factor in their policy-making.

Why should this be a factor for the Lib Dems? Surely a non-hierarchal society is a liberal society, one in which the arbiter of that society’s values is no one person or interest group, but rather the sum of all debate and discussion within it. This would be true, but for one important proviso: the only arbiter of an individual’s opinions and morality where they do not impact upon others should be that individual. This is not the case in a Panopticon society: it is the aggregate of social opinion that determines the individual’s internal morality – their internal discipline – rather than that individual.

A clear-cut example of this took place yesterday. Chris Mounsey, the leader of the Libertarian Party UK, appeared on the Daily Politics as part of their election focus on minor parties. Although I think the more extreme policies espoused by LPUK are largely insane and in some cases deeply immoral, in a truly liberal society only those policies would be the subject of debate. Instead, Andrew Neil rather took his personal blog to pieces, resulting in Chris pulling it entirely and offering his resignation as leader. Here, observation by the media has led directly to a change in Chris’s own approach to discourse, and consequently his own internal discipline. The formerly wonderfully sweary blog at Devil’s Kitchen is no more, because it came under the observation of a broader sector of society. And no-one compelled Chris to do it. They didn’t need to.

Internal discipline – morality, if you will – is not something which should be determined by anyone other than the self. But if it is possible for all to see your actions, and your life is lived in the full and certain knowledge that your actions may be examined at any point by any one, then it cannot be claimed that knowledge will have no impact on how you choose to conduct your life. Partly this is the impact of the internet, but Labour’s governing philosophy lies full behind this societal shift.

For our society to be considered truly liberal, we must restore trust in the individual. We must re-evaluate the relationship between an individual’s personal morality and the capacity of the rest of the world to observe and judge it. Labour have demonstrated repeatedly over the last thirteen years that their philosophy will always be antithetical to this position. As liberals, we should not consider ourselves close to a party that does not celebrate individuals, for otherwise how can we possibly claim to be the guardians of liberty?

Disclaimer: Mentioning particular pieces of legislation within this piece does not mean that I am opposed to them, rather that they are useful illustrations of the argument given herein.