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Gordon Brown's political credit crunch
A couple of years ago, when media pundits were asking 'what is the Conservative Party for?', there was another meaning lurking beneath the straightforward question as to what the Conservatives proposed that was much different from what New Labour was already delivering. The issue was also being posed: what purpose, if any, does the Conservative Party serve?
As a BBC Today Programme item put it in May 2005: "What are the Conservatives for- if Tony Blair can do everything they can do, and do it better?"
Some of the most important reasons why Tony Blair could 'do it better' were associated with Gordon Brown. The several years of British economic growth, over which Brown presided as Chancellor of the Exchequer, allowed a substantial increase in state investment in health and education, the introduction of a tax credit system which raised the incomes of poorer families, and perceptible increases in wages for most workers. Further, steeply rising house prices made a surge of debt-based cash available; and while Chinese industrialisation reduced the price of manufactured goods, that cash could go quite a long way.
So there was little resistance, even from the trade unions, as New Labour pressed forward with all those Conservative things- privatisation, marketisation, and in myriad ways making rich people very much richer.
In such circumstances, a government could take a few scandals here and there almost in its stride. A falsified dossier as casus belli for a disastrous war; bribing Saudi princes to win a weapons contract; the awarding of state honours to generous party donors- these were surmountable during Britain's economic mini-golden age, and in any case the slightly tainted Mr Blair would soon enough be replaced by Mr Brown, who had the appearance of being at a distance from such dealings.
Following Gordon Brown's accession to the post of prime minister, the first event which signalled his vulnerability was the near-collapse of the Northern Rock Bank in September 2007. Not because the handling of the crisis by the new PM and his new chancellor Alistair Darling could be seriously faulted from a capitalist point of view- indeed, Conservative leader David Cameron and Shadow Chancellor George Osborne had no credible answers when Labour ministers posed the question "what would the Tories do?" in the face of this problem.
Rather, the downfall of the Northern Rock, the ongoing 'credit crunch' provoked by the bursting of the USA's sub-prime mortgage bubble, and what is as yet only a small decline in house prices, are signs that the mini-golden age, which has been based at least partly on the income which Britain draws as a de-regulated international centre for financial speculation, may be coming to an end. According to Andrew Rawnsley of the Observer, Gordon Brown has believed for several months that this is a possibility:
...since the summer Mr Brown has been telling confidants that he is very worried about the economy, especially the alarming consequences for Britain of the global credit crunch causing a severe downturn in America.
To this worrying prospect should be added the definite fact that food prices are rising rapidly as China becomes a major importer of agricultural products, and also because crops are increasingly being used to produce bio-fuels rather than food.
Thus it is likely that something will have to give- no longer will New Labour be able to deliver simultaneously to rich and poor, and to satisfy both the CBI and the TUC. Some on the right are already attacking the Prime Minister for what they perceive as retreats in the drive for market reforms. The editorial in the 1st December issue of The Business magazine derided Gordon Brown by likening him to Britain's last 'Old Labour' PM James Callaghan, who lost the 1979 general election to Margaret Thatcher. It asserted:
Not only is Mr Brown not taking the country forward, he is moving it backwards. By the end of his tenure, Tony Blair had enacted some modest but meaningful reforms of public services. These had been greatly watered down due to the opposition of unreconstructed Labour backbenchers – opposition stoked by Mr Brown’s henchmen, Ed Balls and his ilk; but they were at least steps on the way to creating more modern and effective public services liberated from the dead hand of central control.
In the past few months, Mr Brown has set about neutering these reforms, replacing them with the previous status quo. Take City academies... in his first speech as Secretary of State for Schools, Children and Families, Mr Balls took away their freedom to manage their own curriculum and gave local authorities an effective veto over the establishment of new academies.
Equally, modest efforts at diversifying the supply of healthcare have been stamped on. Mr Brown’s changes are not being motivated by some grand, over-arching blueprint; they are merely about reversing changes introduced by Mr Blair and go back to the failed policies of the 1990s, predicated on the assumption that monolithic, unreformed public services are the answer.
The article, which should be read by all who imagine that a Conservative government could not be much worse than our New Labour regime, then urged David Cameron to go much further than Blair's 'modest' reforms, and "think the unthinkable" on the NHS.
Constrained by its neo-liberal ideology, The Business was unable to explain one of the key reasons why New Labour may no longer be able to continue to expand the public sector while at the same time fragmenting and privatising it; though in fairness, it must be added that Gordon Brown and his team are also unable to explain this:
Pro-market reforms are expensive, because market-based public services are highly inefficient- ie, they cost a lot more to get similar results- when compared to centralised and integrated systems. If we are moving into a situation in which there is less money available for public services, to press ahead with such reforms would be to guarantee that services will deteriorate; and were that to happen, New Labour would face a guaranteed electoral defeat.
For The Business, the latter outcome is in any case confidently expected. Its next issue on 7th December pointed to a silver lining in the gathering economic storm clouds. In the editorial, gloatingly entitled 'The end of the house price boom is what will finally sink Brown', it noted:
The consensus view in the City is that economic growth will be around 1.9% next year; but that assumes house prices are roughly stagnant in nominal terms. A decline would reduce growth further by hitting consumer confidence and reducing mortgage equity withdrawal (one of the drivers of the credit-based consumer boom). There is a strong correlation between the strength of the housing market and the robustness of consumer spending and overall economic growth in Britain. If house prices continue to fall, fewer jobs will be created and unemployment could start to rise, reinforcing the decline in the property market and threatening a vicious cycle of falling house prices and slower growth...
For Mr Brown, the looming correction in house prices will be the most serious blow yet to his fading reputation for competence.
In his Observer article, Andrew Rawnsley tentatively raises an alternative possibility- that the likely economic storms might prompt voters in a 2009 general election to stay with the devil they know, rather than giving their trust to the untried and youthful team of David Cameron and George Osborne. Recalling the surprise Conservative victory in 1992, which took place during a period of economic slump and mass unemployment, Rawnsley quotes former Conservative PM John Major:
Writing about how he won in 1992 despite a terrible economy, Sir John says: 'Oddly, the recession helped us. The electorate believed we could steer through it more effectively.'
This is a good point, so far as it goes. But there are two very important differences. The first is that the Conservatives at that time had proven their economic 'competence' during the previous period of economic contraction and steeply rising unemployment in the early 1980s. So far, New Labour's experience has been gained only in conditions of stready economic growth.
The second difference is even more worrying. In the early '90s, it was quite clear what, and who, the Conservative Party was for. It was for the extension of capitalism, it was for the rich, and it appealed also to the many who either aspired to be rich or merely considered themselves to be better than the poor. Thus with few exceptions, the mass media campaigned actively for John Major.
During Britain's mini-golden age, Chancellor Gordon Brown could keep most of the people happy, most of the time. But that was then, and it seems that this may no longer be possible. So over the next 18 months, we can expect the following question to lurk behind the usual allegations of scandal and incompetence which are directed at an incumbent prime minister: what, and who, is Gordon Brown for?