Wednesday, 23 January 2013

When National Interest and Party Advantage Conflict

I would not be the first to observe that there is a potential conflict between George Osborne’s role as Chancellor and his deep involvement in Conservative Party election strategy. The fact that this is often said does not mean it is real - it could just be a story told by those commentators who are themselves fixated by the battle between political parties. However there are two major areas where the Conservative part of the coalition government seem to be putting perceived election advantage ahead of prospects for the UK economy: immigration and Europe.

Jonathan Portes has clearly described the contradictions between an economic philosophy that stresses the importance of deregulation and a flexible labour market, and tight restrictions on the ability of firms to hire who they want if they happen not to be UK residents. In addition, making it difficult and risky for foreign students to study in the UK directly hits the exports of the education sector, which I have talked about before. Now perhaps immigration control is so deeply embedded in conservative philosophy that it trumps economic liberalism, or helping increase UK’s exports. Or alternatively, immigration is seen as a vote winner and so any damage that this will do to the UK economy can be set aside.

The Prime Minister has now finally made his commitment to hold a referendum on EU membership in four years time. This has been widely interpreted as a move to both appease the anti-EU wing of his party, and to stop the drift of voter support to the UK Independence Party. The opposition has claimed that this will create damaging uncertainty, and on this occasion they are almost certainly right. We do not need to just take the word of business leaders on this. A number of studies 
(e.g. here and here) have recently highlighted the role of uncertainty in influencing the macroeconomy. There can be little doubt that decisions by multinationals or export orientated domestic firms on where to locate or expand production are heavily influenced by whether countries are inside or outside trading blocs. Given the real risk that a majority in the UK referendum will vote to leave, investment decisions are likely be postponed at best, and diverted elsewhere at worst. Neither is what the economy needs right now. The economic benefits of promising a referendum on EU membership in five years time are hard to see. It is also hard to imagine why the Prime Minister had to make such a commitment, besides the political imperatives of Party unity and keeping votes.

So what is new, the cynic might say. Politicians have always been more concerned with winning elections than the economic health of the country. Well lets just suppose this is true, for the sake of argument. What is clearly true is that winning elections also depends on the state of the economy. To say the the UK economy is not looking too good right now would be an understatement. (Those who point to trends in employment in an attempt to suggest things are not so bad are really deluded. How can the fact that UK labour productivity is still well below levels before the recession, and has hardly increased at all in the last year or two, possibly be good news?)

Which brings me to the potentially conflicted Chancellor. Ministers are meant to represent their portfolio - and most of the time the complaint is that they do this too much, with too little regard to wider interests. Again the cynic might say that is natural enough, because their own personal political capital is bound up with the perceived success of that ministry. So a Chancellor who was totally focused on being a Chancellor, in a situation where the economy was doing badly, would be banging the table against anything that put a recovery at risk. Now perhaps George Osborne has been lobbying hard against immigration controls, and against the referendum commitment, although if he had I suspect we would know about it. A more plausible story is that he shares the Prime Minister’s view that on these two issues at least political advantage outweighs economic interests. But in making this judgement, he is acting as Conservative Party strategist and not as the UK Chancellor of the Exchequer.    

5 comments:

  1. The first mistake you make is that you assume that the most important issue for a government always is the economy.
    The second basically assuming that politicians are there only for their voters or the wellbeing of the general public. Maybe it should be that way, but it isnot.

    Both EU and immigration are issues that have a lot of other dimensions than economical ones. Further complicated by the fact that effectively for the UK (and most other countries) both have been terribly managed the last couple of decades.
    The EU was managed without looking how specific matters would play out at local level and if they had a platform in the local population. Immigration was complete out of control, what should have been long term policies were nevertheless changed every other year; not or at least not properly enforced; assumed that dysfunctional groups with a bit of schooling and social assistance would catch up within a few years time; people having questionmarks on all this labelled racists etc.

    Your look at things look rather naive. Just to give an example. You make immigration equal to companies hiring well trained staff not available in the UK. It is that of course, but it is also uneducated groups of people coming to the UK, very likely ending up on welfare and with crime stats several times that of the locals. It is both (and a lot more, some positive some negative). Like you focus on the first group others focus on the latter. And politicians likely pick the group that fits them best.

    Reason why I for instance am very relauctant in giving powers to technical panels/authorities that go further than their own expertise. By being focused on your specialism you (and basically all specialist groups) miss a lot of other things or see them as of minor importance, while in practice they are not.

    Osborne acts that way very likely because he assumes that a majority of voters (or of his voter potential) care about the other things more than on the economy.
    The EU policies can be seen as simply damage limitation. In the way that if nothing would be done somewhere there would have been a referendum or similar most likely leading to a full exit with a low degree of structure in it, doing much more harm than what is happening now.
    Immigration is the main worry (next to the economy) for the UK voter. Good or bad, people worry and politicians act on that.

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    1. Although I accept your point that there's more to issues such as immigration and the EU than the purely economic, I'm not sure about "uneducated groups of people coming to the UK, very likely ending up on welfare and with crime stats several times that of the locals" and I'd be grateful if you could direct me to the evidence for this assertion.



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    2. Your exactly an example why this discussion always end in disaster. So see it in a wider context and look in the mirror.

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  2. Another excellent, insightful post highlighting the latest manifestation of the eternal conflict of politicians/ministers sometimes serving party interests ahead of the overall economic welfare of the populus.
    As you indicate from the start, all parties are guilty of it when in power, though presently the conflict and associated problems/outcomes which directly result are exacerbated, being under the spotlight perhaps more so than in the past due to the extraordinarily difficult economic times we currently live in and modern multi-media saturation coverage.
    Agree with Anonymous' response also - particularly the need for evidence to back any significant assertions made, which of course is vital in providing substance and credibility to the assertion, allowing for a meaningful, coherent discussion to take place.

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