UK Growth, Productivity and Investment.

 

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Jagjit Chadha (ex head of NIESR and now a Professor at Cambridge) and Issam Samiri have an article in the Journal of Economic Surveys that focuses on the UK’s recent productivity problem. The chart above is taken from that article. Economic growth (or not), and therefore how fast living standards rise (or don’t) is all about productivity growth over the medium and long term. The UK’s problem is this. Productivity growth slowed in all the advanced economies from around 2005 onwards, but it declined by more in the UK, and that relative decline has continued until today.

There is not much the UK can do to buck international trends in productivity. There was no way UK GDP per head was going to continue to grow at pre-2005 rates, so the chart above greatly exaggerates the problem. The survey discusses potential reasons why global productivity growth started slowing around 2005. One story is that the earlier boost to productivity provided by IT in the 1990s started to fizzle out, but to be honest we have more stories than clear answers on this. However, between around 1980 and 2005 the UK kept pace with the US, Germany and France on productivity growth, so there was no UK productivity problem over that period. Those who say the UK has always been in relative decline are just factually wrong.

So what caused the relative UK decline in productivity from around 2005 onwards? The paper goes through various different studies and explanations, and I cannot repeat them all here. How much is due to the importance of banking to the UK economy, so the Global Financial Crisis had an outsize impact on UK productivity growth? Did slower global growth have more of an impact on the UK than elsewhere? Coyle and Mei in a 2023 paper in Economica found that the UK productivity slowdown was largely driven by the manufacturing and information and communication sectors.

Below, in another chart taken from the paper, is the UK’s investment to GDP share relative to other major economies. Investment doesn’t just provide capital that helps produce output, but it is often how technical advances are embodied in production. [1]

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In the 1960s UK investment was substantially lower than in the US, Germany or France, but by the 1970s the UK was at least within touching distance of these other countries. It may reasonably take some time for higher investment rates to show up as higher productivity growth, so perhaps the UK’s relatively good productivity performance from around 1980 was the delayed response to this higher level of investment. Equally, perhaps the decline in relative productivity from around 2005 was due to the decline in the UK investment share compared to these other countries from around 1995.

One idea I looked at in a previous post was that austerity, by delaying the UK’s economic recovery from the Global Financial Crisis, may have had a permanent negative impact on productivity through lower investment. I concluded that austerity, in creating an unusually protracted recovery in aggregate demand from the GFC recession, did have some negative impact on productivity growth and therefore a persistent negative impact on output supply, but how large that effect may have been is very difficult to quantify.

As the chart at the top of the page shows, we actually have two UK productivity/growth problems: the one discussed above, and another that is more recent. In the UK the pandemic appears to have been assciated with a fall in productivity, and perhaps a subsequent growth rate that is even slower than since the mid 2010s. Luckily that is easier to explain, as we can see from the chart above. Whereas the investment share in Germany, France and the US went on increasing through the 2010s, the UK share started declining around 2016. The reason is of course Brexit, and lower investment isn’t the only reason that Brexit would lead to lower productivity growth.

While Brexit was clearly an act of national self harm in terms of productivity growth and therefore UK living standards, the reasons for the UK’s relative decline in productivity growth from the mid-2000s remains something of a mystery, with many potential stories with little consensus about which if any are the more important. My own instinct is that the UK’s low levels of investment compared to other countries since the mid-1990s has to be a key part of any explanation of relatively low productivity growth, but the reasons for these low levels of investment in the UK also remain largely unexplained.

[1] The structural econometric macromodel I and others created in the 1990s had a vintage production function, where technical progress is embodied in new investment.

Delusions on the Left and Labour Right

 

I had it with writing about internal Labour party politics at the end of the 2010s, and have written very little on the subject since. Writing about issues where there are clear tribes or factions with a fairly rigid belief system, but reality is not how either tribe sees it, is too much of a mugs game, or perhaps just involves too much self harm.

Let me be more specific. In the summer of 2019 I was writing a regular monthly article for the online New Statesman. Within hours of publishing my latest piece, where I suggested Corbyn would do less harm as Prime Minister than Boris Johnson, they withdrew it. I was told I could continue writing for them only if I stuck to economics and did not mention to anyone what they had just done. I didn’t accept the latter condition, and have never been invited to write for them again. It meant I briefly felt I was doing the right thing and in reality the potential audience for my writing shrank.

However, I think it’s very hard to understand what is currently happening in the UK right now without saying something about internal Labour party politics. What I learnt from the 2015-2020 experience, and what I should have already known from earlier events, especially what happened after 1979, is that the following proposition is probably true.

Proposition:

The Labour Party only works if it is a broad church that spans left to right, but only if the left does not have control.

Labour works best when it’s a broad church for at least three reasons. The first is that Labour’s right needs the left to at the very least critique its own ideas, and more generally to provide ideas and some vision. As Steve Richards writes, the current government is desperately lacking a political vision, and is even failing to point out the failures of the visions of other political parties (e.g. privatisation). The second is that the left can provide a much needed moral compass, as the Labour’s governments complicity in what many believe is genocide in Gaza clearly shows, and what a Labour government treating as terrorists civil disobedience groups who had become annoying (in part because of the habit of juries not to convict them) also shows. The third is that the left represents the views of a sizable proportion of the population, and it is better having that in the tent than outside it.

However, while it is essential for the left to be part of the Labour party, it is also crucial that it never controls that party. To many who are not on the political left this may seem obvious. You just need to mention Jeremy Corbyn’s time as leader, after all. But this is partly because the mainstream media treats ideas and many individuals on the left as ‘beyond the political pale’ while simultaneously treating ideas from the far right as worthy of discussion or even mainstream.

My own reasons for believing this part of the proposition are two-fold. First the Labour right will not tolerate the left controlling the party, and would rather sabotage the party than allow the left to control it. As they have demonstrated in more than one recent historical period they can be very effective at that. Second, Labour led from the left will never win power in today’s UK except by accident, because the forces against it are too strong (see also below). In both cases those facts may be regrettable, but they are nevertheless real. Many on the left believe it is better for the Labour party to be pure than to be in power, but I don’t.

As I have already mentioned, some on the right of the party were prepared to see Boris Johnson as Prime Minister and for us to leave the European Union rather than help Labour under Corbyn against the Tories under Johnson. Given how disastrous Johnson as PM was [1], you have to be pretty outrageous in your beliefs about what a Labour government after 2019 would have done to support that sabotage. Labour under Corbyn, for example, would not have adopted a policy of herd immunity for the Covid virus. How many unnecessary deaths were a price worth paying to prevent Corbyn becoming Prime Minister? [2]

I’m occasionally reminded that some on the left have never forgiven me for not backing Corbyn in 2016. The left can be as tribal as the right. In 2015 it was not obvious to me just how far the Labour right were prepared to go in undermining the left’s leadership, and by 2016 it was also clear that Corbyn himself did not have the skills nor perhaps inclination to be as inclusive as possible. But I also wonder what would have happened if he had tried? Would the right have still sabotaged his attempts at unity? But although Corbyn was not my choice, I have always been clear that a Labour victory in 2017 and 2019 would be far preferable to what we actually got. 

Since Starmer took over as leader, the right of the party has taken charge, and seems to have decided that Labour would be better off without the left. Left candidates have been purged, and rebel MPs have lost the party whip despite Labour having a huge majority. It was first portrayed as a necessary move to restore the voters trust in Labour, and to make it clear to voters that it was now Starmer’s party not Corbyn’s. But the fact that the party is continuing in the same manner now it is in government suggests it was never just that. The right that now runs things seems to act as if it believes Labour would be better off without the left, and it has partly achieved that wish.

This was and continues to be delusional. The best argument they have is that, come the next general election, anyone sensible on the left has nowhere else to go besides voting tactically against the populist right. The battle at the next election will be between Labour and a probably united Conservative/Reform populist grouping, and victory for the latter would be as disastrous for the UK as Trump’s victory over Harris is proving disastrous for the US. I have no time for those on the left who suggest there is no difference between Starmer and Farage/Jenrick, because such arguments are factually wrong in ways that affect many people’s lives..

The reason why this argument from the Labour right is delusional is that many on the left will not vote tactically when it comes to general elections. Tactical voting is widespread but far from universal. The Labour right has now achieved what I suspect it intended. There is going to be a new left wing party, possibly co-operating with the Greens. Labour will undoubtedly lose seats as a result of attempting to purge the left from the Labour parliamentary party and more widely.

In addition, those on the left who would vote tactically in a General Election may understandably not vote tactically in local government elections beforehand. That will condemn the government to a long period of continuous electoral failure, with commentators taking it for granted that Farage is PM in waiting, and it is difficult to know what damage that will do.

One of the reasons the ‘they have nowhere else to go’ argument just doesn’t work for the left is that many on the left find it very hard to, as they see it, vote for a party that does so many things they regard is immoral on the tactical grounds that doing so might nevertheless make the world a better place. For example there was a real opportunity at the last election to consign the Conservatives to third place, making the Liberal Democrats the official opposition, which could have changed the nature of political debate in the UK. It required tactical voting even though Labour were going to win big. But instead some on the left decided that they could vote Green to (hilariously) ‘send a message to Labour’. It was an excuse to do what they wanted to do, and therefore a missed opportunity.

The Labour right is delusional because the left also has the power to help put Farage/Jenrick in power. They can sabotage Labour, not in the same way as the right did when Corbyn was leader but to the same effect. They can help us get a Trump type government in the UK [3]. One of the delusions of Labour’s right is that Labour becomes more electable by disposing of the left, when the reality is the opposite.

As well as delusions about each other, both the Labour right currently in power and many on the left carry delusions about the emergence of right wing populism and what to do about it.

The key delusion of the Labour right, which I have talked about many times, is that right wing populism is best fought by aping its policies and rhetoric. Right wing populism is about stressing differences between people where there often is little difference at all, denying humanity to the ‘other’, and presenting the other as a threat when they are not. You see that view pushed in the right wing press every day. It is a colossal deflection from society’s real problems, often designed to enhance elements of an existing plutocracy. By repeating the right wing populist rhetoric you just confirm rather than challenge this world view. 

One of the delusions of many on the left is not to recognise the shift in UK politics that has occurred over the last few decades. It is a shift which means that, under a FPTP voting system, the left has no chance of gaining power. General elections are now fought between social conservatives and social liberals, rather than between left and right on economic issues. I discuss the reasons for that here and here, and why the demographic trends that led to it are not going to be reversed any time soon here.

This means that social conservatives, and therefore potentially a combined Reform/Conservative ticket, have a natural majority in general elections, just as Brexit did in 2019. It is social liberals who are the new silent majority, who don’t hear their point of view expressed by the major political parties and who are ignored by much of the media (in part because the very right wing populist Conservative party remains the official opposition). It will mean that right wing populism is an ever present threat, and the best its opponents can do is unite against it.

So many on the left fail to see this, in part because they find it hard to stop seeing neoliberalism as their main enemy. As Eagleton notes here, according to some on the left right wing populism represents the death of neoliberalism, while according to others it is hyper neoliberalism. Eagleton gets it half right when he says that right wing populism prioritises the nation state. That can interfere with parts of neoliberalism while not messing with other aspects of it. But right wing populism also negates national unity by prioritising one part of that nation (e.g. ‘real Americans’) against the rest. It is by definition a divisive project, setting one part of the nation against other parts. It is divide in order to rule.

While many on the left wish that voters would regain their class consciousness, the politics of the moment is whether socially liberal values that have made so much progress in societies over the last fifty or so years are to survive or will be cut back with growing social conservatism. Palestinians are being killed in huge numbers every day not because neoliberalism requires it, but because Israel has a right wing populist government that encourages the denial of humanity to Palestinians in the eyes of so many Israelis.

Of course the left is socially liberal, in some cases more genuinely so than many more centrists who call themselves liberal. But what many on the left find difficult to accept is that the struggle now requires them ultimately to make common cause with more centrist social liberals. While every attempt should be made to get a Labour government to pursue more socially liberal and less authoritarian policies, it has also to be recognised that Labour are never going to abandon trying to attract socially conservative voters, because only by attracting those voters can it stop the election of a right wing populist government.

We had five years of UK economic and political decline, as well as a leader during the pandemic who worried more about what the right wing press thought than the advice coming from scientists, in part because the Labour right prioritised regaining the party over the health of the country. [4] Are we to see a Trump type regime in the UK because the Labour right think its clever to expel the left and ape Reform, and because many on the left refuse to accept that the only alternative to a Labour government is a Trump style regime in the UK?

[1] While it was certain that Johnson would take the UK out of the EU and do the UK serious economic damage as a result, if we had left under Corbyn it would have been on better terms and it wasn’t certain we would leave at all.

[2] Yes, I know that is only something we can ask in retrospect, but we can ask it nevertheless. Equally even a united Labour party would probably have lost in 2019, in part because of mistakes made by its leadership, but that is not a good reason for wishing it to happen. 

[3] The idea that the new left party might attract some potenial Reform voters doesn't seem to show up in polls, so far at least.

[4] A rationalisation for doing this, which I discuss in my posts on tactical voting, is that this represents a short term sacrifice for the greater long term good. But when you spell out this calculus it rarely adds up. For example the short term costs, like leaving the EU's single market and customs union, look pretty long lasting right now and the damage that has caused is also clear.    

 

Thoughts on the unpopularity of different approaches to tax rises

 

Rachel Reeves will almost certainly have to raise taxes in the next budget. That budget is too far away to get into specific tax proposals, but there has already been discussion about how these tax increases should be approached. There seem to be three main options:

1. Raise various specific taxes that it can be argued do not contradict Labour’s pledge not to raise taxes on working people. This was the approach the Chancellor took in the last budget.

2. Break that pledge, and raise one of the main taxes Labour pledged not to increase

3. Embark on a process of general tax reform, modernising and simplifying the tax system and raising overall taxes at the same time. This reform could be designed to appear not to break the pledge.
   
   

Economists have long argued that (3) is overdue. Having a series of Chancellors from Osborne onwards who are more interested in politics than having an efficient tax system has ensured that the UK tax regime is in a bit of a mess, and inefficiency can be an important negative for output and growth. Two recent advocates of (3) are Will Dunn and Martin Sandbu, but the IFS among other experts has consistently argued for changes that move towards (3).

Two aspects of the UK tax system stand out as being in drastic need of reform. The first is council taxes. Council taxes are based on valuations made in 1991, when houses in the North and Midlands were relatively more valuable compared to London and the South than they are today. With revaluation, those tax payers in the North and Midlands would gain, while those in London, the South East and a few areas in the South and East Anglia would lose out.

In addition, council tax is regressive in the sense that it is a much higher percentage of a property's value for low value houses than higher value houses. Making council tax proportionate to the value of a house while keeping revenue unchanged would help low to middle income earners while those at the top of the income distribution would lose out.

The second major anachronism of the UK’s tax system is that we have two forms of income tax: what is called income tax, which is paid by anyone with an income, and personal national insurance contributions (NICs), which are paid by those in work but not by pensioners or landlords, for example. The reason we have the two systems is because of the idea that workers contribute to their pensions. But this is a fiction. Today’s pensions are paid for by today’s taxpayers, not by pensioners when they were working. Our state pension is an unfunded scheme, meaning there is no pension pot which those paying NICs contribute to, and which then pays out as their state pension.

We can see this is a fiction because there is no linkage between what pensioners receive and what employees pay in NICs. The last government cut NICs, but they didn’t cut current or future pensions. Under the last Labour and Conservative governments NICs were raised to pay for more funding for the NHS, not higher pensions

The obvious reform is therefore to abolish personal NICs and raise income tax. However the political reason why this hasn’t happened yet is obvious: a revenue neutral reform would mean those working would generally pay less, but pensioners would pay significantly more than they are currently. Problems like this generate a kind of received wisdom regarding major tax reforms, which is that they are only possible to do when the government has ‘money to give away’ which it can use to compensate losers. According to this received wisdom it is not something you do when the government needs to raise money (or, for MMTers, when the government doesn't want to encourage the Bank of England to keep rates higher).

However Martin Sandbu argues the opposite. He writes

“Every tax tweak produces winners and losers. With the incremental changes pursued by Labour so far, the losers (comfortable pensioners, rich farmland owners, and the disabled poor) have been loud and identifiable interest groups, while the winners (taxpayers and the economy at large) were neither. So the squeaky wheel gets the political grease.

In a comprehensive overhaul, in contrast, most people would gain from some changes and lose from others. If well designed, the gains should be larger than the losses. That would make it much harder to mount targeted, single-issue political resistance of the kind that has made the government back down before.”

In other words, (3) is easier to get away with than (1). I read this as a version of the ‘common pool’ problem. When a farmer loses their tax break on inheritance tax, for example, this matters a great deal to them, but the benefits to every other tax payer is so small and so widely spread they are hardly noticed. I’ve argued a similar problem exists with high pay. With wholesale tax reform there are clear winners and losers, and so the tax change has a clear group of people fighting for it as well as a clear group of people fighting against it.

These two examples of tax reform discussed above illustrate the merits or otherwise of Sandbu’s argument quite well. A Labour government might be prepared to see a redistribution of council tax that favoured the North relative to the South, and the poor relative to the rich. However no government would be happy landing pensioners with higher income tax, by an amount that would in financial terms make the winter fuel payment look like peanuts. The two obvious reasons are that pensioners are more likely to vote than other age groups, and pensioners predominantly read newspapers that produce anti-Labour pro-populist propaganda.

There is a common problem with both approaches (1) and (3). They make any public debate about fairness. With (1) it is why should this particular and generally small group get hit, with as I noted here the focus in the media on the most sympathetic hardship cases. Sandbu is right to point out that the question ‘who should pay higher taxes instead’ is rarely raised. With (3) and in the absence of expensive compensation large groups of people will be worse off, and almost everyone in those groups will think that is unfair and will think any beneficiaries of the reform don’t deserve to be better off.

The big advantage of (2) is that pain is more evenly spread, so the focus of the discussion moves from fairness to become a question of do we want to pay for better public services. I’ve argued before, following the experience of Brown’s NIC increase under the last Labour government, that this is a debate Labour can win. But the case has to be made, otherwise the media will just talk about higher taxes required to fill black holes which pleases no one.

While reforming council tax would be both economically desirable and politically possible, I suspect Labour will avoid any major tax reform. This Prime Minister and Chancellor just don’t seem like the kind of politicians who would undertake politically risky major changes of this kind. They have also missed two good opportunities to break their pre-election tax pledges, so it seems unlikely they will do so now unless they run out of other options. So I suspect we will see a repeat of last year’s budget (1 above), with specific taxes raised on ‘non-working people’. That makes it all the more likely that the budget will be seen as more fiscal firefighting to fill black holes rather than a budget about expanding public services, and so is unlikely to be any more successful politically than what has gone before.

Ancestry and Immigration in the US and UK

 

The United States is now being run as a dictatorship. That this would happen was pretty clear the moment Trump won his second term, and the Republicans won majorities in both the Senate and House. There are essentially three reasons for this. First, Trump and the Republicans have taken control of the Supreme Court, and that Court is in the process of neutering attempts by lower courts to stop Trump exceeding his authority as President. To do this they are making some very strange legal judgments: essentially the law is being rewritten to legalise a dictatorship. Second, Congress and particularly the House under the Republicans have made no attempt to oppose Trump, even when that involved Trump taking powers away from Congress. Third, Trump is much better organised than he was during his first term, both in terms of being able to place yes men or women in key positions, and also because he now has an organised movement, MAGA, behind him.

The US now has many of the ingredients of a fascist state. Large sections of the population are at risk of being kidnapped by the state, imprisoned and deported to a random country (sometimes to another prison) without due process. Tourists risk being detained for long periods. The Immigration and Customs Enforcement agency is set to become the highest-funded law enforcement agency in the federal government. The Trump administration is seeking ideological control of US universities, and has already largely tamed what was once called the independent media. Opposition politicians are assassinated and Republican politicians use the occasion to score political points. The government supplies Israel with the weapons and almost complete political backing to what more and more people are describing as a genocide against the Palestinian people, and sanctions international judges and agencies that call this out.

An earlier version of this post was entitled ‘US democracy is now in Trump’s hands’. It was intended to convey not only the extent of Trump’s ability to end US democracy, but also that democracy could still survive because of his obvious incompetence. I now think that is a little too pessimistic. If the Democrats can win back the House in 2026 (winning back the Senate is much less likely) by a sufficient majority, then it could become the centre of an effective resistance to Trump. For that reason, as those elections approach we will see more attempts by Republicans to ensure that they are not fair. These attempts have already begun, and merely represent a scaling up of long standing Republican gerrymandering.

What I wanted to do in this post was highlight one particular current on the US far right (i.e. the Republican party), and link it with developments on the far right in the UK (i.e. Reform and the Conservatives). Part of MAGA thinking is straight political and economic nationalism: a wish to enhance America’s military and economic power. The latter has a strong nostalgic element to it: a fondness for manufacturing jobs, and when there was more economic self-sufficiency and less globalisation. Another key element in MAGA is what some call a return to ‘traditional values’ and which I will call social conservatism.

Part of this can be simple racism, but it is more general than that. It involves antagonism to minorities based on sexual orientation as well as race, nationality or religion, and returning to more traditional gender roles, for example. It involves returning to the social values of the past, sometimes quite distant past. However social conservatism has psychological foundations that go beyond nostalgia for past social values, and are related to wanting conformity (disliking ambiguity) and having a closed rather than open outlook.

This tends to make social conservatives identify with a particular group within society, and feel threatened or uncomfortable with those outside that group. That makes them not just nationalistic, but also antagonistic to nationals who are not like them. They are attracted to right wing populists not just because they like authoritarian figures, but also because those figures talk about, for example, ‘real Americans’ rather than ‘all Americans’. The more far right politicians can focus public discourse on these minorities as outsiders, and portaying them as a threat (calling them criminals etc) the more successful they will become at attracting the votes of social conservatives.

As John Ganz points out, this viewpoint is very different from words set out in the preamble to the US Declaration of Independence, whatever meaning they might have had at the time they were written.

“We hold these truths to be self-evident, that all men are created equal”

To be very simplistic, I suspect most social liberals believe in that statement even though they don’t always act as if they do, while many social conservatives do not believe in it at all.

But how to define ‘real Americans’. Race is an obvious way, religion may be another, particularly for evangelicals. Geography may be another, with small town agricultural America eulogized and large cities feared. What I find interesting about some in the US government and MAGA leadership is that they are promoting ancestry as the key to defining who ‘real Americans’ are, and crucially who are not real Americans.

Vice President J.D.Vance has for some time pushed the view that it is ancestry that defines true Americans. He talks of past generations being buried in US soil, and of a feeling of homeland felt ‘in their bones’. This sounds very similar to Matt Goodwin in the UK, who sees being English as about being able to trace your roots back generations to people who lived here. For both, a piece of paper giving citizenship is not going to suffice in defining nationality. For other right wing politicians expressing similar sentiments, see Ben Ansell here, or Sam Freedman here

Is this just code for skin colour? I’m not sure it is. After all, Goodwin himself and the far right press in the UK seem happy to talk about the dangers of white people becoming a minority in the UK at some date in the future. The days when racist sentiments like this could not be expressed openly have long gone. Instead the focus on ancestry can be seen as representing a ‘blood and soil’ type of nationalism that has a long and often terrible history. It fits with seeing the rural as representing the nation and cities as more alien. Crucially, it is exactly the kind of thinking that fits with an obsession with immigration.

If nationality is all about ancestry, then immigrants by definition can never become true nationals. They automatically become outsiders for those with socially conservative views. As immigration is increasingly viewed as inherently bad in so much public discourse in the broadcast media, this plays into the hands of those who would promote an ethnic type definition of nationality. This dehumanisation has already been achieved for asylum seekers, where the manufactured term ‘illegal’ has provided an additional way of ostracising them, and where the broadcast media showed little inclination to resist using that term.

Is Goodwin and Jenrick’s focus on ancestry just another example of the UK far right copying their US counterparts? Maybe, but it certainly involves a focus on ethnicity that only a few years ago would have been considered beyond the pale to a Conservative party led by Rishi Sunak. Moving the definition of outsiders away from just race or religion towards ancestry may have advantages for far right politicians, for two reasons. First, most people in the UK do not see race or religion alone as barriers to citizenship or being English. Second, a key part of Brexit was about excluding Europeans, who could be very white and Christian. [1]

Increasingly the Trump administration in the US is seen as a template by the two major far right parties in the UK, and much of the UK press. Newly elected Reform councillors attempt to end diversity roles even where none exist. Reform tries to mimic Musk’s DOGE. Both parties have become anti-science with their antagonism to achieving net zero. The Conservatives want to increase deportations.The converse of this, which no one should be shy of pointing out, is that this amounts to copying the policies of a fascist administration.

There is a good reason why Reform don’t like being called a far right party. It is the same reason that Trump denies he is a fascist. In both cases the labels convey much of what these politicians are really about, but which they would rather hide from public scrutiny. With their adoption of blood and soil descriptions of what it means to be English or American, we have one more parallel between them and past dictatorships that they really don’t like being compared to.

[1] In contrast, for a country like the UK, those from ex-colonies who can trace their ancestry back to the mother country can still be regarded as English or British.

Everyone knows Labour has made mistakes. What is more worrying is why those mistakes were made.

 

Every political journalist has been writing their one year assessment of the Labour government. The general view is that Labour is in crisis, “has started to unravel at a frightening pace”, and we should prepare for Farage as Prime Minister. It seems our over excited political commentariat has not yet adjusted to there not being a Conservative government where ministers and even Prime Ministers had a short shelf life, and politics resembled a Line of Duty script. The reality is that Labour will be in power for another four years, and Starmer will almost certainly be Prime Minister for another four years.

Which means this Labour government and its leadership have plenty of time to learn from their mistakes. But they can only learn if they understand not only what the key mistakes were but also why they were made. If you look at the reasons for those mistakes, then it is hard to be confident that they will be fixed.

The first major mistake, as no one who regularly reads what I write will be surprised to learn, is tax. More and more commentators have realised that the tax increases announced in the last budget, although large, were also inadequate. The most recent is Will Dunn in the New Statesman. For what it is worth, the scale of tax increases that were actually required in October were obvious to anyone who did the sums. While few among the political commentariat do sums, the Chancellor certainly should have done so.

The standard explanation for this failure is Labour’s determination to win the election, and avoid anything that could put that at risk. But if that was all there was to it, then once in power you would expect the Chancellor to grab any opportunity to row back on pre-election pledges. Those opportunities did arise, but they were not taken. It does look as if Labour believed that tax rises just to prevent the spending cuts pencilled in by Hunt was all they needed to do.

How is that possible, when crunching the numbers showed that this meant keeping levels of public service provision well below those achieved at the end of the last Labour government? One possible explanation is that Reeves wanted to copy the path trodden by that last Labour government, spending its first term demonstrating financial credibility, and only increasing spending after winning a second election. However that seems unlikely, if only because Labour wlll be under even more pressure to make pledges on tax at the next election. (I discussed here why repeating the path followed by the last Labour government will not work in electoral terms.)

A more plausible explanation is that Labour thought, and continues to think, that it can bring about sufficient improvements in public service provision by just not being a dysfunctional Conservative government. It is certainly true that the Conservative government that started in 2019 was unusually incompetent: predictably so as it was led by someone who should never have been allowed near No.10. But it was never realistic to think that better management could bring Western European levels of public service provision with substantially lower than Western European levels of tax.

A more likely explanation for why Labour didn’t think it had to raise taxes by much more than it did in October was that they accepted that George Osborne was correct: the size of the state under New Labour was too large, and he was essentially right to shrink it. This meant Labour in government would be a more competent version of a post-Osborne Conservative government. It would, for example, carry on not raising fuel duty just as every Conservative Chancellor since 2010 had done. If, partly as a result, events meant that fiscal rules might not hold, Labour would do what a Conservative government would do, and trim spending.

At which point many on the left will be saying I told you so. But this misunderstands everything I have written for well over a year, and also makes the same mistake that this government has made. The key point is not that this government holds an ideological view that the left (and even New Labour) disagrees with [1], but that it holds a view that is not sustainable in political terms. What we saw, thankfully, with the revolt over the disability cuts was precisely this. What we are seeing with Labour’s dreadful performance in the polls is precisely this. Osborne’s vision of a smaller state was never one that could be sustained politically, which is why he had to lie about cuts being all about reducing the budget deficit.

The second key mistake the government has made is to ape Reform on immigration. As with tax, this mistake is increasingly understood by more thoughtful political commentators. Just look at the result of Labour’s strategy to sound tough on immigration, which essentially just means sounding like Nigel Farage. It has meant that immigration is now viewed by voters as the most important issue facing the country. It has meant Farage leading the polls, and Labour’s already low poll share falling even further.

Starmer says he regrets one particular part of his recent speech on immigration. But the whole speech, presumably put together by his advisors in No.10, was terrible. It not only sounded like something Farage could give, it also included the straight lies that Farage typically makes. Voters will think that immigration is the most important issue if they believe that the poor levels of public service provision is due to high immigration, which is the lie Farage and the Conservatives tell. In that speech Labour repeated the same lie.

The speech did offer a glimmer of hope for a better policy. If Labour wants to accept that immigration has to be lower, it needs to pursue an intelligent approach to getting it lower, which is to focus on the causes of high immigration. The speech talked about UK firms preferring to hire overseas rather than offering training and apprenticeships. I have no idea if that is true, but if it is it represents the kind of approach to reducing immigration that might work without severely damaging sectors of the economy.

However if that glimmer of hope is to become a proper strategy, then those advising Starmer need to experience a sea-change in their approach, or go. I’m not a political journalist, so I only know what I read from those who are. The supposed success that McSweeney has had in the past fighting right wing populists seems to be typical mythmaking by political journalists happy to flatter egos for access. In my view Labour did need to largely follow the socially conservative playbook in opposition, but it was hardly rocket science to understand that, which is why I said so back in 2021. More generally, playing safe by triangulating as far as you can towards a very unpopular government is hardly a new strategy.

But it is equally obvious to anyone who thinks about it for a second that strategies that work for oppositions often don’t work for governments, because voters understandably judge governments on their record. Again ‘I told you so’s from the left about the inability of Labour in government to adopt a distinct strategy from Labour in opposition miss the point. The point is that strategies in the two situations can be different, and in my view have to be different if Labour is to survive against the right wing populist threat.

What that strategy needs to be on immigration requires a separate post, but what it has to do is easier to set out. It cannot be Farage lite or like, because Labour’s record in office on immigration or asylum will never satisfy the media, and so socially conservative voters will choose Farage if everyone’s rhetoric is the same. Labour’s only hope is to convince voters that on immigration, like Brexit or fiscal policy, what right wing populists offer is fool’s gold. This should be possible, because it happens to be true. Labour can quite plausibly argue that while everyone is promising lower immigration, only they are doing so in a way that doesn’t damage the economy. But at the moment neither their policies or rhetoric do that.

The final big mistake Labour are making is not being honest about Brexit. There is a legitimate argument to be had about how fast the UK should try to harmonise with the EU to boost trade, and in particular whether and when to rejoin the EU’s customs union and single market. Maybe Labour’s current red lines on these two make political sense (or maybe not), even though they represent a self-imposed, politically harmful brake on growth and living standards. But Labour should not as a result of these red lines avoid being truthful about the economic costs of Brexit, for two obvious reasons.

The first is that Brexit is going to get more and more unpopular over time, and so if Labour is to get a second term continuing with its red lines it will become harder for voters to understand why. The second is that Brexit is Labour’s most effective weapon against Farage [2], because even many of those who support Brexit recognise that the Leave side promised a rosy future that hasn’t materialised. In political terms Farage is Brexit, and the failure of Brexit should sink Farage, but only if government politicians are prepared to label Brexit a failure.

Calling Brexit a failure does not require that we immediately rejoin the EU. There is a perfectly respectable political argument that small steps are best. But the reason why Labour are not being honest about the costs of Brexit is the same reason they are not being honest on immigration, and that is a naive political strategy that doesn’t recognise the difference between being in opposition and government.

There is little sign that the government understands this, so there is also little hope that it will change anytime soon. It will raise taxes, but probably by only enough to put out the current fires, leaving it vulnerable to all the new fires that will emerge over the next few years. Unless it is lucky, Labour’s fiscal policy will continue to dance on a razor’s edge. On immigration it will continue to ape Farage, and that strategy will be as successful as it has been so far. By not being honest about Brexit, Labour will be forsaking its strongest weapon against the populists.

[1] To be clear, this is a view about the size of the state. Arguably this government is more left wing than New Labour in some other areas.

[2] Another great weapon against Farage is Trump, and the consequences for his actions on the US and global economy. While the attraction of UK ministers flattering Trump is obvious, that should not hold Labour back from pointing out the chaos of his rule, and the similarities in policy between Reform and Trump. A third weapon is action to reduce climate change, where the populist right have - like Trump - become not only climate change deniers but also prefer what is now more expensive energy. This is one area where the Labour government has something to cheer about, and it says a lot about the operation inside No. 10 that Ed Miliband is constantly receiving negative briefing.

Other countries' wars and the media

 

According to this article in the New York Times, Trump’s decision to bomb Iran was taken in part because Israel’s attacks were playing so well on Fox News.

“The president was closely monitoring Fox News, which was airing wall-to-wall praise of Israel’s military operation and featuring guests urging Mr. Trump to get more involved. Several Trump advisers lamented the fact that Mr. Carlson was no longer on Fox, which meant that Mr. Trump was not hearing much of the other side of the debate.”

It should not be surprising that populist figures like Trump, and earlier Johnson in the UK, should pay a great deal of attention to coverage by their favoured media organisations. They are both creatures of the media: Johnson as a journalist, Trump as a TV celebrity. As a result it is perfectly plausible that a war pursued by an ally playing well in the media should make someone like Trump want to join in on their side.

Many associate the word ‘propaganda’ with state control of the media, but there is no reason beyond ideology why its use should be limited in this way. A standard definition of propaganda is selective or biased information that is spread in order to influence people’s opinions in a particular way. It is clear that any media organisation can produce propaganda. That propaganda can be aimed at a general audience, or it could potentially be aimed at just an elected elite or indeed just one particular leader.

The ideal most media organisations say they try to live up to is to present all the relevant facts to their audience so that the audience can make up their own minds. Of course no media organisation can ever present all the potentially relevant facts and arguments, so selection is always required. The key distinction is whether selection takes place according to criteria like importance or relevance, or whether selection is based on the impression that this will leave with the audience. I can imagine how Israel’s strikes on Iran were portrayed on Fox News: plenty of favourable adjectives (‘successful’, ‘daring’), exaggeration of the threat ‘eliminated’, ignoring civilian casualties and so on. Here is a more detailed account.

In a post written during the Covid pandemic I labelled media like Fox News, or most of the right wing press in the UK, the ‘direct propaganda media (DP media)’. My reason for doing so was because so much of the media class prefers to pretend that these organisations are just like the rest of the news media except they have a more pronounced political stance. They are not. [1] The DP-media don’t produce news in the same way as the rest of the media do most of the time, but instead they produce propaganda. They select what information they provide in order to influence or flatter the opinion of their audience. Whether they do this because that is what their audience wants or because they want to alter what their audience thinks is another matter (I’m sure both are involved), but for whatever reason they try to avoid providing information that might challenge the views of their audience or the media’s owners.

Fox News knows how much Trump watches them, and that they therefore have considerable influence on him. Whether they slanted their coverage of Israel’s attacks on Iran with this in mind I have no idea, but the possibility shows why confining propaganda to something the state does is so misleading. In many of the advanced economies currently run by or containing right wing populists, the media that supports those leaders are run by independent agents (they are part of the dominant plutocracy), and they will attempt to influence the leader’s decisions just as the leader’s advisors or donors do.

Populist leaders are well aware of the power the media has to influence public opinion. That influence is often publicly downplayed or denied by those in the media and elsewhere, but I have written extensively in the past about the accumulating evidence of its power (e.g. here for the US. For something more recent on Fox see here). The power is far from absolute, but it is significant enough for any populist to want to do what they can to get this media onside. This may involve granting favours to media outlets that support them and penalising those that do not, as Trump obviously does but which Netanyahu did for Channel 14, a television organisation accused by lawyers within Israel of letting pundits and guests call for war crimes, including genocide, against Palestinians.

While the behaviour of the DP-media in war time is similar to its behaviour pretty much all of the time, the behaviour of the rest of the media covering other countries’ wars can seem quite different to its normal behaviour. While it is often called the ‘non-partisan’ media, during the conflict between Israel and the Palestinian people this media has been anything but non-partisan, particularly in the US but also in the UK [2].

Analysis of coverage in the first six weeks of the current Gaza conflict in three leading US newspapers indicated a “gross imbalance in the way Israelis and pro-Israel figures are covered versus Palestinians and pro-Palestinian voices”. On US television Sunday talk shows, guests were far more likely to be pro-Israel than pro-Palestinian. Evidence suggests this bias comes primarily from the media companies rather than the views of the journalists who work in them.[3]

This is why in that earlier post I called the media that wasn’t involved in producing propaganda the ‘manufacturing consent media (MC-media)’. I argued that both the MC-media and DP-media were involved in selecting information. Where the DP-media selected information in favour of a particular viewpoint within an economic, social and political system, the MC-media selected in favour of that existing economic, social and political system. [4]

Of course any categorisation of this kind is inexact, but I felt these descriptions made more sense than references to some media being non-partisan, when clearly the non-partisan media is quite capable of being pretty partisan on some issues. In particular, given the US political elite’s support for Israel and its extensive supply of arms and money, such bias would be the natural outcome of a media in the business of manufacturing consent. Anti-Palestinian bias in the US media is after all quite longstanding.

That foreign policy, and particularly wars, is an area where the MC-media feels it needs to encourage consent is hardly surprising considering that media’s coverage of the Iraq war. As Paul Krugman notes, anyone willing to face the facts could see that the US government was lying about the war, but the media overwhelmingly backed the government rather than exposing the lies.

According to Pew in April this year a majority of Americans had a negative view of Israel. (For a survey for some Western European countries, see here.) Does this indicate a failure by the media to manufacture consent? It certainly shows that the power of media bias is limited, particularly when set against views of death and destruction in Gaza, which are readily available on social media. What it cannot tell us, of course, is what this polling would have shown if US coverage of the conflict had been more balanced. However, looking at manufacturing consent as only about public opinion may be too narrow. It may also function as a means of harmonising elite opinion.

As the alleged influence of Fox coverage on Trump shows, media coverage can influence the opinions of the political elite just as the political elite can influence the media. Once we see those who run the media as independent agents rather than just enforcers of some status quo, then biased media coverage can not only reflect the position of the political elite, but it can also contribute to political elite views.

While for issues involving wars and some other areas the differences between the MC-media and DP-media may seem to be small, there remains a huge difference elsewhere between the two groups. Take Trump’s claims after the 2020 election that he had really won. The MC-media treated those claims on their merits, merits which increasingly tended towards the non-existent. Newsmax, by contrast, saturated its coverage with election denialism. We now know, thanks to the Dominion Voting Systems’ lawsuit, that Fox News then panicked, and started slanting its coverage to what it thought its Trump supporting audience wanted to hear. It could do that, in a way the MC-media cannot, because it is in the business of producing propaganda rather than news. 

[1] The pretense, at least in the UK, that the DP-media are news organisations helps the DP-media to often dictate what the rest of the media does, particularly through confected outrage. How else, for example, can what a rapper said at Glastonbury dominate news headlines for two days while there is no end in sight for daily starvaton and slaughter in Gaza?

[2] In the UK, for example, compare and contrast a headline in an Israeli newspaper with one from the BBC here.  

[3] In the UK BBC staff have also complained about its coverage.

[4] One way of describing this is that the MC-media controls the Overton window of views that are considered acceptable or unacceptable.