Is this the time for Britain to enter the euro?

You need no telling that 2008 (and particularly after the mistaken decision [with 20:20 hindsight] to let Lehman Brothers go bust) was an appalling year for the world economy. Neither is it any secret that 2009 promises to be worse. I think it will also be the year in which the full horror of the impact of recession in the US (and also the UK) on world trade and thus on the net exporters comes clear. Obviously this is of most concern in East Asia – where trade surpluses have been greatest and most persistent. It will however also have an impact amongst those countries of the eurozone, most notably Germany, who have depended on export led growth since the 1950s.

The strength of the euro is one measure of the adjustments that are likely to take place unless there is urgent action to boost domestic demand in the eurozone. And of course this needs to be coordinated within Europe and globally. The global imbalances were a major contributor to this crisis and without the readjustment of these imbalances, the world is condemned to a low-growth/low-employment equilibrium at best; think Japan since 1990 but without the opportunity to export to maintain production because traditional import markets across the world are contracting. What is required is that domestic demand expands to absorb production that has been previously exported and that imports also increase in China and other export led economies in East Asia, Latin America and Europe.

Played right coordinating the response to the crisis is an opportunity to create a truly global approach to managing the world economy. I fear however it also offers the potential for a massive failure in collective action. The anti-trade rhetoric of the Obama camp during the presidential campaign alongside the apparent anti-trade instincts of the Democratic party now dominant in Congress makes the failure of progress in the world trade talks in Geneva no surprise. As I have said before, failure in the WTO has many parents, not just the US or France or India. That makes it worse however in the sense that there is less hope for ‘coalitions of the willing’ going ahead with liberalisation. But it also bodes ill for global collective action on macroeconomic policy co-ordination and/or financial regulation where the institutional and governance structure are much less developed than for trade.

What about Britain and the euro? Do current circumstances argue for a change of policy? Certainly a fix at £1 = €1 has a certain symmetry to it. And after a long weekend of sticker-shock in Flanders and Artois (where the tourist £ bought €0.98) it is obvious to me that UK exports will enjoy a price advantage in eurozone markets that they have lacked for a decade or more. We could begin to see the shift away from services towards manufacturing in the UK economy as it recovers that many have called for down the years. So fixing at such an advantageous rate could have important benefit for the traded sector of the British economy.

There are two obstacles to that scenario. First, we cannot enter the euro at a stroke. We have to meet the convergence (previously the Maastricht) criteria, which is pretty unlikely any time soon based on the UK fiscal outlook until the middle of the next decade at least. Above all we need to fix sterling to the euro within the Exchange Rate Mechanism of the European Monetary System and maintain that central rate for two years, which raises the possibility of the markets ‘shorting’ sterling as Soros did in 1992 (his recent canonization as the acceptable face of finance in the face of vilification of hedge funds and other ‘shorting’ in any financial market is strange to say the least). Given the likely instability in the real economy, fixing sterling looks a risky enterprise.

Second, our potential partners are unlikely to agree to us fixing at a super competitive rate such as 1:1 or better: it looks like a beggar-thy-neighbour exchange rate policy. Joining the euro therefore appears to be a policy option destined for the ‘too difficult’ tray in London and Brussels.

Will the time ever be right on our side or that of the eurozone? I must say that it is hard to see the circumstances for a smooth entry into the euro arising until we all emerge from this crisis and into a period of relatively calm economic weather. Even then it will require a significant change of view in the two main British political parties.

Jim Rollo,
Co-Director, Sussex European Insititute

Social Mobility in the UK

Tim Bale has circulated a very interesting piece on social mobility in The Times by Tim Hames, to which I initially responded in an email to colleagues. He suggested that I post my comments here, and I'm happy to do that.



The link to the Hames article is here: http://www.timesonline.co.uk/tol/comment/columnists/tim_hames/article1878529.ece



However, for ease of access I'm pasting it in below, with my own comments. Please feel free to add your own thoughts.



Paul Webb





The Times (London) June 4, 2007, Monday



The Tories and education? It's a no-brainer - Tim Hames



Meritocracy is a slippery concept. The word achieved popular currency almost half a century ago with the publication of Michael Young's The Rise of Meritocracy. Young detested the country as it was in the 1950s, arguing that "nobody should be born with a silver spoon in his mouth or, if he is, it should choke him". At the same time he was appalled at the thought of a society divided into new classes on the basis of academic intelligence alone and feared that it could result in a new elite that would have no sense of compassion for, or shared responsibility with, those "below" them. Despite Young's misgivings, meritocracy is regarded as worthy in the modern world (on the whole, rightly) -although he was wise to to give warning against a pure Brave New World approach to brainpower. The reality, however, as Mr Willetts has conceded, is that Sad Old World is more plausible. The evidence that Britain has become less socially mobile is clear, even if it is not widely understood. This is partly because, while sociologists are wonderful people, their language is rarely less than opaque.



Social mobility is measured by "transitional matrices", in which absolute social mobility is taken to mean that a person's ultimate income and social class is unrelated to that of their parents. If someone is born into a family in the bottom quarter of the population by income, for instance, if they had total mobility they would have an exactly equal chance of ending up in any of the four quartersof relative wealth. The evidence suggests otherwise and it is pretty disturbing. Two huge sub-sections of the population were identified -those born in 1958 and 1970 -and their lives closely followed. Of those born in 1958, those in the poorest quarter had a 31 per cent chance of being in the same place at the age of 33 and a 17 per cent chance of having moved up to the highest quarter. By 1970 the same sort of people had a 35 per cent chance of being > stuck where they were and a 16 per cent chance of jumping up. The results for the middle class are much more dramatic. In 1958 those born to the wealthiest quarter had a 35 per cent chance of staying where they began and a 17 per cent chance of slipping down to the lowest income section by the age of 33. But those who were born in 1970 had a 42 per cent chance of carrying on in comparative luxury and a meagre 11 per cent chance of descending to the lowest income quarter.



Put brutally, the story of the past 50 years is that the middle class has got bigger and has also become highly effective at defending its own -including the least impressive of its offspring. How and why has this happened? The conventional explanation...is that the massive expansion of higher education and degree qualifications in the past few decades is a rave to which the working class has not been invited. There were 220,000 students attending universities in 1974. Thirty years later there were more than 1.6 million. Yet it is those who were born into comfortable households who secured these new places (especially the girls) and benefited from the economic rewards that flow from them. If so, this is one hell of a dilemma. It implies that the principal challenge of social mobility today is less how to raise up the bright but poor (though this is a real challenge) than how to force down the dim but rich. That is really, really hard. No one objects to the State intervening to assist the smart but disadvantaged. A massive middle class would go nuts at the sort of measures that government would need to introduce to ensure that Tristan and Jemima were exposed to serious penalties for being, well, thick. This is, to use a technical phrase honed by experts, a bummer of a public policy problem.





PW's COMMENTS:



Thanks for this, Tim - it's a great piece for stimulating debate. I can't resist a quick salvo!



1. I attended a really interesting panel at the Elections, Public Opinion & Parties conference in Manchester last month which was on social mobility, and one thing that came across very clearly is that the sociologists were NOT of one mind that rates of mobility had gone down under New Labour (see paper by Fiona Devine on the conference website if you're interested here http://www.epop08.com/papers/documents/FionaDevine.doc). As ever, these things tend to come down to rather abstruse arguments about method and theory.



2. The Hames article is undoubtedly right in saying that the middle class have been the principal beneficiaries of the expansion of HE - to be personal about it for a moment, there is no other explanation for the fact that I myself had the opportunity to go to Uni in the 1970s while my equally if not more intelligent father never got a look in in the 1940s. However, I think the slightly outraged tone of Hames article overlooks a couple of things.



First, he himself points at that '...the story of the past 50 years is that the middle class has got bigger and has also become highly effective at defending its own...'. The fact that the middle class has got bigger as the social structure of Britain has changed inevitably means that we cannot expect mobility rates to remain unchanged. That is, if the MC has got bigger at the expense of the WC, then it is probably a good thing, not a bad thing, that people are more likely to remain within it and not suffer downward mobility. The decrease in mobility rates is a function of changing shape of social structure (once the expansion of the MC has stabilized). Of course, one could still argue on normative grounds that, in effect, the MC needs to keep getting bigger and bigger, thus permitting more upward mobility from the remaining WC, but eventually this process is bound to plateau, and so the class structure of society will stabilize and mobility rates necessarily decline.



Bear in mind too, that in terms of absolute levels of wealth and income, the experience of being in the WC is far different today to that of a generation or more ago. So while the relative differences between classes may remain acute ever, society is actually less polarized than hitherto, in that more of us live in a broadly middle class way.



The second thing is that Hames focuses his comments on class mobility and is dismissive of an important alternative form of 'social mobility' which has affected this country - the equalisation of opportunities across gender lines. He says: 'it is those who were born into comfortable households who secured these new places (especially the girls) and benefited from the economic rewards that flow from them.' Quite. The expansion of HE access to girls is no small matter and arguably constitutes a social revolution in its own right. To return to my parochial example once again, it wasn't only my father who never had a shot at University in the '40s, but my older sister barely had realistic chance in the '60s either, despite having had a good school record. Although she opted to take a quite different career path, the limits of her teachers' aspirations for most of their girls was teacher-training. Few were expected to go to university to read the humanities, social sciences (let along sciences). By contrast, my daughters' (state) school tends to socialize them into the attitude that university entrance will be the norm for them and their friends.



In brief, the expansion of HE over the past two to three decades has provided access to greater life chances to a enlarged middle class and to women more generally. These are no small achievements, though Hames' article does not really acknowledge them.

Mandy

You thought taxing core voters was bad judgement. Mandelson is a big problem for Tories. Coulson 'on guard'. But he's a much bigger problem for Brown.

True Brit? On Gordon Brown’s Economic Nationalism

If one wanted to encapsulate the current state of the UK’s relations with the European Union, it would be hard to beat Prime Minister Gordon Brown’s decision not to turn up on time for the signing of the Lisbon Treaty (though arriving late for lunch might be seen as an improvement on the twenty or so years it took for the UK to join the European Communties). While we could all be reading too much into what was presented as a “diary clash”, many reports were of the view that his absence was driven by political calculations of what would play in the UK as well as his own ambivalence towards the EU.

It is no surprise that the Prime Minister plays to what is perceived to be the domestic political agenda (whether defined by public opinion or by the opinions of those who own the British media). Yet while turning up late managed to irritate his fellow heads of government, turning up at all failed to mollify domestic critics who still call for a referendum on the “Lisbon Treaty”. Perhaps his absence should be seen as part of a more general lack of engagement on Mr Brown’s part - the European Union does not seem to enthuse the PM very much. Such a lack of interest is not unusual for British politicians.. However but by all accounts Brown was not an active participant in ECOFIN when Chancellor and now it appears that Prime Minister Brown is likewise unwilling to engage in the sort of “networking” with other heads of state which his predecessor was happy to do.

The lack of engagement is puzzling, not least because on economic matters, the prevailing orthodoxy in EU economic policy has been pretty close to Brown’s own ideas on managing the economy (with the notable exception of the single currency). Indeed, the programme of economic liberalisation which has been at the heart of European integration for at least the last quarter century has been one which British governments have encouraged and promoted. Brown as Chancellor and as Prime Minister has been to reinforce the UK government’s support for economic liberalism in areas such as the liberalisation of services and the reform of labour markets.

Yet the way in which this is done, in terms of the engagement with other EU governments, has been less about the common endeavour and more about British economic leadership vis a vis the rest of the EU. Brown tends to assert the UK’s virtues vis a vis the shortcomings of much of the rest of the Union, highlighting the failure of other member states to embrace economic reform in areas such as utility liberalisation or the Single Market. The government has contrasted its own economic success with that of other states, attributing the gap to its embrace of reform by comparison with those who are less willing or able to do so. In particular members of the government – not least Mr Brown – have attacked “economic nationalist” tendencies in some other states.

Such “economic nationalism” is short hand for various protectionist policies – often quite specific actions – to restrict access to local markets. Whereas in the past these policies might have been manifest in trade restrictions, in the current context limitations on foreign investment (in particular hostile takeovers) are the main cause of concern: ad hoc attempts to block foreign acquisitions of companies in “strategic” industries have been particularly criticised. Developments in the EU are often seen as part of a more general global trend towards “economic nationalism” – though elsewhere the interventions are more blatant, taking the form of direct nationalisation – and are equally condemned by the Brown government (as they were by his predecessor). By contrast they claim that the UK is “open for business” with the British authorities imposing few if any restrictions on foreign investment or competition.

Yet might it be that “economic nationalism” is just as much a part of the UK political landscape and particularly of Mr Brown’s ideas? It is possible to detect a strong nationalist strand to his economic rhetoric. It does not take the form of the “economic patriotism” beloved of some French politicians yet in its way it is no less nationalistic.

Arguably Brown’s economic nationalism fits rather well with recent attempts to redefine the term. While traditionally the concept has been defined in opposition to economic liberalism, recent accounts of the relationship between nationalism and the economy (such as that of Eric Helleiner and Andreas Pickel in Economic Nationalism in a Globalizing World, Cornell UP 2005.) have argued for a more sophisticated approach. Not only have many aspiring nationalists embraced the open economy – often to separate themselves from their current political dependencies – but many incumbent nationalists have invoked their economic policies and performances as symbols of their own success. Nationalism and liberalism in other words do not have to be opposing forces. Perhaps economic liberalism can form the basis for a contemporary nationalism?

Arguably this is what has happened in the UK for many years. The trend was apparent under Mrs Thatcher in the way in which she celebrated the success of her economic policies, harking back to the Pax Britannica after many years of the Pox Britannica. Since coming to power in 1997, New Labour has done much the same thing, parading its economic achievements as other regimes in other places might parade military hardware.

Gordon Brown has been particularly keen to highlight such successes both in their own terms and in relation to the performance of other states. He has also been keen to revive British identity and has invoked many of the traditional symbols of nationalism in his pursuit of Britishness. While he has not made a direct link between this quest and the country’s economic performance, it would be hard to deny the latter’s underlying relevance to his case. In a sense the assertion of the country’s economic strength constitutes the “outward projection” of that British nationalism (as well as the demonstration of his own competence as a manager of the economy).
However does Brown (and Britain)’s “economic nationalism of success” verge upon the hubristic? If the UK economy falters we are unlikely to see the government perform a U turn and embrace traditional economic nationalism (notwithstanding the PM’s rather surprising call for “British jobs for British workers” some months ago). But it might give Brown and the British political class pause for thought and prompt a reappraisal of relations with the EU. After all, the UK’s interest in European integration has been strongest at times when its relative performance vis a vis its continental partners has been weakest…

Francis McGowan

Brown's slippery slope?

It hasn't been a good few weeks for Gordon Brown. In the space of a mere two months, Labour has suffered a sharp reversal of fortune in the opinion polls, and now lags behind the Tories by a significant distance, while Brown's personal ratings have plummeted. OK, such volatile swings could very well be an indicator of 'soft' public opinion - ie, many voters may not really have very well defined views on their party preferences or on Brown as PM and could be easily susceptible to the effect of sensationalist media coverage of short-term 'crises'. But I'm not so sure these recent developments can be dismissed this lightly.

For some time now voting behaviour theorists have argued that electoral outcomes depend critically on 'valence' issues - on voter judgements of the relative competence of rival parties and leaders to govern well - rather than on ideological conflicts. In this sense, September 1992 was a hugely significant turning point in British politics, since the currency crisis of 'Black Wednesday' at that time destroyed the Conservative Party's longstanding reputation for competence in managing the economy. Almost immediately, Labour overtook them in the polls, especially in terms of competence assessments, and has retained the advantage pretty well ever since. So is Gordon's bleak autumn New Labour's own equivalent of Black Wednesday? The Northern Rock crisis, the lost HMRC data discs, the allegations of sleazy party funding (how on earth could the relevant party officials have thought what they were doing conformed with the Political Parties, Elections and Referendums Act 2000?) - and above all, perhaps, the impression of having run away from an election that the party would most probably have won, have all served to damage Labour's standing with the electorate. Vaccilating, bungling and possibly even corrupt: if these impressions stick, the future is likely to be very tough for Labour. Add to that the prospect of the most significant downturn in the global economy for 15 or more years, and the next couple of years don't look too rosy.

Anthony King (Essex University) sets out the trends in public opinion in a nutshell here:

http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/11/30/npoll230.xml

Matthew Parris has gone so far as to suggest that Gordon Brown might not last the next two and a half years as PM. What do you think?

Ian Taylor MP

Ian Taylor, MP for Esher and Walton, spoke to the Politics Society at Sussex last night (1 November), and drew a good turnout (40+). On the Europhile Christian Democratic left of his party, he voted against the war in Iraq and is clearly not someone that Margaret Thatcher would ever have regarded as 'one of us'. He ranged widely over the variety of challenges facing contemporary Britain, including the re-emergence of a newly self-confident and energy-rich Russia, the increasingly global economic power of China and India, the continuing economic, political and cultural significance of the USA for the world, the growing difficulty for a country like Britain of meeting its citizens' aspirations for ever-growing prosperity, the futility of Little Englanders in trying to turn their back on the EU, and the extraordinary recent volatility in British party politics that means we may already have passed the 'high tide of the Brown premiership'. He wasn't predicting a Tory landslide at the next election - far from it - but clearly saw it as likely to be a genuine contest, unlike recent British general elections.

The questioning was lively and I sensed that we could have continued had time not run out. So here's a chance to reflect at your leisure on Ian Taylor's themes. If you have a question or comment that you couldn't get to put to him last night, feel free to post it here now; if you did put him a question, but would like the chance to make a further retort, then fire away. Be my guest.

To what extent do politicians have a right to a private life?

The question is one which has been under much discussion in France in recent years, with the growing 'peopolisation' of politics here. During the presidential election campaign, as I pointed out in the round-table in May, there were hints that Sarkozy & Royal were both having 'marital' difficulties but very little specific was said openly, because of the French journalistic tradition of not transgressing the 'yellow line' (a law from 1970) which defines the right to a private life, and which journalists tend to abide by, because of the traditional influence of politicians over their jobs. The Elysée has just announced the official separation of Sarkozy & his wife Cécilia, and Royal announced her separation from Hollande just before the 2nd round of the legislative elections. In both cases, their private lives overlap considerably with their public lives, with considerable impact on French politics: arguably, the whole socialist campaign would have been different had R & H not been at loggerheads personally, and it was Cécilia who, with an office at the Elysée, negotiated single-handed the liberation of the Bulgarian nurses a few weeks ago, so the political connections are strong there too. Both S & R have used images of their private lives in the media to further their own personal campaigns. So whilst Mitterrand managed to maintain two families simultaneously (both at the cost of the state), and still carry on his third life as Casanova, without the press uttering more than the odd murmur, it looks as if with the new generation of politicians, things might be starting to change. But how does journalism define what is private and what is in the public interest? How to avoid either the excesses of the British tabloids, or the self-imposed (or fear-induced) censorship of the French media? Have any other countries managed to get the balance right, and if so, how have they done it?