Harold James is Professor of History and International Affairs at Princeton University and Marie Curie Professor of History at the European University Institute, Florence. His most recent book is The Creation and Destruction of Value: The Globalization Cycle.
Harold James is Professor of History and International Affairs at Princeton University and Marie Curie Professor of History at the European University Institute, Florence. His most recent book is The Creation and Destruction of Value: The Globalization Cycle.
By Harold James
FLORENCE – British politics has always been something of an experimental laboratory for the industrialized world. In the 1970s, Britain was where the preeminent postwar model of how to manage the economy collapsed.
That model had been based politically on the creation of consensus, and economically on Keynesian demand management. Today, the equivalent collapse has been of the “regulation-lite” regime in which a party that styled itself as “New Labour” accepted a powerful role for markets – particularly for largely deregulated financial markets.
In the 1960’s, Keynesian policies delivered the illusion that everyone was benefiting, with high levels of employment and significant wage growth. Britain was the coolest place on earth, boasting the Beatles and the Rolling Stones and the pastel fashions of Carnaby Street.
But Keynesianism involved continued fiscal expansion, with no offsetting monetary contraction. By the 1970s, it had brought to the United Kingdom large and ultimately unsustainable current-account deficits, high levels of inflation, and then political gridlock over what to do. Which group should be the first to make a sacrifice?
In early 1974, Edward Heath’s Conservative government was locked in a struggle with the powerful coal miners’ union over “who rules Britain.”
He called a premature election in February, in which there was no clear winner. Heath was deeply unpopular. But the opposition Labour Party was not convincing either, and had little in the way of an intellectual alternative. It simply sought to avoid confrontation with the unions.
The election produced a political stalemate. The centrist Liberal Democrats appeared to hold the balance of power, and stories circulated of how Heath was prepared to concede a reformed voting system.
He held out the promise of proportional representation, which would ensure a greater number of parliamentary seats for the Liberal Democrats in future elections, in exchange for the party’s support for a new Conservative government.
There appears to be an overwhelming likelihood that the 1974 stalemate will be repeated in the upcoming general election on May 6. The political maneuvering has already started, with the unpopular incumbent Prime Minister Gordon Brown, today’s equivalent of Heath, bidding for the Liberal Democrats’ support by promising a constitutional reform that would give the party major advantages.
In 1974, the touted Conservative-Liberal Democrat coalition never materialised, as the Liberal Democrats were wary of hitching their fortunes to an unpopular and discredited politician.
The result was a minority government that struggled for support and legitimacy, and in the end offered only policies that provided no real answer to the country’s underlying problems.
Britain today resembles 1974 much more than it resembles 1979, when the Thatcher revolution set the country on a new path. There is again a major economic problem, the end of a credit-driven boom, and a threat to the banks (except that it all looks much bigger, owing to the financial system’s massive growth and internationalization). Both major political parties look tired, and at the same time as if they are competing to imitate each other. The choice appalls voters.
There is also an ominous resemblance to Italy in 1992, when both major parties of the previous 40 years, the Christian Democrats and the Communists, simply melted away in a mixture of corruption and intellectual failure.
In the 2000s boom, as in the 1960s, it looked as if everyone could live on the never-never.
In 1960s, it was counter-cyclical fiscal policy that held out the promise of prosperity for all; in the 2000s, it was that individuals rather than the state piled up debt.
The magic of markets made possible an individualization of borrowing and consumption.
As in the meltdown of the 1970s, it is easy to see how everyone benefited from the recent boom: homeowners saw their houses rising in price, social-welfare payments were expanded, and people seemed swept up in a new wave of 1960’s-style “Cool Britannia.”
But now, as then, Britain’s future is bleak and overshadowed by debt. Major adjustments are needed. At the same time, the main parties find it hard to address the country’s problems, because they are reluctant to call for sacrifice before an election.
And, because the party programs of the Labour government and the Conservative opposition are not clearly distinguishable, they find it hard to differentiate themselves from the Liberal Democrats. Both major parties are appealing to the political center, but they will never be as convincing as a political party that really is in the political center, and that is unencumbered by the scandals attached to the past exercise of power.
The course of the electoral struggle so far indicates that the Liberal Democrats will do very well. Their leader outshines his Conservative and Labour counterparts in television debates and on the campaign trail. Moreover, Labour and the Conservatives are in a political trap.
The moment they start to disagree with the Liberal Democrats, they will make themselves look extreme and will forfeit voter sympathies.
But this demand for political moderation impedes the search for the radical and painful solutions that Britain needs. Little wonder, then, that currency markets are treating the likely outcome in Britain – a hung parliament, with no clear majority for any party – as a repeat of the mid-1970’s, with no clear solution to the country’s underlying economic problems on offer.
