Labour needs to be ready when the Tories slip up - and they will slip up

http://www.theguardian.com/business/2015/may/10/labour-ready-when-tories-slip-up

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Labour should take comfort from the fact that the Conservatives will almost certainly mess things up at some point

The election is over and it is back to business as usual. This week, the Bank of England will announce its delayed decision on interest rates, while Greece is growing increasingly desperate for cash.

Britain’s new majority Conservative government would probably not be all that unhappy to see the Bank start to raise interest rates fairly soon, if only as insurance against the possibility of inflationary pressure that might require tougher action later in the parliament, when dearer borrowing costs become more politically sensitive.

A resolution to the Greek crisis is, though, far more pressing, even though a deal with the other members of the single currency still looks some way off.

What happens in the rest of Europe has always mattered to the UK. With an in/out referendum on membership now certain before the end of 2017, it is going to matter a lot more. A messy Greek departure from the eurozone that had a detrimental impact on growth would make it easier for those who want the UK to leave to argue that Europe is a basket case.

Related: The markets liked the Tory victory. Will they like Britain leaving Europe?

Likewise, it will be much easier for the prime minister to argue that Britain should stay in a reformed Europe if there is evidence that the single currency is working. The reason British prime ministers wanted to take Britain into Europe in the 1960s and 1970s was that Europe was doing better economically than Britain. In the case of most, but not all, eurozone countries, that has not been true for a while.

Serious misjudgment by the Bank of England or a refusal by voters to back the new terms for EU membership negotiated by Cameron over the next couple of years would provide a bit of hope for Labour that it can recover from last week’s crushing election defeat.

Oppositions tend to win elections in the UK only after the government has seriously messed things up, because then the electorate is prepared to countenance an alternative. The debate inside the Labour party about what that alternative should be has already begun, but is complicated by the fact the party lost in Scotland for being too rightwing and lost in southern England and the Midlands for being too leftwing.

The scale of Labour’s problem is illustrated by the fact that the Conservatives increased their share of the vote, something last managed by a ruling party after a full parliamentary term in the 1950s. That was not because the coalition’s record for running the economy was impressive; indeed, it was distinctly mediocre. Nor did voters seem to vote Conservative with any great enthusiasm.

That, though, is not the point. To win an election, a party does not have to be seen as competent; it just has to be seen as more competent than the other lot. That was the case last week. Voters did not trust Ed Miliband to run the economy and that seems to be particularly true of those in marginal seats who were neither poor nor rich but struggling to get by.

To be seen as competent, Labour has to find a way of making social democracy work in the context of a global economy, something parties of the left have been grappling with since the collapse of communism.

Social democracy requires abundance. Governments need a growing economy and rising tax revenues so that they can build schools and hospitals, make pensions more generous and tackle poverty. This was the case in the third quarter of the 20th century, when growth was strong and governments had more levers to pull. They could limit the movement of people. They had capital controls to limit the movement of money. And they had trade barriers to protect their own industries.

Borders are more porous in the age of globalisation. It is easier to move people, money and production around, but harder to protect jobs, wages and tax revenues. What’s more, growth is slower in developed economies than it was in the 1950s and 1960s; in some countries a lot slower. There is no longer the same sense of abundance and governments have fewer levers to pull.

To be fair, parties of the centre right struggle with the same problem. Globalisation is good for multinational corporations; it is good for a relatively small group of mobile workers and it is good for those sectors of the economy that are internationally competitive. In the case of the UK, that means financial and business services, which has become Britain’s speciality. Prosperity is most obvious in those parts of the country – such as London and Edinburgh – where there are the highest concentrations of banks.

But the durability of capitalism has, in large part, been due to its ability to deliver rising living standards to more than an elite. Keeping the show on the road has become much harder in the global age.

For a while, cheap imports from low-cost countries did the trick, because workers in the west found that their wages went a bit further. Then there was a property bubble that made consumers feel better off than they actually were. For the past six years, the solution has been ultra-expansionary monetary policy – interest rates barely above zero and the creation of money by central banks. None have proved permanent solutions.

So what does Labour do? Waiting for the Conservatives to screw up is not going to be sufficient. Whoever ends up replacing Miliband needs to appear competent and have a world view. Tony Blair thought he had the answer: go with the flow of globalisation, open borders, educate and re-skill workers, embrace the rich and redistribute the wealth they create. That worked until the City blew the economy up.

More Europe is another option: construct a big social market at a European level that would give governments the power collectively that they lack individually. Ukip has its solution: close the borders and withdraw from Europe. In some respects Ukip is closer to the social democracy of the postwar years than the Labour party.

Once it has decided what social democracy now means, Labour needs to find a language that resonates. When Miliband was asked on BBC1’s Question Time whether Labour had borrowed too much, the right technical answer was that the deficit was relatively modest before the financial crisis. The right political answer was to say that if it makes sense for people to borrow to buy their own homes then it sometimes make sense for the government to borrow if the alternative would be an even deeper recession.

Labour should take comfort from the fact that the Conservatives will almost certainly mess things up at some point. All governments do. The sheer quantity of funny money swilling round the global economy means that a second financial crisis is lurking out there somewhere. But it needs to be ready when opportunity knocks.