Abroad is Bloody: Sweden and Fiscal Conservatism

Policy Network has published a fantastic series of international responses to “In The Black Labour”, focusing on how Social Democratic Parties around the world have, or are, tackling the challenge of budget discipline in tough times.

There are contributions from the US, France, Germany, Chile, Sweden and Canada, all of which are worth a read.

I particularly want to draw attention to the Swedish article, which deal with how Social Democratic parties dealt with fiscal consolidation in tough domestic (but good global) times*

Now, the 2010’s are not the 1990s. A consolidation in the next decade will be more economically and politically challenging than one then (Gordon Brown could make a strong argument that until c2003ish, he delivered a similar consolidation to Sweden, and he might mordantly observe that it wasn’t just mad left wingers who wanted him to spend more).

Nor is the case that what Sweden did is exactly what we should do now.  As Katrine Kielos points out “Budget consolidation in a small open economy at a time when the rest of Europe is doing fine is one thing. Budget consolidation in a large economy next to a continent full of centre-right governments who all embrace austerity whether they need it or not is something very different”. To me, this points the necessity of focussing on consolidation and growth as two sides of the same coin, in both policy and target terms. The issue is one of sequencing and of the right rules to guide the restraint.

With those important caveats made, Katrine sets out 9 political lessons from the Swedish Consolidation  on how the British left can face up to the challenge of the Fiscal Restraint to come:

  1. Restoring the health of public finances is the prerequisite for preserving the public sector in the long term
  2. In the end it’s about national freedom and faith in democracy
  3. Be open about the fact that it will hurt
  4. Everyone should share the burdens
  5. Use the law of small numbers*
  6. Try to spare education
  7. Invest in people
  8. Introduce strategic policies directed at future growth
  9. Undertake the necessary structural reforms

I think the third lesson is particularly important. I’ve said before that Labour needs to focus on the pain, not because we enjoy it, but because the pain is both the sign that things are changing and the test of your priorities and values.

Some pain will be in Tax increases that impact families, other pain in public service spending reduction. The pain is both proof you take the issue seriously and the outcome of your values. In the end, the difference between us and the Tories should be able to be summed up in four words “Who suffers? Who gains?”.

I also think there is a danger that the centre-left tries to ignore Katrine’s final point. If we’re going to both reduce deficits and focus resources on a few key areas of policy, we have to change what we do across the board. That means changing what the state does (as Gavin Kelly pointed out in an excellent New Statesman post last week)

It’s tempting to play this down, because Structural reforms are hard. They upset various interest groups, appear risky and can be extremely controversial. Try and tackle pensions, universality, NHS demographic cost pressures, Welfare spend (especially Housing Benefit) or policing costs and you can soon see why politicians find it easier to salami slice budgets or to hope the challenges will be solved in a few years time by extra growth. 

It’s easy to try and avoid the pain. Instead, we should focus on it. Is it worth it? What can we get that’s better? Can we think of a better use of these resources to meet our policy needs?

A focus on the pain of reform also matters because if you want to reform capitalism (or even just make it work a bit better), you have to also reform the state, not least because in an era of tight budgets it’s the only way to free up the capital you need.

The Tories don’t mind to much about this, partly because they don’t really thing the state can build a better capitalism, but also because as long as the deficit goes down, they’re happy, and a cut is often an easier political sell than a change and a cut.

So the challenge for the centre left, once we have accepted the need for sustained Budget restraint from 2015 on, is to be clear about where and what we will change, how that will hurt, and who will suffer, who will gain.

*Of these, I have a quibble with No 5. I’m not sure an across the board cut is the way to go. You may need to make huge structural changes to one part of the system in order to invest in another.

 

7 Responses to “Abroad is Bloody: Sweden and Fiscal Conservatism”

  1. pregethwr

    Katerine's is a good read… some hard messages in there as well.
    "The social democrats won the 1994 election promising deeper cuts and sharper tax increases than any other party. The centre-left can do this because, unlike the right, they can’t be accused of wanting to decrease the size of the welfare state for ideological reasons."
    That's one to ponder, Stewart Wood directly contradicted it earlier this week.
     

    Reply
  2. Brian Hughes

    Forgive me, if you will, an excursion slightly off topic.  Do you think you're one of the "string of … long-forgotten New Labour advisers" whom Seumas Milne referred to as "Blairite zombies" in the Guardian yesterday?
    Did you notice that the no doubt charming if somewhat factional Mr Milne slightly undermined his claim to be up with the insider knowledge of our great party by claiming that it's big noises are fretting about "do[ing] badly in next year's European elections"?
    Even lowly foot-soldiers such as I know that those contests won't be held until 2014.  Perhaps he's superstitious and thinks there will be no year 13 this century.  Or maybe he's too lazy to check boring things such as facts, there's a lot of evidence to support such a theory in many of his witterings.

    BTW what is the law of small numbers and what is the penalty for breaking it?

    Reply
    • Hopi Sen

      You can only be long forgotten if you've been heard of in the first place… so I don't think that applies to me!

      Reply
  3. stephen

    I'm not sure that lessons from Sweden as how to handle budget restraint are of much relevance to us in the UK given the scale of their problem was considerably smaller as a result of them having less of their economy tied up in the financial sector and hence didn't suffer such a big hole in their public finances. 
    As for Seumas Milne throwing about insults – perhaps these are best judged in relation to his past utterances on economics.
    I really don't think any politicians get the point that we have to fill the rather big hole in our public finances with something other than tax revenues from financial institutions – and the most painless way of doing that will be by growing other sectors of the economy – as the Greek and Irish models do not look too attractive.  But where is the Growth Stategy Eds?
     

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  4. Paul Newman

    “Who suffers? Who gains?”….  information you seemd to be determined to keep to yourself . Hopi . I see structural reforms , Sweden , invest in people , support education and I take it your approve . Are you yet ready to admit I was right about free schools as well as the deficit ….?.I can`t see David Milliband giving up reform of Labour`s worst policy failure to the colaition when New Labour were going the same way and established some  of the best examples. There is aFree school opening near us . Parents like it . teachets do not . Was that one of the vested interests to offend ? 
    If I admit that not everything New Labour did was bad ( Iraq, Primary schools, crime …)  can tyoui admit that secondary education was an expensive catastrphe which seriously harms  our long term ability How about it ? Free schools .
     Yes or ..just go on supprting the Unions 

    Reply

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