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:
- Restoring the health of public finances is the prerequisite for preserving the public sector in the long term
- In the end it’s about national freedom and faith in democracy
- Be open about the fact that it will hurt
- Everyone should share the burdens
- Use the law of small numbers*
- Try to spare education
- Invest in people
- Introduce strategic policies directed at future growth
- 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.