Cameron & Osborne: Pursuers of Contradictory, Superficial, Inadequate Policy

Or A Rant: “Why The Tories Make Me Mad”

This morning David Cameron gave a speech on the Tory perception of, and reaction to, the riots of last week. On Sunday, George Osborne in an interview stated his intent to remove the 50p top rate of income tax. Cameron explicitly denied a link between the riots and issues of poverty and social deprivation. Therefore, his policy proposals fall short of the mark and fail to engage with the deeper underlying issues. Osborne’s interview confirms that the Tories have not got their head around the fact that economic policy must reflect equity, as well as efficiency. Neither have recognised that their positions are inconsistent. On the one hand, Cameron pushes the importance of work to the fore, while Osborne continues to pursue policies which are sure to intensify and prolong our unemployment problem. Neither of their contradictory positions adequately engages with the real problems in UK society and judging recovery by reference to bond yields rather than the employment prospects and living conditions of normal people reveals a lack of concern for, and understanding of, the problems faced by many social groups in Britain.

Since the rioting and looting died down toward the end of last week, we have seen a flurry of explanations put forward for the chaos. I argued that it is lazy to blame the riots on The Cuts. I stand by this but don’t think I made it clear why this position is ‘lazy’. Blaming the chaos on current austerity measures deflects attention from the bigger, deeper problems which need to be dealt with.

A multiplicity of problems were ignited by opportunism and mob psychology to bring about the riots. Yet many of these problems have deprivation and lack of opportunity as a root cause. Cameron explicitly denied a link between the riots and poverty, “these riots were not about poverty”, preferring instead to put the focus on moral degradation. Although the riots may not have been intentionally bought about to express grievances about one’s material position, deprivation and lack of access to opportunity, combined with a society which places excessive value on material goods and wealth cannot be ignored as a salient contributory factor.

Cameron argues that linking the riots to poverty “insults the millions of people who, whatever the hardship, would never dream of making people suffer like this”. To say poverty, deprivation and lack of social mobility are relevant causal factors does not have to imply a one-to-one correspondence between them and looting. It also does not justify violent behaviour or have to ascribe a lack of agency to disadvantaged socioeconomic groups. Rather, it provides a context for the behaviour we have witnessed.

By failing to engage with these deeper seated problems which require us to seriously challenge the distribution of opportunity in society, Cameron’s policies will not fundamentally change Britain. They are cheap sticky plasters: inevitable to come unstuck, without even doing a good job in the first place. I quote from his speech today: “First and foremost, we need a security fight-back”. This prescription does not tackle the underlying problems. Why is there a need for such prominent policing? Why the sense of frustration and alienation? One cannot ignore the resentment created by being marginalised from real opportunity or the issues which arise when a good assessment of your life prospects is “Nil/Poor” or “Going Nowhere”. Cameron asks: “Is it any wonder that many people don’t feel they have a stake in their community?” but then goes on to explain this phenomenon by referring to Big Government and Health and Safety. Are you serious?

Cameron’s focus on welfare reform and the community provides an opportunity to link his remarks to the remarks and economic policy pursued by his Chancellor. “I want us to look at toughening up the conditions for those who are out of work and receiving benefits and speeding up our efforts to get all those who can work, back to work. Work is at the heart of a responsible society.” I agree with him that work and employment are central. But the language used to describe those on benefits is patronising and demeaning. The majority of people who are unemployed and on benefits do not want to be. Most people want to work. A major problem we have at present is that of job creation. So, surely economic policy which promotes growth and reduces unemployment should be a no-brainer for the Tories at the moment? Wait, NO?

Our economic recovery continues to be underwhelming. The Bank of England and OBR have continued to downgrade predictions of growth and unemployment remains stubbornly high. A moderation of the current austerity strategy is needed and tightening needs to involve more tax rises and gentler, more targeted spending cuts as I have argued previously. Therefore, I was open-mouthed at the news that George Osborne described the government’s debt reduction plan as “on track” and also intends to abolish the 50p tax rate amid claims that charging this higher rate of tax is not raising much in revenue and “there’s not much point in having taxes which are economically inefficient”. The recovery is on track? A tax cut….for the most advantaged in society now …NOW?

Osborne describes the recovery as on track because in his eyes the UK is currently a haven for international finance. Really? This is not clear. Only today Bloomberg commented that “Britain’s allure as a haven is crumbling as global investors desert sterling amid the lowest inflation adjusted bond yields on record and a faltering economy.” Doesn’t sound too rosy to me. Secondly, his comments illuminate a larger problem. Why is the success of policy not being judged according to its impact on unemployment? On people? Sure, interest rates and financial stability are VERY important but not as ends in themselves. We should care about them because we care about people. Our recovery should be judged according to unemployment, job creation and living conditions. If concern with these figures was at the heart of current macroeconomic policy, the government would see the urgency of a policy rethink.

Not only do we need a more gradualist approach. We also need to reduce the reliance on spending cuts and shift the pain towards those who can bear it. For economic and equity reasons. The 50p tax may not bring in a whole lot of revenue but that doesn’t mean abolishing it should top the policy agenda. Just quickly, why does a higher tax rate not necessarily lead to higher revenues? A rise in tax rates will not lead to a large rise in tax revenue if they are associated with a large substitution effect. Raising tax rates reduces our incentive to work. We get less so taking time off in favour of sweet leisure time becomes less costly. With the 50p tax rate what we’re actually worried about is people leaving the country to tax havens. If these incentives are very strong then not much extra tax revenue will be raked in because people will be working so much less.

However, I do not believe that abolishing the 50p tax rate is going to lead us to take in more revenue and the fact that this is at the top of the policy agenda sends an awful message to the majority of the UK’s population. Research suggests that the amount people work once they are actually working is not very sensitive to changing tax rates and this seems to be especially true for those affected by the 50p rate, assuming they stay in the country, considering the kind of ‘service contracts’ that characterise employment relations at the top. For those that decided to leave the country in response to the change in rates, I would be extremely surprised if they decided to come back to the UK in vast swathes in response to the policy reversal especially given the poor growth prospects that lie ahead. Furthermore, the fact that the Chancellor is even talking about this serves to further distance him and the government’s economic strategy from the UK public and those who need to be re-engaged with society. Why the lack of focus on improving job prospects and income for the many at the bottom?

So there, my rant on Why The Tories Make Me Mad. An unwillingness to address wider issues which require a more concerted effort to open up channels of opportunity and address economic inequality. Judging policy success according to the welfare of financiers. Policy inflexibility that will contribute to a more protracted recession. Mad.

5 responses to “Cameron & Osborne: Pursuers of Contradictory, Superficial, Inadequate Policy

  1. I think you raised a very interesting topic to discuss. I like how you structured my propositions so will try to address them in the same order.
    1. I totally agree that some redistribution is required but I think that today it’s already well above the level which allows you to maintain subsistence level until you get a job and start earn your own money.
    2. I think there is some difference between children from poor and rich households but often it lies in the sphere of values. Education is not a value in itself for many kids from poor families because their parents never got one (that’s why they are poor in the end). So if you just give money to this families this won’t make adults think that education is good and teach this their children. In contrast, they may teach their kids that they may lead normal relaxed lives without any studies as they do if we make redistribution too strong. All kids from poor families can go to school and get required education. They are often not diligent enough because they were not taught to be. Sorry for again setting example of Russia but unfortunately it became an arena of natural experiment. After Soviet Union was broken many families of scientists, teachers, doctors e t c became very poor. But their kids were anyway highly motivated, got good education and often became rich. To my mind, the problem is not in income itself, the problem is in values. People are poor because they are uneducated and their kids are poor because their parents did not teach them that education is important and also didn’t serve as a good example for kids. More income redistribution won’t help.
    3. I agree that equality of opportunities is very important but what are the opportunities which poor kids don’t have? They cannot go to outrageously expensive private schools, ride horses there, play golf e t c? Yes, but this does not determine their future success. As far as I understand learning basic subjects as Math, Chemistry, Physics is enough to get into Cambridge or Oxford if you are smart enough. And then you can get a loan and pay it back when you get your salary upon graduation. Or get a scholarship if you are very smart. There is nothing which stops these kids from becoming rich but the wrong values. What was the reason which made famous british sportswoman damage the cars? Lack of opportunities? Only lack of culture and I suppose.
    Wealth of rich people was made by themselves or their parents or other relatives. If you know that you are not able to leave your fortune to your family you won’t be motivated to earn lot’s of money. That’s again a matter of incentives.
    4. I think inequality gap will only get wider with the course of time because all new technologies carry high rent and those who can work with new technologies will get higher and higher salaries while those involved in traditional jobs won’t get such rapid salary increase. However, this must stimulate people to get more and more education. Lower classes don’t do this not because of lack of opportunities but because of lack of desire to study and lack of understanding of its importance today. You can get loan for any higher education (at least I thought so) so the argument that they have to work is not right.
    5. I agree Soviet Union is not the best example. To be honest, I would not go to live in Sweden if I am a successful person earning lots of money. Even in the UK I feel it’s unfair that I pay 30-40% taxes and use maybe 15-20% of the benefits. I just support those who do not want to support themselves – uneducated lower classes, often immigrants who came to the UK to live on welfare benefits. Social welfare system should not create adverse selection. High taxes push talented people out of the country. Today, when the world is highly globalised you can easily move to another country which gives you more favourable living conditions. However, many undesired immigrants move to the UK not because it gives them plenty of opportunities but because they know they have very limited downside: they can earn maybe 1000-1200 per month as a cleaner or taxi driver and almost the same sum in benefits if they don’t get a job which is in any case 10 or 50 times higher than they could get in their country. Adverse selection is not the effect western european governments should aim for.
    I’m sorry for making lots of misprints, I was typing the text from the phone so I could not check everything properly here.

  2. Here is the comment and reply posted on facebook to give contet to the reply posted above. I will reply to that soon- I promise- no time right now!

    From: Ekaterina Mitskevich

    You try to propose socialism when there is almost no difference between upper and lower income class. It does not work. In the end it discourages both: those in the bottom don’t want to put any effort because they will get their bread and butter anyway and those in the top feel discouraged because they won’t be differentiated from those who never worked hard enough. It stops development of the society. To my mind, if western societies will go on moving in the direction of socialism, in 20 years from now many Asian countries will attain much better standard of living than western european countries. At least because differentiation promotes progress and creates social elevation mechanism which makes putting effort in everything you do the only way to succeed. Soviet Union tried to create a fair society. It failed due to many reasons, one of the major ones among them was the lack of stimuli. Nobody there could become poor or rich, so in the late 80th nobody was really working.

    My reply:
    So i thought I’d better address some of the points you raise. If you want to come back at me again, post on the blog as I’ll be able to access that but not facebook!

    1. My argument is not necessarily a proposal for socialism. Even Nozick, one of the founding fathers of libertarianism, accepted that given how the current distribution of power has come about, some redistribution is required before pure libertarian principles can be applied. I don’t actually ascribe to Nozick’s conception of justice but just wanted to say that saying redistribution is important does not have to make you a socialist.

    2. I contest that there is no difference between upper and lower income groups. Looking away from just the obvious material side of things, health inequalities tend to follow socioeconomic lines and research shows that ‘stupid kids’ from ‘rich backgrounds’ tend to overtake ‘clever kids’ from ‘poor backgrounds’ before the age of 10. Thus, something is going on which means that income, or actually something correlated with it, is having a big impact on attainment and thus future life prospects.

    3. I agree that incentives are very important. I am studying economics after all! I don’t think that a commitment to redistribution has to just imply handing out more benefits which are often pounced upon as blunting work incentives. I argue that the distribution of opportunity has to be opened up to raise social mobility. Education reform is therefore central. However, a redistribution of wealth is central because of the impact of family income on their children’s life prospects and children do not have control over the actions of their parents. I would also argue that the fact that ‘the lift is broken’ (I think this is Krugman’s phrase) acts as a pretty big work disincentive for those at the bottom at the moment! Things get more messy I grant you at the top. How to effectively redistribute without causing people to all try and get a house on Jersey?! However, not all of those who are rich are so because they have worked very hard and put in the effort. Some of it is because they have just inherited a lot or are just plain lucky.

    4. Differentiation can undermine social mobility not just raise it. We currently have some of the widest wealth inequalities the UK has seen in modern times combined with declining social mobility. This is getting REALLY long now so I won;t go into the reasons why I think this is the case now. Bug me about it if you want more.

    5. So I don’t think looking at the Soviet Union is a very good comparison or standard of what could happen if we try and make society fairer. Bit extreme (one could have picked Sweden instead). Saying that we need to take steps towards making Britain a fairer, more open place does not imply we need to take lessons from Russia. But regardless, the fact that one attempt at anything fails does not mean that the goal is not something which should be valued and strived for but instead that we rethink and try to reach it in a better way.

  3. Again, coming right back at ya!

    1. There is a huge debate (actually a whole branch of political theory) over why, and how much, we should want to redistribute to achieve a more equal society. Many people feel that we need to go beyond just making sure everyone achieves some bare minimum and that issues of social justice demand this. Stuart White has a great book called “Equality” or something like that which lays out the main differences between conceptions of equality and justice. Just to get you thinking, imagine that you had to design the institutions and rules which governed society if you knew nothing about yourself (Rawls’ veil of ignorance)- so you don’t know how clever you are, whethere you’re male or female, who your parents are, whether you were born outside the society but now partivipate in it, nothing that is morally arbitrary. If you had to design the rules without all that knowledge, what would you think is fair?

    2. I’m kinda going to just attack your general argument rather than the specific points you raise. I read your argument as going something like
    i) The problem, i.e. differences in the likelihood of ‘success’, is that poor kids don’t try hard enough
    ii) If you try hard then you will succeed, i.e. you are not part of the problem
    iii) Giving people money doesn’t make you try hard
    Therefore, the problem is not going to be solved by giving poor kids more money

    Attacking point ii. I think that you can try hard and still not succeed. Actually in the UK there is vast ionequality in the standard of education and also the ‘quality’ of social networks. Even if some kids from some disadvantaged families try as hard, or harder, than kids who go to a better school and have families with more social capital, they still probably face a lower probability of becoming CEO of a top company or however you want to define success. This is simply because they have lower quality schooling and thus ‘learning the basic subjects’ is no mean feat and don’t have the kind of connections which make it easy to get fab work experience or a leg up into the job market.

    On iii. Redistrubution can be implicit. Improving the quality of state schools, widening coverage of schemes such as sure start, giving parents more support in the form of neo-natal classes etc (there are currently some randomised control trials showing that giving first time mums from deprived neighbourhoods the support and confidence they need to be greeat parents is shown to have a great impact on early childhood attainment). Also, we can see that properly structured cash incentives do make people try harder. Denying this would mean you would have to talk me through why bonuses are different. We need to work on getting the design right, not saying they are bad in general.

    OK I need to get off the internet now (am in a hostel and so am causing a queue) but on your last point, the average immigrant in the UK is actually more educated than the average UK citizen. I haven’t properly addressed your last point but will do at some point!

  4. Actually, one other thing because you talk about values. I find this whole talk of values a pretty dead end topic to be honest. If you want to go down this route, you need to address why differences in values come about and then ask what do you do to change them? I think it will be very patronising and self-defeating to focus on values. Can you imagine someone coming up to you and saying “Well the reason you’re not really acheiving anything is that you are uncultured and have the wrong values”. I don’t know what practical, positive policy there is to be had by focusing on this. Then, in my opinion, if you dig down into why diffs in the values which you think are important come about, I think poor socioeconomic opportunities would be a big factor which kinda leads youi back round, i think, to a focus on properly engaging with issues of social mobility and the distribution of opportunity.

  5. Just noticed this FT article that “appears to confirm a strong link between rioting and deprivation”
    http://www.ft.com/cms/s/0/236110aa-d716-11e0-bc73-00144feabdc0.html#axzz1X9NqyZ4C

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