Jonathan Todd

Barack Obama may have granted his first UK interview to the FT. But, may be, he should read the FT a little more carefully. In particular, if he had of been following Martin Wolf’s column more closely, then he may not have stalled when responding to the question that Nick Robinson put to him yesterday.

“Unfortunately, no consensus exists on the underlying causes of this crisis or on the best ways to escape from it”, as Wolf notes. Robinson suggested to Obama that one’s views on the underlying causes of the crisis go a long way to determine one’s views on the best way to escape it. France and Germany are supposed to blame the crisis on “Anglo-Saxon capitalism” and so see its solution in a new global architecture of regulation. The UK and the USA are the citadels of “Anglo-Saxon capitalism” and are taken to be more attracted to fiscal stimulation. Thus, Robinson asked Obama to comment on the dividing line that he constructed between France/Germany and the UK/USA.

However, perhaps, if Robinson wanted to construct a dividing line he may have found a more solid foundation for it in the Pacific, rather than the Atlantic. Hamish McRae argues that the real summit has been between the USA and China. China runs the world’s biggest current account surplus and the USA runs its largest deficit. The massive imbalances between surplus and deficit economies are at the root of our economic malaise, while correcting these imbalances is also the key to future prosperity.

“In 2007″, writes Wolf, ”three countries ran current account surpluses of $835bn (€629bn, £585bn). Logically, counterpart deficit countries must spend that much more than their incomes. Yet today deficit countries have run out of willing and creditworthy private borrowers”. The credit cards of the deficit countries have been more than maxed out but the surplus economies will continue to decline until they find sustainable, alternative sources of demand. It’s easy to chide the excessive spending and sub-prime mortgages of the USA. Yet more domestic spending in China is part of the long-term solution. Just as much as the USA needs to get closer to Chinese levels of saving, so too the Chinese need to get closer to American levels of spending.

It’s hard to see how “Anglo-Saxon capitalism” can actually be the great evil in this context; nor is the dividing line really to be found in the Atlantic. But there is something of a dividing line in that ocean, as Germany is a leading surplus country. Indeed, there is also a dividing line in the British channel as the UK is a leading deficit economy. Wolf paraphrases Angela Merkel’s position as being: “The rest of the world needs to find a way of absorbing our excess supply, but sustainably, please”.

Merkel may point a disapproving finger towards the deficit countries of “Anglo-Saxon capitalism” but Wolf thinks that some of the solution is to be found zu Hause. “The answer lies partly in changing the policies of surplus countries”. We still seem too far from realising this. However, another part of Wolf’s solution was moved towards at the G20: special drawing rights. So, thankfully the G20 moved somewhat in the direction advocated by Wolf, even if Obama might read his FT more vigilantly. To be fair to Obama, though, so could Robinson. As could Merkel.

Richard Reeves is typically thought provoking in the current Prospect. He quotes an interesting line from a recent Liam Byrne speech. Labour’s “mantra should be really simple. We want a country of powerful people”. Given his excellent biography of John Stuart Mill, I wondered whether Reeves also found this line evocative of a famous line from Mill: “with small men no great thing can really be accomplished”.

“On the one side” of the Labour Party, argues Reeves, “stand those for whom the economic crisis demonstrates the need for a more muscular state; on the other, a diverse group”, including Byrne, “who want to use the state to give more power to individuals”. Similarly, Jesse Norman has previously divided Labour into Trimmers, Romantics and Deniers. Remarks from Matthew Taylor and David Miliband are said to define the Trimmers. “Instead of a Government-centric model of change in which we assume our rulers should be given the blame for what goes wrong and the responsibility for making it right”, claims Taylor, “we need a citizen-centric model in which we reinstate ourselves as the authors of our own collective destinies”. In other words: we want powerful people.

Norman associates Jon Cruddas and Tony Woodley with the Romantic tendency. “They regard New Labour as a tool of neo-liberal capitalism, which has deliberately betrayed its working class roots in order to appeal to the middle classes”. Polly Toynbee and Ed Balls are offered up as Deniers. “They argue that the growth of the state under Gordon Brown has been benign, and should be continued and extended”. If we collapse the Deniers into the Romantics, then Norman’s characterisation of the Labour Party exactly parallels that of Reeves. To mix the terminology of Taylor and Norman, the Trimmers favour a citizen-centric approach, while the Deniers and the Romantics advocate a Government-centric model; precisely the distinction proposed by Reeves.

Certainly, Toynbee – “the high priestess of Denial” - appears to continue to defend what might be described as a Government-centric model. While Neal Lawson and John Harris, both closely associated with Compass, like Cruddas, recently argued that “the government’s responses to changed times have been either too timid or, on the few occasions ministers have still affected to be radical, based on the very ideas that are now part of history … running through the supposed remedies for the financial crisis is a discredited belief in light-touch regulation”. Thus, Deniers and Romantics unite behind ”a more muscular state”.

This side of the argument, observes Reeves, has “the upper hand, and understandably so. The government is bailing out banks, car firms, homeowners and charities … A new corporatism is being hailed”. Compass are certainly keen to move UK politics on from the “ideological vacuum” that Howard Davies sees it as being played out in. “Both Labour and the Conservatives need to find a new way of talking about the government’s role in a stumbling market economy”, contends Davies. The left’s response to Davies’ call for “a British version of Gaullism” might come from the likes of Compass, while the right’s may come from Phillip Blond’s red Toryism.

Davies hears that “within government a debate is under way between those who wish to present the state’s new role as a regrettable short-term necessity and others who think a positive long-term redefinition is required”. The Deniers and the Romantics offer up the positive long-term redefinitions of the left, as the red Tories provide the positive redefinitions of the right. At this stage in the economic and political cycles, all of the energy – the “big mo”, as Americans say – is behind these redefinitions. Those who prefer citizen-centric models to a positive long-term redefinition of a more muscular state, such as Trimmers on the left and compassionate conservatives, like Norman, on the right, now lack the big mo.

“Compassionate conservatism”, argues Norman, “seeks social renewal through the devolution of power and responsibility to people and local institutions, through greater personal freedom from bureaucracy and regulation, through breaking up state monopolies to improve public services, and through a renewed emphasis on the rights of the citizen and the rule of law”. This was very trendy in the early part of David Cameron’s leadership but red Toryism seems more in vogue as concern has shifted from “social recession”, once a key concern of compassionate conservatives, to economic recession, now a massive concern for everyone.

Broadly speaking, compassionate conservatives offer a citizen-centric model that demands a much reduced role for the state and Trimmers provide a citizen-centric model that requires a smarter state. But citizen-centric models are offered from the right and the left; just as the Gaullists – Compass and the red Tories – offer competing Government-centric models from the left and the right. Some future trends point towards the Gaullists continuing to hold the big mo but others point in the opposite direction.

The Gaullist ascendency seems confirmed by the inevitability that Martin Wolf now attaches to banking nationalisation. “In 1978, Alfred Kahn, an adviser on inflation to President Jimmy Carter, used the word “depression”. So angry was the president that Mr Kahn started to call it “banana” instead … We are painfully learning that the world’s mega-banks are too complex to manage, too big to fail and too hard to restructure. Nobody would wish to start from here. But, as worries in the stock market show, banks must be fixed, in an orderly and systematic way. The stress tests should be tougher than now planned. Recapitalisation must then occur. Call it a banana if you want. But bank restructuring itself must begin”.

However, the warning from Steve Bundred of the Audit Commission to brace ourselves for huge public spending cuts augers against the Gaullist ascendency. If Wolf thinks that bank nationalisation is inevitable, then it must be a very real possibility. Equally, who am I to argue with Steve Bundred? And what conclusions should be drawn from the conflicting implications for the Gaullist ascendency offered by Wolf and Bundred?

It seems that there may well be some areas of policy – banks, most obviously – where Government-centric models are unavoidable. This does not mean that Gaullist delight should be unconstrained, however, as the finite nature of public funds means that the more public funds are consumed in these areas of policy the more citizen-centric models become unavoidable in other areas. Put simply: Government-centric models, by definition, tend to make larger calls upon public funds, which reduces the level of public funds available to use on other areas of policy, requiring more attention to focus in these areas upon citizen-centric models that typically make smaller calls upon public funds.

The realities of public budgets are not, though, the only reason for advocates of citizen-centric models to have heart. Let’s consider the full quotation from Mill that Byrne brought to mind. “The worth of a State, in the long run, is the worth of the individuals composing it – a state which dwarfs its men, in order that they may be more docile instruments in its hands even for beneficial purposes – will find that with small men no great thing can really be accomplished”. We all wish that Fred Goodwin has long ago been made a docile instrument but no real solutions to climate change, anti-social behaviour, obesity and much else besides are likely to be offered by either docile instruments or the state – no matter how benign or enlightened – that renders them so.

Instead, argues Taylor, “for society to progress relies on citizens acting more often in ways which match their values and aspirations and doing more for each other than simply obeying laws. To have the society we want, we need to agree to give more back. This is particularly obvious” – even after the credit crunch and the Gaullist ascendency – “in relation to four current public priorities: protecting the environment, improving public services, living together as strangers, maintaining a sufficiently strong democracy and civil society”. Responding to climate change requires citizens to change the way that they live; not simply change in government policy. The NHS needs active citizens to take responsibility for the future health of themselves and their family; not simply a reaction from NHS staff after a health issue has developed. The response to youth crime includes citizens volunteering at youth centres, as well as government initiatives like anti-social behaviour orders. And, ultimately, citizens get the politics that they deserve. Cynicism about politicians is the default position of our times but if the best citizens do not bother to stand for election, where will this leave democracy?   

As much as all of this stands against the Gaullist ascendency, it seems rather trite and common-sensical. Citizen-centric models, as with so many things, perhaps move further beyond the realms of glib cliche when concrete examples are provided. Here I volunteer personalised budgets. Of their application to adult social care, Demos report: “it changes people’s attitudes towards themselves and their role in the service. People who were recipients, whether passive or complaining, became participants in planning and commissioning the services that support them. The service users that we interviewed said that they became less isolated, depressed, dependent and more optimistic, energetic and confident”. They argue that “this participative approach delivers highly personalised, lasting solutions to people’s needs for social care, education and health at lower cost than traditional, inflexible and top-down approaches”.

In short: making people powerful delivers better and fairer outcomes at cheaper cost. I can’t argue with this. Equally, I draw more Gaullist in relation to the banks with every passing day. Yes, I feel citizen-centric in relation to some things and Government-centric in relation to others. Does this make me a bad or mad person? I should hope not. But call me a cross dresser, if you want. Call it being it favour of what works, if you insist.

The debate about the proper role of the state is certainly getting more interesting. But the least helpful response to this debate is to offer the same answer in every context. Just because bank nationalisation seems more inevitable, it does not follow that Government-centric responses are right in all contexts. Nor does the success of personalised budgets in adult social care mean that citizen-centric models are always the best approach. The challenge is when to go Gaullist and when not to.

President-elect Obama probably now receives more advice than anyone else in the world. The advice below from the Economist strikes me as being likely to be amongst the most important of the advice he receives, however.

“At the end of the 19th century, Britain was the world’s superpower. By the end of the 20th it was America. The transition was preceded by two world wars. Some time in this century, the balance of power will change again. Mr Obama has inherited a world of pressing troubles. But as he tackles them he will have to keep an eye on the longer game: how to prepare for the day when America may no longer be sole superpower and only the first or maybe the second of many big powers. To manage that transition peacefully and still promote the spread of free markets and liberal democracy: that will be the mark of a truly great president for the 21st century”.

The longer game increasingly intrudes upon the shorter game. Success in the longer game has to mean modernised multilateral institutions. Martin Wolf makes a fascinating point on an underlying challenge to such institutions in the economic sphere, which has been thrown into much starker relief by the credit crunch.

“The first is the inability to gain a purchase on the policies of countries that run huge and persistent current account surpluses. That was a dominant concern of John Maynard Keynes in 1944. Ironically, the problem then was US surpluses. Today, it is the collapse in the ability of US households and those of a few other high-income countries to offset the vast current account surpluses generated by China, Germany, Japan and oil-exporting countries. Surplus countries love criticising those who spend what they wish to lend. The former will soon discover they cannot do without the profligacy of the latter”.

So China is today to the global economy what the US was in 1944: the leading current account surplus country. The proposals which John Maynard Keynes made at Bretton Woods to deal with such surpluses were rejected due to American opposition. But these proposals may be worth revisiting in any move towards a Bretton Woods II. This would lead to a much reformed IMF and World Bank. Their current structure reflect the global realities of the time of their formation when climate change, for example, was unheard of and World War II had recently ended, as does the UN, which is equally ripe for reform. It will require immense political skill to take any of this forward, however. Still, at least, the President-elect believes in these multilateral institutions, in stark contrast to the President he will replace. George W Bush rode roughshod over these institutions in ways that appeared short-sighted at the time and only appear more so with the passing of time.