Stormy Weather

I have a confession to make: I can't bring myself to read the Open Public Services White Paper. Whenever I try and steel myself to pick it up, all I can think of is David Cameron tearing the social contract into tiny pieces whilst laughing maniacally. That is not a pleasant mental image.

Instead, I've read Vince Cable's 2009 book about the credit crunch, titled 'The Storm'. He wrote it in haste to try and explain the causes of the financial downturn, back when the idea of Liberal Democrats in the cabinet would have provoked disbelieving laughter. Reading it with the benefit of hindsight is very interesting.

When I borrowed this book from the library, I thought it would display the vast extent of Cable's hypocrisy once he become a government minister. I was surprised to find that some of his 2009 viewpoints accord quite closely with the coalition's stated programme. The book articulates Liberal Democrat ideology much more clearly than any of their election campaigning ever did. Cable's view is liberal in the old-fashioned sense of the word; pro-markets and anti-state in principle, but agreeing that there is need for a strong legal, regulatory, and fiscal policy basis for markets to operate within. Superficially, this agenda seems to differ from the Conservative Party (who dispute the need for a strong legal, regulatory, and fiscal policy basis, painting it all as red tape) and the Labour Party (who are more pro-state, insofar as they actually invested in public services). That's a vast oversimplification, which credits UK political parties with an ideological coherence that they don't have, but it does point to a certain sympathy between Conservative and Liberal policies. Labour at least pretended to put people before markets.

Cable clearly articulates the need for reduced UK public spending to get rid of the so-called structural deficit (a disputed term, I should add). This is now the coalition's favourite soundbite. He also emphasises the need for stronger regulation of banking. The current government have talked about this at some length; their actions have conspicuously failed to live up to their words. Remember Project Merlin and how banks continue to ignore it? Remember when banks were allowed to pay unlimited bonuses? I don't think that this was what Cable had in mind in 2009. That said, his concern was the need for multilateral reform, given the international nature of the crisis. He has been making the right noises, just without supporting action.

There is a seemingly minor but critical distinction to be made between Conservative and Liberal Democrat economic policy: in his book Cable proposes public sector cuts once stimulus has got the private sector growing; Osbourne's approach is predicated on cuts to the public sector acting as the stimulus. The former nuance has clearly been subsumed under the great coalition carnival of cuts. As I've said many times before, I doubt such sudden and deep cuts will turn out well for anyone, least of all the most vulnerable in society, the economy, and the Liberal Democrats as a political party.

'The Storm' makes it clear that unbalanced housing policy contributed significantly to the economic crisis. Cable notes that the hysterical pursuit of home ownership (influenced by political, financial, and media hype) brought about a destructive house price bubble. To avoid it happening again, a more-balanced housing market with greater proportions of social and private rented property is needed. That is definitely not what the present Housing Minister and his ministry are working towards. Interestingly, Cable suggests that a period of deflation could help to prevent a second property bubble. In 2009, this was a real possibility and deflation did actually occur (if you go by RPI). These days, inflation is above 4% and being driven by food and fuel prices rises over which the government has very little control. Both markets are dominated by cartel behaviour and global in nature, as other chapters helpfully explain.

This book is definitely at its best when looking at the global picture; the rise of China and India as economic powers, the perversity of richer countries borrowing heavily from poorer, and trends in energy and food markets are all summarised neatly. I strongly take issue with the relegation of climate change to an afterthought, though. Nonetheless, 'The Storm' is well worth reading and covers a lot of ground within 157 pages. Ultimately, though, it is fatalistic. The UK is waning as economic power, many contributory factors to the downturn remain beyond UK policy control, and even if we get our domestic policy in order recovery will remain difficult.

Cable sensibly doesn't try and predict the future; he didn't foresee the alarming prospect of Greece, Ireland, Italy, and the US threatening to default on their debts, for instance. Rather, he presents a frankly depressing vision of where things were in 2009 and the main problems that needed to be addressed. It's now 2011 and those problems remain unfixed; rebalancing the housing market, investing in education and research to strengthen the economy, economic rebalancing away from financial services, and promoting fairness by using the tax system to reduce inequality. I haven't seen evidence of the coalition government making progress with any of that, despite frequent name-checking of the latter two aims.

I still think that Vince Cable has acted hypocritically and consider his callous attitude to Southern Cross unforgivable. However all politicians (indeed all humans) are hypocrites sometimes and working in a coalition inevitably requires compromise. The astute analysis in 'The Storm' demonstrates that Cable must realise how ineffective and downright dangerous most of the policies he has to support are likely to be. As the economy stalls, the euro totters, and America seems doomed to be downgraded, I wonder if he thinks such compromise was worth it?

I did find one prediction in the concluding chapter of Cable's book: 'There is a long period of austerity ahead'. It's hard to argue with that.