Assessing the UK Electoral Avalanche of December 2019

By John Weeks

On 12 December the UK Conservative party scored a stunning victory as it buried the opposition in an electoral avalanche.  As I venture some thoughts on that outcome and its implications for US politics, transparency requires that I make it clear that I supported the Labour Party and publicly endorsed its policies and disparaged its critics.  My disappointment will surprise no one.  How should I interpret this disastrous electoral loss by a party advocating a range of policies that I consider appropriate and essential for our country?

As is the case with many complex events, I find it useful to begin with simple, even simplistic, explanations, when inspect those simple narratives for their flaws.  I seek to avoid seizing on explanations that conveniently support my predilections.  Defeats (as well as victories) call for humility and introspection rather than definitive convictions.

The “Labour critics narrative” goes as follows.  In retrospect we see that the election of Jeremy Corbyn as leader of the Labour Party in September 2015 was a mistake.  The new progressive, social democratic focus of the party did not appeal to most UK voters.  His surprising gains in the election of June 2017 resulted from the party’s ambiguous position on EU membership, which attracted “remain” voters to the Labour Party.  Over the subsequent two years, as the position of the party on the EU clarified, voters concluded that the Labour leadership, especially the Labour leader Jeremy Corbyn, represented a narrow radical faction (stated in extreme form by McFaddin, Guardian 29 December 2019).  The election disaster was the predictable outcome.

The “Labour loyalist narrative” unfolds the same facts differently, along lines stated succinctly by shadow chancellor John McDonnell to the BBC’s Andrew Neil immediately after announcement of the exit poll that showed Labour had lost.  The election outcome resulted from the vote-attracting power of the Tory’s “get Brexit done” message.  The public had grown weary of the parliamentary deadlock over an exit agreement and wanted the issue resolved quickly.  No quick resolution is possible, but the Tory promise to act immediately and decisively crowded out all other issues, especially in face of a mainstream media overwhelmingly hostile to progressive social and economic policies.  Labour’s relative success in the 2017 election showed the public popularity of many of those policies when not obscured by the Brexit issue.

The table below provides the election results from 2017 and 2019 to assess the two interpretations of the outcome.  My division of votes among the centre, right and left requires a brief explanation.  The first I identify with the Liberal Democrats and the tiny Alliance Party of Northern Ireland.  The right consists of the Conservative Party, the United Kingdom Independence Party, Brexit Party, and in Northern Ireland the Democratic Unionists and Ulster Unionists.

While the Conservatives retain many from the centre-right, under the leadership of Boris Johnson its shift to the right has been dramatic, drawing support from extreme reactionaries (article by Townsend Guardian 28 December 2019).  Designating the Labour Party as on the left should be uncontroversial.  While at the local level the Green Party displays mixed practice, I judge its only MP, Carline Lucas, as one of the most progressive in Parliament, consistently anti-austerity.

A fourth category includes “nationalists” who do not fit neatly into the centre, right and left categories.  Plaid Cymru (Wales), Scottish National Party and the Northern Ireland parties representing the catholic community include a range of political views, though generally advocating progressive policies.

On the basis of this four-fold division, we find no evidence of a shift of voters to centrist parties.  While the centre gained 1.3 million votes compared to 2017 (+4.2%), its total share remained quite low, 12.1% — almost 88% of UK voters cast ballots for the right, left or nationalists.  The election did not reflect a substantial shift of voter sentiment to the centre left and centre right.  If one reallocates the Greens to the centre my conclusions remains valid.

The table also allows an assessment of whether despite the large conservative win, the election outcome indicates a possible majority for remaining in the EU.  Several commentators put forward this interpretation (for example, Hutton and Keegan, Guardian 29 December 2019).  The interpretation carries the policy implication that Brexit remains in political contention.  It is consistent with the Labour critics narrative that attributes the Conservative victory primarily to the unpopularity of Jeremy Corbyn and the allegedly extreme policies associated with him.

Numerically, the remain majority hypothesis views the 47% share of the right as an accurate approximation of the leave vote, and contrasts this with the 51% gained by the combination of Labour, Green, Liberal Democrats and Scottish Nationalists (and higher with the Welsh Nationalists and Northern Ireland parties).  This hypothesis is consistent with arguments for some form of proportional representation such that the 51% would have won a number of MPs consistent with their popular vote.

   UK General Election Results, 2017 and 2019

Votes thds Percentage Change MPs
Party 2017 2019 2017 2019 Thds Prcnt 2017 2019 change
Right 14,607 14,969 45.4% 47.0 362 1.7 324 373 +49
Conservatives 13,637 13,967 42.3 43.9 330 1.5 314 365 +51
UKIP, Brexit 594 665 1.8 2.1 71 0.2 0 0 0
DUP, UU (N Ireland) 376 337 1.2 1.1 -39 -0.1 10 8 -2
Centre 2517 3840 7.8 12.1 1,323 +4.2 12 11 -1
Liberal Democrats, others 2517 3840 7.8 12.1 1,323 +4.2 12 11 -1
Left 13,399 11,135 41.6 35.0 -2,264 -6.6 267 203 -64
Labour 12,874 10,269 40.0 32.3 -2,605 -7.7 266 202 -64
Green 525 866 1.6 2.7 341 1.1 1 1 0
Nationalists 1381 1696 4.3 5.3 315 1.0 46 62 +16
Scottish 978 1242 3.0 3.9 264 0.9 35 48 +13
Welsh 164 153 0.5 0.5 -11 0.0 4 4 0
N Ireland Catholic 239 301 0.7 0.9 62 0.2 7 10 +3
Others 301 190 0.9 0.6 -111 -0.3 1 1 0
Total 32,205 31,830 100.0 100.0 -375 -1.2 650 650 0

Note: Numbers refer to general election results, 8 June 2017 and 12 December 2019.

References: 2017 Guardian 9 June 2017; & 2019, Financial Times 28 December 2019.

The remain majority assertion relies on assuming that the entire Labour 32.3% reflects remain voters.  While many people who previously voted Labour shifted to the Conservatives because of their support for Brexit, until more detailed statistics and analysis are available it would be arbitrary to presume that all Labour voters were pro-EU.   One should not rule out the possibility that the 2019 election showed a split between remain and leave not significantly different from the outcome of the 2016 referendum (48:52).

Further research is also required to assess the extent to which the 2019 represented a rejection of the Labour manifesto as too left wing, as many argue, or, alternatively, that “Labour won the argument” (McTernan in FT 20 December 2019), and lost  due to Brexit.  At this point it is difficult to move beyond the obvious inferences that “get Brexit done” swayed the electorate, with no substantial shift of voters to the centre.

One possible implication of Labour’s defeat for US politics follows from the voting results.  No shift from the political left to the center occurred.  It appears that Labour lost almost eight percentage points of the electorate, 2.6 million votes, because of its neutral policy on remaining in the European Union, and to some extent the unpopularity of its leader Jeremy Corbyn.

However, any implications for US politics should be reached with great caution, because the electoral systems in the two countries are so different.  British voters do not vote directly for the equivalent of a president.  Rather, they vote for the parliamentary candidates in their constituency, the equivalent of members of the House of Representatives.  The elected MPs then select the country’s government.

At the time of the 2019 election, the UK private polling company YouGov found that 21 percent of those surveyed held a “positive” view of Jeremy Corbyn and 61% a “negative” opinion.  This may seem a devastating balance, minus 40 percent on the negative side, caution is required.  The Scottish National Party won 48 of the 59 MPs from Scotland, yet the YouGov survey for its leader, Nicola Sturgeon, showed a negative-positive outcome of 23:49, minus 26 percent.  The popularity or lack of it by the party leader is but one of many influences on voting behavior.

Labour suffered a devastating defeat in December 2019.  That defeat did not result from a shift of the electorate to the center.

 is a London-based member of the Union for Radical Political Economics (URPE), one of the founders of the UK-based Economists for Rational Economic Policies, and part of the European Research Network on Social and Economic Policy.

Eurozone Stagnation: Wrong diagnosis, wrong medicine, no recovery

 

By John Weeks

What the EC Doctors Said

If a doctor misdiagnoses a patient’s malady and prescribes an inappropriate medicine, we would not expect recovery to good health.  Should the doctor persist in the faulty diagnosis and prescribe further doses of the wrong medicine, the wise patient seeks a second opinion.  As evidenced by the experience of Greece last year, it is the misfortune of the residents of the eurozone that second opinions are not allowed.

In the early years of this decade the European Commission, fronting for governments powerful members, diagnosed eurozone members as suffering from lack of competitiveness in international trade.  The medicine implied by this diagnosis, controversial from the outset, included fiscal “consolidation” and “structural reforms”.

The first of these, summarized in the word “austerity”, dictated expenditure reduction and tax increases to reduce fiscal deficits.  The diagnosis implied emphasis on the former, because social expenditures allegedly harm competitiveness, as would higher taxes.  The most important “structural reforms”, vague enough to cover all policies to make policies more pro-business, involved reduction in worker and trade union rights, especially collective bargaining.

Governments of the putatively “uncompetitive” countries were lectured that obedience to the Commission’s prescriptions would eliminate efficiency-undermining maladies by “down-sizing” the public sector and directly reducing the production costs constraining wage growth.  In a more enlightened era this diagnosis and prescription would have been described as “mercantilist”, selecting government policies with the explicit goal of a trade surplus.

Ambiguous Fiscal “Consolidation”

The chart below shows that the Commission-fronted fiscal policies were associated with a decline in public sector deficits.  Fiscal deficits bottomed out in late 2009 (France, Italy and Spain) and late 2010 (Germany).  On average the Euro 15 (the foregoing four plus others adopting the euro in 2000-2001) reached its lowest point in early 2010 and subsequently rose.  Was this a success of austerity policies?

Dating the beginning of austerity policies involves considerable subjectivity.  As a programme implemented across the eurozone 2011 seems an appropriate date.  On the basis of when governments adopted European Commission approved austerity packages the BBC suggests late 2011 or early 2012.  If we accept this dating, the onset of deficit reduction preceded austerity policies by at least a year except for Spain.

Scepticism about the effectiveness of the EC prescription for deficit reduction increases by comparing the terminal years in the chart.  Though the German fiscal balance rose into surplus, after eight years France and Spain remained slightly below their 2008 values.   The Italian government achieved a very marginal deficit reduction (-2.7 to -2.5), and the contraction of the deficit for the Euro 15 disappears if we exclude Germany.

Overall Fiscal Balance Share of GDP, Euro 15, France, Germany, Italy & Spain, Quarterly 2008-2016 (4 quarter moving average)

0906weeks--fig.1

Source: Eurostat

Notes: Euro 15 is an EU category includes those eurozone members from 2001.

 

Mercantilism in Real time

Current account statistics provide more favourable results for the EC diagnosis and prescription (see chart below).  The German current account balance increased to over 8% of GDP in 2016, which according to the FT “boosted” the government’s popularity.  In Spain a deficit of almost -9% of GDP changed to a small surplus (net reversal of ten percentage points), with a less dramatic but strong shift in Italy from about -3% to +2%.  The French current account increased slightly (briefly positive), and all Euro 15 countries showed increases except Belgium and Luxemburg.

When assessing success in generating current account surpluses one must keep in mind that a decline in a country’s trade deficit implies a fall in domestic expenditure.  The most common form this takes is a decline in household consumption.  The striking case among the larger countries is Spain.

In 2008 Spanish per capita income was €24,400 and in 2016 will be slightly lower at 23,740.  Had it remained the same share of GDP, household consumption would have fallen by about 2.5% over the eight years.  Because of the large shift in the trade balance, private consumption per capita in 2016 was almost ten percent lower than in 2008.  In Ireland, one of the Euro 15, the trade surplus shifted by a massive 30 percentage points, leaving household consumption in 2016 almost 25% below its 2008 level.

These numbers demonstrate what until recently was a consensus across the economics profession – generating trade surpluses reduces the welfare of a population and in extreme cases impoverishes households.  This is especially the case when a surplus derive from depressing wages and output.

In itself a trade deficit need not bee a problem because short or long term money inflows can finance it.  Many countries, including EU members, have sustained trade deficits for extended periods, Britain being most obvious case.  A trade deficit does not necessarily indicate “lack of competitiveness” however defined.  In general it is not a problem that requires policy action even within a currency union.

Current Account Balance Share of GDP, Euro 15, France, Germany, Italy & Spain, Quarterly 2008-2016 (4 quarter moving average)

0906weeks--fig.2

Source: OECD

Note: numbers in legend average for entire period.

Was It All Worth It?

A recent article in the Financial Times cites the dubious Markit indices to tell the reader that the eurozone recovery has “weathered the shock” of the British vote to leave the European Union.  I stress “dubious” because the PMI for Germany showed an increase while the Munich-based Ifo index reported a drop in “business confidence”.

Considerably more informative than these methodologically problematical attempts to capture subjective sentiments is that the FT considered annual growth rates less than 2% to qualify as “recovery”.  This is a textbook case of redefining failure as success.  Productivity growth plus growth of the labour force represents the lower limit to the potential growth rate when a country’s economy operates near full capacity.  When below full capacity, the case for all eurozone countries with the possible exception of Germany, growth rates can rise considerably above this.

Across the eurozone countries private sector labour productivity growth slowed after the financial crisis of 2008-2010, but was well above one percent annually.  This number implies that taken together the eurozone countries must growth at least by 1.5% to prevent a rise in unemployment.  As the chart below shows, since 2012 only the Spanish economy sustained an annual rate of growth substantially above 1.5%.

Over the four quarters through June 2016 the German and French economies grew at rates just sufficient to prevent unemployment increasing, while the Italian rate fell far short.  On average across the eurozone GDP expansion was insufficient to lower the unemployment rate.  No rational person would call this “slow recovery”.  It is stagnation.

Annualized GDP Growth Rates Euro 15, France, Germany, Italy & Spain, Quarterly 2008-2016 (4 quarter moving average)

0906weeks--fig.3

Source: OECD

Note: numbers in legend average for entire period.

Fiscal deficits have fallen across the eurozone and most countries have passed from current account deficits to surpluses.  So slow has been progress on the former that the hypothesis cannot be rejected that initially larger deficits due to fiscal stimulus would have brought deficits down faster.  Similarly, the current account surpluses in most countries may reflect depressed domestic demand rather than greater competitiveness.

The German Chancellor described the British referendum result a “deep break in European history”.  At the meeting in Bratislava in mid-September she will face a range of complains and challenges, many of which have their source in the region’s economic stagnation.  One can speculate about the political health of the EU had she and her finance minister spent the last six years stimulating the European economies rather than “consolidating” and “reforming”.