Looking for difference

The Liberal Democrats,Britain’s third political party for a long time,would blame the first-past-the-post electoral system for giving Labour even under Gordon Brown a whiff of a chance. Like in India,the overall percentage of vote matters little unless it converts into seats in Parliament. This is precisely the reason why electoral reform has periodically surfaced as a major issue in the course of this election campaign.

But the nature of the electoral system can only be accorded so much blame. It doesn’t explain why all the three major parties are still running relatively close to each other in opinion polls. The electoral system cannot explain why public opinion hasn’t overwhelmingly moved one way or the other.

To understand that one needs to dig deeper than just the immediacy of the recent recession.

Britain has always been at the cusp of America and Western Europe in more ways than one,with greater cultural and intellectual affinity to the former and closer physical and therefore economic proximity to the latter. The US and Britain made a decisive break from the post-war Western consensus (and indeed the rest of Western Europe) on economic policy in

the ’80s courtesy Ronald Regan

and Margaret Thatcher. The

Anglo-Saxon model of capitalism emphasised a greater role for free markets and a much smaller role

for the state.

In Britain,however,the Thatcherite revolution,while promoting

efficiency and productivity also created a deep structural flaw that was

finally exposed by the financial crisis: marginalisation of manufacturing and over-dependence on the services sector,particularly financial services centred round London. Curiously enough,many forecasts some years ago suggested this was the way to go. Britain,by these forecasts,would overtake France and Germany in terms of GDP by 2020 simply on the back of growth of the financial sector. But now that the future of global finance is uncertain — regulations could put a break on the rate of growth — the UK economy has few alternatives to power growth.

The only remnants of strong British manufacturing today are in aerospace (Rolls Royce is a leader in aircraft engines) and pharmaceuticals (GlaxoSmithKline). But while both are high-tech industries,they have uncertain trajectories — aerospace can be cyclical and heavily dependent on government support; pharma hasn’t had a major breakthrough for a number of years. American manufacturing on the other hand survived the Reagan revolution,and the boom in Silicon Valley through the ’80s and ’90s gave the US a new forum for economic leadership.

Some of Britain’s dismal manufacturing performance can also be attributed to the strength of the pound,which has got a good price for the country’s North Sea Oil since the ’80s,but has dissuaded exports and encouraged imports. Since exports were always going to be uncompetitive with a strong pound,even foreign investors did not find it worth their while to manufacture there. Again this is different from the way things turned out in the US where Japanese and Korean manufacturers,for example,set up base.

This lack of diversification in the UK economy has had other consequences too,particularly on regional inequality. Statistics from the UK’s Office of National Statistics show that while the country’s per capital gross value added (per capita

income) was GBP 21,000 in 2008,

10 out of 12 regions had per capita

incomes lower than the national average. Wales and the northeast of England registered per capita incomes of GBP 15,000 only,less than half of London’s GBP 34,000. Interestingly,that trend has remained the same in the last 10 years: London and the surrounding areas have prospered from financial services while the rest of the country has been depressed because of lack of diversification.

The focus of the three main political parties in this campaign has been on the immediate after effects of the recession. Far too little attention has been given to these longer term problems. New Labour may yet have come closest to addressing some of these issues. Tony Blair devolved considerable political and policy authority to some regions: Scotland,Wales and Northern Ireland. Most recently,Business Secretary Peter Mandelson floated interesting,even if controversial,ideas of using state intervention to revive British manufacturing.

The other problem which is long-term and on which few convincing solutions have been put forward is in the provision of public services. Here public opinion has leant more towards the European (rather than American) view on the extensive (and free) provision of public services. The National Health Service (NHS) to this day provides free (that is,government funded) healthcare services to all residents of the UK — the kind of universal healthcare that the US is far from achieving. However,unlike in most other Western European countries,the state of health services in particular (but also schools) is far from satisfactory — long waiting periods,often costing people their lives,have been the most potent symbol of NHS failure over the years. The Labour government has pumped a lot of money into NHS over the last 13 years. But outcomes simply haven’t matched the input of resources.

Again,New Labour under Tony Blair,more than the Tories or LibDems,had the right ideas about mixing state funding with some market-based discipline. But he failed to convince his own party,particularly Gordon Brown,on the need for radical reform.

Voters may not be inclined to give Labour’s ideas,even the good ones,a fourth successive mandate,not while the uninspiring Brown is in charge. On the other hand,the more attractive and comforting personality of David Cameron,rather than the somewhat confused,inconsistent and often illiberal (and behind the times) ideas of the party he leads,may be enough to see the Tories home after 13 long years.

The writer is a senior editor with ‘The Financial Express’

dhiraj.nayyar@expressindia.com