A fall in confidence that could end in double dip

The Chancellor can no longer sit idly by.

I am beginning to sound like a broken record as the bad data news on the UK economy continues to pile up. Things on the economic front are really not good and, most worrying, are worsening fast before our very eyes.

The major release of the results of the European Commission Economic Sentiment Index, based on business and consumer surveys in August 2011, was a real shocker. The index is made up of five components based on business surveys in industry, services, manufacturing and retail, as well as a consumer survey. These are conducted in identical form in all 27 member countries and are available as a pdf file or can be downloaded as Excel files. Check them out -- they are scary!

In August, the ESI declined by 5.0 points to 97.3 in the EU and by 4.7 points to 98.3 in the euro area. This decline resulted from a broad-based deterioration in sentiment across the sectors, with losses in confidence being particularly marked in services, retail trade and among consumers. Only the construction sector in the euro area recorded an improvement.

Among the largest member states, Germany (-5.7 points) and the UK (-5.6) reported the strongest decreases in sentiment, followed by Poland (-3.6), the Netherlands (-3.0) and, to a lesser extent, Italy (-0.7), while the ESI remained broadly unchanged in Spain (-0.3). The ESI remains above its long-term average only in Germany and stands at 92.9 in the UK, having fallen from 104.6 in March.

Consumer confidence has continued its steady fall and is now at around the same level it was in May 2009 -- and it continues to drop.

Retail and services confidence

Of particular concern in the UK, though, was the dramatic collapse in confidence among businesses in services and retail. This is illustrated in the graph (above), which shows the sharp fall in both surveys over the past three or four months. This is of particular concern, given that the two surveys tracked very well the collapse of output at the onset of recession.

The two surveys started to fall sharply from March 2008 as the economy headed into recession, which was dated as starting in the second quarter of 2008, based on negative GDP growth.

We are able to explore further the reasons for the fall in both sectors as the European Commission provides more disaggregated detail. It is apparent that in both sectors, demand has fallen markedly and expectations for the future are increasingly pessimistic. Retailers are reporting rising inventory levels due to lack of sales.

 

Evidence of doom and gloom in the massive service sector was also reported on Tuesday in the CBI's survey of service-sector firms. Business volumes fell in the UK services sector in the past quarter, at the fastest rate since November 2009, the CBI found. Firms in business and professional services, which had been growing slowly, saw volumes contract unexpectedly.

Volumes of business in consumer services also fell -- and at the fastest rate since November 2009. Richard Woolhouse, the CBI's Head of Fiscal Policy, said:

Activity has fallen across the services sector for the first time since November 2009. This quarter we've seen more evidence of the ongoing decline in consumer services spending, as people with increasingly squeezed household incomes are forced to cut back their discretionary spending.

The concern is that this drop in business and consumer confidence is a prelude to a double-dip recession. I assume that the Chancellor George Osborne will continue to assert that his policies are working. Now that both businesses and consumers are running scared, however, Osborne can no longer sit idly by and assert that all is well. It is time for further fiscal stimulus.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

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Want an independent-minded MP? Vote for a career politician

The brutally ambitious are not content to fall in with the crowd. 

“Never having had a ‘real’ job outside of politics”: this is what the majority of respondents told a YouGov poll in 2014 when asked the most undesirable characteristic of the British politician. The result is hardly surprising. Type the words “career politician” into your search engine or raise the topic at a dinner party, and quickly you will be presented with a familiar list of grievances.

One of the fundamental criticisms is that career politicians in parliament are elitists concerned only with furthering their own interests. Their pronounced and self-serving ambition for climbing the ministerial ladder is said to turn them into submissive party-machines, sycophants or yes men and women, leading them to vote loyally with their party in every parliamentary division. But do we actually have evidence for this?

A new in-depth analysis, to be published later this month in the academic journal, Legislative Studies Quarterly, presents a forceful challenge to this conventional wisdom. In fact, I find that career politician MPs in the UK are more likely to rebel against their party than their non-career politician peers. Why?

My study was motivated by the observation that the existing impression of the party loyalty of career politicians is based mostly on anecdotal evidence and speculation. Moreover, a look through the relevant journalistic work, as well as the sparse extant academic literature, reveals that the two main hypotheses on the topic make starkly contradictory claims. By far the most popular — but largely unverified — view is that their exclusively professional reliance on politics renders career politicians more brutally ambitious for frontbench office, which in turn makes them especially subservient to the party leadership.

The opposing, but lesser known expectation is that while career politicians may be particularly eager to reach the frontbenches, “many of them are also much too proud and wilful to be content to serve as mere lobby fodder”, as the late Anthony King, one of the shrewdest analysts of British politics, observed nearly thirty years ago on the basis of more qualitative evidence.

Faced with these opposing but equally plausible prognoses, I assembled biographical data for all the MPs of the three big parties between 2005-15 (more than 850) and analysed all parliamentary votes during this period. I followed the debate’s prevalent view that an exclusive focus on politics (e.g. as a special adviser or an MP’s assistant) or a closely-related field (e.g. full-time trade union official or interest group worker) marks an MP as a careerist. In line with previous estimations, just under 20 per cent of MPs were identified as career politicians. The extensive statistical analysis accounted for additional factors that may influence party loyalty, and largely ruled out systematic differences in ideology between career and non-career politicians, as well as party or term-specific differences as drivers of the effects.

As noted above, I find strong evidence that career politician backbenchers are more likely to rebel. The strength of this effect is considerable. For example, amongst government backbenchers who have never held a ministerial post, a non-career politician is estimated to rebel in only about 20 votes per parliament. By contrast, a career politician dissents more than twice as often — a substantial difference considering the high party unity in Westminster.

This finding reveals a striking paradox between the predominantly negative opinion of career politicians on the one hand, and the electorate's growing demand for more independent-minded MPs on the other. In fact career politicians are the ones who perform best in delivering on this demand. Similarly, the results imply that the oft-cited career-related dependency of career politicians on the party can be overridden (or, at the very least, complemented) by their self-image as active and independent-minded participants in the legislative process. This should attenuate the prevalent concern that a rise in career politicians leads to a weakening of parliament’s role as a scrutinizing body.

Finally, the findings challenge the pervasive argument that a lack of experience in the real world disqualifies an MP from contributing meaningfully to the legislative process. Instead, it appears that a pre-parliamentary focus on politics can, under certain circumstances, boost an MP's normatively desirable willingness to challenge the party and the executive.

Raphael Heuwieser is researching political party loyalty at the University of Oxford.