Fortuyn's ghost will haunt the Netherlands for a while yet

Disaffected voters could start flowing back to the fringes as austerity hardens.

Today the Dutch Liberals (VVD) and Labour Party (PvdA) will kick off cabinet formation talks in an atmosphere of great expectation. Since voters handed the xeno and europhobic Geert Wilders a drubbing last week, many voices in the Dutch commentariat have asserted that the country is crawling out of the shadow of another populist firebrand.

"This is the end of the insurgency of Pim Fortuyn", one political scientist told the daily De Volkskrant, referring to the flamboyant anti-immigration politician whose rise and assassination in 2002 marked the onset of a decade characterised by wobbly governments and strident protest politics. Other pundits made similar declarations, speaking of the return of normalcy or 'the end of a decade of discontent and pessimism'.

That the election results have changed the political equation in The Netherlands, is indisputable. In 2010, current PM Mark Rutte still needed the PVV's parliamentary support to prop up his shaky minority coalition of Liberals and Christian Democrats (CDA). This time around, Rutte's VVD and the PvdA have secured an ample majority in the Dutch lower house to form a centrist two-party cabinet.

But will their new coalition really preside over the dawn of a peaceable era of politics from the middle? So far, the eagerness with which some have been proclaiming a post-Fortuyn epoch may be mostly revealing of their pining for a more harmonious past.

For a good portion of the nineties, The Netherlands was seen as a land of thrifty prosperity and progressive politics, shored up by a knot of reliably centrist parties. In 1994, after CDA and VVD had pushed through welfare reforms under difficult circumstances, an 8-year coalition of PvdA, VVD and the social liberals of D66 took over. These so-called purple cabinets —a mix of the liberal blue and social democrat red— set about consolidating government finances and pursuing innovative social politics, such as the legalisation of euthanasia and the introduction of same-sex marriages.

Yet Fortuyn abruptly deprived the coalition of its jaunty hue, terming its legacy 'the ruins of Purple' instead. Astutely identifying public discontent over crime and safety, an unwieldy public sector and what he called the 'islamisation' of The Netherlands, he quickly rose to prominence, first as a member of the Livable Netherlands Party, later as the leader of the eponymous List Pim Fortuyn (LPF). When he was killed by a militant ecologist nine days before the 2002 parliamentary elections, the immediate backlash was directed against the purple parties, who suffered a resounding loss.

The Hague has been in a state of confusion ever since. In the past ten years no government has been able to serve out its term as successive cabinets were wracked by infighting, whilst the traditional parties of government faced their own crises.

The VVD was the first to be beset by rifts between its left and right wings. One of the most prominent disputants was MP Geert Wilders, who was kicked out of the party in 2004. First as a one-man bloc, and later as a leader of his own PVV, Wilders kept injecting his vitriol into an  already tense public debate over immigration and Islam.

Under the leadership of Mark Rutte, the VVD eventually began drifting towards the right, leading to an election victory in 2010, after which it reaffirmed its course by allying with CDA and PVV. For the historically middle-of-the-road CDA, however, this proved an unfortunate experiment. While part of its right-wing electorate had already been persuaded by the more outspoken messages of the VVD and PVV, many left-wing CDA voters now felt alienated by the decision to collaborate with the latter. When Wilders eventually toppled the cabinet by walking out of negotiations over new austerity measures, the CDA had little to show for its participation. The image that emerged during the past years was that of an ideologically disoriented party, preoccupied with the exercise of power.

The PvdA, meanwhile, has equally been grappling with its sense of direction. Its dalliance with Third way politics, as well as the reputation of its functionaries as out of touch and in some cases even money-grubbing, made it easy for the hard left Socialist Party (SP) to present itself as a more principled alternative. A former Marxist party, the SP has gradually shed its doctrinary tenets to advocate a more homely brand of left-wing thought based on preserving a strong welfare state and moderate euroscepticism —not against the EU, but against a so-called 'neo-liberal EU'. For a long while during the past campaign, the SP was riding high in the polls, vying with the VVD to become the biggest party in The Netherlands.

A month ago then, few would have predicted that PvdA leader Diederik Samsom would so easily overshadow his SP counterpart Emile Roemer in the debates and lead his party to a tally of 38 seats (out of a total of 150). Nor was the VVD expected to get a record 41 MP's. Ten years after Fortuyn, the two parties that bore the brunt of his revolution, are about to seize back power together.

To infer from their shared triumph that the middle has risen from the ashes, however, is a stretch. For one thing, the rest of the results tell another story. The once all-powerful CDA has been relegated to the doldrums, its seat count now at a historic nadir of 13. Another traditional centrist party, D66, won only modestly while the Greens were blown away, retaining only four seats out of a previous total of ten.

Moreover, it remains to be seen how the coalition parties will retain their electoral standing in the months and years to come. Internal conflict as well as unpopular compromises may soon dent their current popularity, as Liberals and Labour are no longer the purple allies of yore.

Under pressure from the SP and the PVV, respectively, both parties have embraced opposing views on key issues such as the marketisation of health care, income taxes, social security, and Europe. The VVD is reluctant to give up Dutch sovereignty and money, as evidenced in its opposition to further European integration and Rutte's campaign promise that no more Dutch money would be going to Greece. Samsom, on the other hand is in favour of lending Greece more support if needed and a cautious advocate of further European integration, including a banking union and euro bonds.

Given the pragmatic nature of both parties, some of these differences will be smoothed out without too much difficulties. Nevertheless, as a columnist for the daily NRC Handelsblad noted, the internal polarisation of the political centre has made a government of VVD and PvdA almost as unnatural as a Westminster coalition of Conservatives and Labour.

On top of all this, the political centre also has the long-term dynamics working against it, according to Gerrit Voerman of the Documentation Centre for Dutch Political Parties at the University of Groningen. 'Party loyalty has diminished because of the erosion of the old ideological pillars and individualisation. And then there's issues like Islam, immigration and, more recently, the euro crisis that create polarisation between the centre and the fringes. Those are themes I don't see disappearing easily.'

Different parties have their specific problems as well, notes Voerman: 'The Christian Democrats' traditional base is shrinking as a result of secularisation. And Labour's electorate is divided between the lower and the middle class as well as the lower and higher educated groups, whose views on themes such as the welfare state, globalisation and European integration are increasingly differing.' The VVD's spectacular growth, meanwhile, suggests that it may now also incorporate a disparate assortment of previously centrist as well as PVV voters.

Reconciling the wide-ranging spectrum of opinions and interests within their own ranks could already prove a hard thing to do for both government parties. Sustaining a big tent coalition of the left and the right then, will demand a formidable effort of its leaders. Add to this the painful austerity measures and reforms they will have to enact, and a scenario in which disaffected voters start flowing back to the fringes does not sound very far-fetched. Fortuyn's ghost may stick around for a while after all.

Dutch Prime Minister and leader of the liberal party VVD Mark Rutte (L), and the leader of the Dutch Labour Party PvdA Diederik Samsom (R). Photograph: Getty Images.
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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?