Interview: Robert Skidelsky

As George Osborne prepares to unveil his austerity cuts, the leading economist warns that the coalit

"We're all Keynesians now" or "again" at least, came the cry last year. The phrase -- reluctantly coined in the 1960s by the free-market economist Milton Friedman, and often attributed to President Richard Nixon -- resurfaced last year as G20 leaders agreed on "fiscal stimulus" public spending measures to boost jobs and prop up the economy in response to the global banking crisis.

The Return of the Master, the title of John Maynard Keynes's prize-winning biographer Robert Skidelsky's latest work, last year triumphantly summed up the times. That was then, and this is now. Skidelsky, a cross-bench peer, is now emerging as a leading British voice in opposition to the Damascene conversion, at the eleventh hour, by the UK and many other G20 nations to starting austerity cuts this year.

Emeritus professor of political economy at Warwick University, Skidelsky spoke in the Lords Queens Speech debate, warning that £6bn of coalition government cuts this year risked counterproductively tipping the economy back into recession, and further harming the prospects for deficit reduction.

What makes him different is his independent voice. Skidelsky is championed by the shadow chancellor, Alistair Darling, who wrote to him last week to offer words of encouragement. He is friendly with the former Labour leader Neil Kinnock, his next-door neighbour in the Lords' offices of Fielden House in the shadow of the Palace of Westminster.

Yet this 71-year-old with Russian Jewish ancestry is a freethinker who took the Conservative Party whip for eight years in the 1990s. He became disillusioned by Labour in the 1970s and ripped up his party membership card in favour of the emerging Social Democratic Party in the 1980s, until its dissolution in 1992. That came a year after he was made a life peer.

He was removed as an opposition Lords front-bench Conservative spokesman ten years later by the then party leader, William Hague, for publicly opposing Nato's bombing of Yugoslavia. "I was attracted to Major's Conservatives, there was this thing of having lost one's political home all of a sudden," he says.

". . . I thought, well if I'm in the House of Lords I can't really do anything unless I attach myself to a political party. I probably attached myself to the wrong party in retrospect."

He is not alone in being a non-leftist voice against austerity cuts this year. Recent vociferous opponents of governments "folly" include the eminent economic columnists Martin Wolf of the Financial Times and Nobel Prize-winning Paul Krugman of the New York Times.

Dissenting voices couched in more diplomatic tones have been heard from the US treasury secretary Timothy Geithner, and Desmond Lachman, of the conservative think tank the American Enterprise Institute.

All believe that European governments cutting now at the same time, rather than waiting for better private-sector growth next year, will depress demand and create more unemployment, risking recession for years to come.

"Cruise missile"

In his first interview since publicly joining the cuts debate, Robert Skidelsky predicts the coalition government could U-turn within six months on its march to fiscal consolidation. He accuses it of "irresponsibly" talking down the economy, and of falsely presenting the former New Labour government as centralist and statist.

David Cameron, Nick Clegg and George Osborne should look to history, he says, including to the failed fiscal conservatism of the 1930s Conservative/Liberal coalition. Says Skidelsky: "I think partly there's some kind of intellectual theorem behind Osborne's and the Conservatives' view of the economy: which is the pre-Keynesian view that the economy would be at full employment or would get back to full employment very quickly if these [government] interferences weren't taking place.

"In fact, in 2008, he [Osborne] said that a Keynesian stimulus would be 'like a cruise missile aimed at the heart of the economy'. Well, that was just a month after the collapse of Lehman Brothers. If you believe the economy is basically right, there's no scope for stimulating it."

An intellectual thereom maybe, but does it work in practice? After all, Margaret Thatcher failed to get the public spending share of national income (GDP) below 40 per cent. Bust followed boom. To what extent does the ideology -- that if you shrink the state you can expand entrepreneurship and growth in the private sector -- match the reality?

"Well, reality always interferes with ideology," says Robert Skidelsky. "Thatcher didn't shrink the state, but she stopped its growth in its tracks. And I think reality will interfere with Osborne's plans.

"The main reality, which I think will start to kick in, is that the economy actually doesn't revive, and therefore he will have to abandon some of his cutting programme just to stop unemployment going up.

"There's a wave of austerity sweeping over, and somehow the people who hold out against it are a minority. But what we have to see is how the economy develops over the next six months.

"If, as I expect, the austerity drive will dampen the recovery and even abort it, I think then people will start to hear another song.

"It's very fickle, and if you have no view of the economy at all you're likely to be swung by every passing breeze. One day you're a cutter, the next you're not.

"At least, whatever happens, I will be able to say I was consistent. Either consistently wrong, or consistently right. But I think it's much too early to take the view you should suddenly drop your model just because there's suddenly this herd stampede towards cutting."

"Life-support system"

Yet could the coalition easily make a U-turn in six months, with the Conservatives, although not the Liberal Democrats, having a mandate for five years of hard cutting to reverse the "structural deficit" (the part of the £155bn Budget deficit, estimated at £77bn, or 5.2 per cent of GDP, by the new Office for Budget Responsibility, which is thought to be impervious to rising or falling tax receipts and growth).

"Oh yes, just like all governments do," says Skidelsky. "They'll say, 'Events, dear boy,' as Harold Macmillan used to say . . . 'Blown off course by events beyond our control.'

"The speeches are already there. They've been made hundreds of times already. Everything can be blamed on unexpected world developments.

"No one thought the Greek crisis or the eurozone crisis would bubble up a year ago. When I was writing The Return of the Master I don't think Greece was even mentioned in there. Now I've got a new paperback version, I mention Greece half a dozen times, because it just happened."

Lord Skidelsky has little doubt about the dangerous effects of withdrawing public spending with £6bn cuts this year, which he says are "just the tip of the iceberg".

"Dangerous, yes, it's costly to withdraw. It's very unfair just to inflict unemployment. It has knock-on effects because people go on the dole or their incomes are reduced, and unemployment and other benefits don't make up for full-time work. Therefore you get a downward spiral of spending, and that of course means that other jobs are lost.

"That is the effect of public spending cuts. If you're on a life-support system and you withdraw it, the whole thing grinds to a halt. And that is the huge risk. If the Keynesian model of the economy is right, that is what will happen.

"But my hunch is that the government will find some way, if unemployment does start rising very seriously. It will find some way of fudging its cuts -- either postponing them, or there are also clever and stupid ways of cutting. You can cut some programmes but expand others that might help you in the slightly longer run.

"What the government is doing is also very serious for much of the country outside the financial services sector."

Skidelsky believes the next few years could be a crucial moment in history.

He says: "I think this will be the huge test of Keynes. If, in fact, all these fiscal consolidations produce a wonderful spurt of growth, then he's wrong. Then you just have to lock him up, and his picture of the economy is wrong.

"That's if that happens. But I don't think it can. I don't see how you produce a recovery by cutting down demand everywhere. What they have to suppose is that the psychological boost to entrepreneurs of the government cutting and getting its budget more into balance will be so huge that they'll all start re-employing in people and investing."

But wouldn't credit and cash flow, with improved back-lending, need to underpin such a psychology?

"Yes, but also it depends on real things like their anticipation of orders coming through," he argues. "As someone said in the last great depression in Coventry, 'If no one's ordering cars, there's no point making them, is there?' And ordering depends on your income."

Fear of contagion

How about the role of exports in this, I ask. "Because we're not in the euro, so our currency's depreciated, that will help exports. But on the other hand, if the countries we export to are also in the doldrums, the effect of the depreciation of our currency would be less than it would have been.

"And there's another point that's one of those interminable riddles, that if in fact Osborne's cutting policy reassures the markets, then they'll want to hold sterling more, and that will drive up the exchange rate, just when you want it to go down in order to encourage exports.

"It is very similar to 1931, and again, you had an economy bill introduced that cut a lot of spending. A Labour government broke on it because it wouldn't agree to cuts on employment pay. A Liberal/Conservative coalition took over and introduced its economy bill.

"Then the deficit was about 5 per cent of GDP, not 10 per cent, because in those pre-Keynesian days they tried to keep it as small as they could. And the Budget was supposed to be balanced to save the pound. Anyway, the pound wasn't saved, then the currency fell, interest rates fell, and you had a little bit of recovery but not a very big one.

"I think 1931's a very good parallel. We didn't recover as a result of these wonderful Budget balancing policies. We didn't actually properly recover until the Second World War, when of course they abandoned all that."

Skidelsky is also critical of coalition government rhetoric about the causes and the scale of deficit reduction, not least in its comparisons to the Greek economy, now bailed out by fellow eurozone countries, which has triggered their austerity packages in a drive to save the euro. David Cameron has also blamed the Labour government for leaving a bigger mess than feared, which would "hurt every single person in the country".

The eminent economist says: "I don't think the markets really think there's a solvency problem for Britain. But you see, everyone goes on saying it, and you get a certain feeling that they think there may be some contagion from the Greek fallout and it'll spread.

"There's a lot of the banks that hold Greek government debt, and if those debts become useless you'll have these knock-on effects. That's what happened in 1931 when you had the financial crisis."

So had it almost become an ideological contagion, a contagion of fear, with no hard evidence that markets were set to take action against Britain, leading to soaring interest payments?

"There's no hard evidence, none at all," he says. "It's all in the mind. It's all, 'If you don't do this, well, there's a risk these terrible consequences will flow.'

"I think Osborne and the Conservatives were not being responsible in the last year, because they constantly put the fear of God into the markets that the Labour government was constantly extravagant, that it had lost control over the fiscal position; that unless there was an immediate reduction, people wouldn't want to borrow money, lend the British government money, that the rate of interest would go up. One fear after another, they planted.

"If your leading politicians are saying this about your own government's policy -- what I mean is, the British government's policy -- well, then they do start thinking there's something in it. I think they were not responsible, and it does raise an issue about how we conduct our politics. On these matters if you really do think you're in a hole, you should tone down your criticism."

Nor does Skidelsky subscribe to the view New Labour was statist, pointing to five years before the recession when its budgets had sustainable structural deficit levels of roughly 2 to 2.5 per cent of GDP. "It's only as a result of the recession that the deficit has grown to where it was. If we didn't have that recession, the deficit would be very small," he says.

He accepts Labour's opponents "had a case" in contesting deficit forecasts, and that these should have been up to double the size because of an unsustainable, above-trend growth path.

"The forecasts, the division of the deficit between structural and cyclical (subject to changes in tax revenue, such as from recession), are all subject to very large uncertainties, and I take the view that most of the deficit is just caused by the deterioration of the economy.

"Other people say, 'Yes but the economy had basically started to deteriorate long before the recession struck, therefore the government's actual net borrowing requirements which had averaged about 2 per cent to 2.5 per cent, should have been much larger, because the economy was on an unsustainable growth path.

"Then it suddenly shifted to 6 per cent and then it went to 7 per cent. I don't think it takes rocket science to understand that was due to the fact we were in a bloody great recession."

Sustained borrowing

The unpredictability, the argument goes, came from unsustainable revenues such as highly inflated oil prices and rising housing values, he says.

"Some of the revenues were sort of Teflon, they weren't going to stick, and therefore the deficit should have been higher in the pre-recession years, if you can just abstract from those windfalling kind of features."

Of the Conservative view on this, he says: "They have a case, but it's not a conclusive case. I mean, you never know that things are unsustainable until they stop being sustained. The American current account deficit for years everybody thought was unsustainable. It went on being sustained, and it's still being sustained. In fact, it's increased as a result of the recession, because the dollar has become the only safe haven."

Had New Labour been too centralist and statist, too much a tax-and-spend government, as its opponents successfully claimed at the election? The independent Insititute for Fiscal Studies placed the UK in 2007-2008 as a middling public spender among OECD and G20 countries. And its spending for three years pre-recession had been backed by Cameron's Conservatives.

Skidelsky replies: "No, not particularly. I mean, I think it was within self-imposed constraints. It was trying to shift spending towards the poorer sections of the community by focusing a lot of the NHS, pensions and education. But it wasn't by any means a tax-and-spend-freely government.

"On the whole, maybe Gordon Brown as chancellor lost a bit of control in the last year. There are other criticisms you can make of his chancellorship, but I don't think this was the important one: that he was spending way over limits.

"The real criticism of Brown's chancellorship was that he bought much too readily the hype of financial markets. That somehow he had confidence to plan quite large expenditures several years ahead on the assumption that nothing would go seriously wrong -- and that was what all the financial orthodoxy was telling him.

"There, I think, he should have been more sceptical. Some sort of anti-market instinct should have been working somewhere around there."

Les Reid is political correspondent of the Coventry Telegraph and a freelance contributor to the Guardian.

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Shazia Awan
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I'm a Welsh Asian - so why doesn't the Welsh Assembly have a box for me to tick?

A bureaucrat's form clumsily equates being Welsh with being White. 

As someone born in Caerphilly, who grew up in Wales, and is learning Welsh, I feel nothing but Welsh. I am a proud Welsh Asian – and yet the Welsh Assembly appear to be telling me and many like me that that’s not an option.

An equalities form issued in Wales, by the Welsh Assembly, that does not have an option to identify as non-white and Welsh. What kind of message does this send, especially at a time of public worries about integration? Sadly, I am not so surprised at this from an institution which, despite a 17-year history, seems to still struggle with the very basics of equality and diversity.
 
By the omission of options to identify as Welsh and Asian, Welsh and black, Welsh and mixed heritage (I could go on), the Welsh Assembly's form has told us something wider about the institutional perception of our diverse communities in Wales. There are options on the form for "Asian or Asian British Indian" and "Black or Black British Caribbean", to give but two examples. And also for "White British", "White Irish" and "White Welsh". But not for "Asian Welsh", or "Black Welsh". Did it not occur to anyone that there was something wrong? 

It seems like a monumental error by the Welsh Assembly Commission, which designed the form, and a telling one at that. 

A predominantly white institution (there are two non-white Assembly members out of 60 and there has never been a female Black, Asian or minority ethnic Assembly member) has dictated which ethnic group is deemed to look Welsh enough to tick their box (for those of us Welsh Asians, it seems the only box to tick is that most Orientalist of descriptions, "Other"). 
 
Over the summer, meanwhile, we saw the First minister of Wales Carwyn Jones rather clumsily assemble his Brexit advisory group. This group was made up of predominantly white, middle aged men, and not a single person from a black, Asian and minority ethnic background. It seems that despite the box ticking exercises, the First Minister is taking advice from his “White Welsh” group. 
 
And it matters. The Welsh Assembly was established with a statutory duty to promote equality in Wales. In June, 17 out of 22 local authority areas in Wales voted Leave. Post-referendum, our proud Welsh BAME communities have been affected by hate crime. The perpetrators wish to draw a distinction between "them" and "us". Our national parliament is doing nothing to challenge such a distinction. Does it really think there are no non-white Welsh people in Wales? 

In Wales, we have a huge sense of overwhelming pride in what it means to be Welsh, from pride in our rugby and football teams, our language, to our food and our culture. Many friends over the years from different backgrounds have come to Wales to either study or work, fallen in love with our country and chosen to make it their home. They identify as Welsh. The thing about those of us who are Welsh and proud is that we understand that we are stronger in our diversity and stronger together as a Welsh nation. It’s a shame that our Welsh Assembly is not operating with that same sense of understanding that we have in our communities in Wales. 
 
No doubt the nameless form creator simply copied a format seen elsewhere, and would argue the omission is not their fault. Yet in these tense times, such an omission seems to arrogantly suggest Welsh is something exclusively White. 
 
The Welsh Assembly has a long way to travel on the road to creating a fairer society. From these kind of blunders, it seems clear that it is not even off the starting line. 
 
Shazia Awan is an equality activist and Consultant advising on equality and diversity issues. She is launching Women Create, a social enterprise to help women and young people from disadvantaged backgrounds into enterprise and employment. She  is Vice President of the Council for Voluntary Youth Services in Wales, is an Ambassador to Show Racism the Red Card and she was the first Asian woman to address a Welsh Tory party conference. 

 

Shazia Awan is an equality activist. She is launching Women Create, a social enterprise to help women and young people from disadvantaged backgrounds into enterprise and employment. She is Vice President of the Council for Voluntary Youth Services in Wales and she was the first Asian woman to address a Welsh Tory party conference. You can follow her @shaziaawan.