A flap of a butterfly's wings to freeze the UK economy

The economy has been sailing smoothly this summer. But winter is coming…

The coalition’s economic policies have benefited, like all of us, from the summer sun. But now the nights are drawing in, and the party conference season approaching. We all know that butterflies fluttering over the Amazon can cause snow in Chicago, and there are at least 4 butterflies whose flapping wings may deliver equally chilling results here in the UK in the next few weeks.

The first butterfly starts to flap a month from tomorrow, on September 22, as Germany goes to the polls. The approach of the German election has put the Eurozone crisis "on hold" for the past year. But the delay has made the problems worse, not better, with the Bundesbank warning again this week about the risks from "ongoing uncertainty about the economic policy situation" and the Eurozone debt crisis. The UK cannot therefore rule out the risk of a triple-dip recession in its largest trading partner, if Southern European economies continue to struggle. 

The US will set the second butterfly fluttering in October, when Congress debates the future of the sequester programme and the need to increase in the country’s debt ceiling. As in the Eurozone, US politicians have made a habit of postponing hard decisions in the hope that, Micawber-like, “something will turn up”. But government departments are now having to impose short-time working as a result of the sequester. For example, 650,000 Department of Defence workers are effectively on a 4-day week till September. And markets do not always stay calm once uncertainty rises and the rhetoric starts to fly.

Over in the east, October also sees a third butterfly released at China’s crucial economic policy meeting, the so-called “third plenum”. This is expected to endorse major reforms aimed at boosting domestic consumption from today’s miserably low level, and abandoning the current reliance on export-led growth. But this will not be easy, as China’s city-dwellers have average incomes of only £3000/year, whilst the half of the population still living in rural areas earn just £1000/year. This enormous shift in the world’s second largest economy must inevitably have consequences for us, most of which are currently unknowable.

The fourth butterfly is closer to home. New Bank of England governor Mark Carney’s much-heralded policy guidance has so far been ignored by the markets. Yields in the government bond market for the benchmark 10-year gilt have instead risen by 100 basis points, 1 per cent, since May. This lack of a honeymoon period is a clear omen of potential difficulties ahead for both borrowers and savers. Whilst an out-of-control housing market in London and the south east is making life very difficult for many buyers and renters.

Any of these butterflies could easily send a severe winter chill through an unprepared UK economy. They also highlight how wishful thinking about growth has come to dominate economic policy.

We know, for example, that consumption is 60 per cent of UK GDP, and that consumption falls away as people reach the age of 55. At this age, people already own most of what they need, whilst their earnings decline as they begin to enter retirement. Yet although the average boomer turns 55 this year, policymakers are still failing to connect the dots as regards the implications for GDP.

With 30 per cent of the UK’s population now in this New Old 55+ cohort, it is unrealistic to expect a repeat of the sustained growth seen when the boomers were in their prime wealth-creating years. Voters are not stupid. The party that talks about the new policies needed for today’s new normal, and not around them, will find itself best positioned for the 2015 election.

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Labour's establishment suspects a Momentum conspiracy - they're right

Bernie Sanders-style organisers are determined to rewire the party's machine.  

If you wanted to understand the basic dynamics of this year’s Labour leadership contest, Brighton and Hove District Labour Party is a good microcosm. On Saturday 9 July, a day before Angela Eagle was to announce her leadership bid, hundreds of members flooded into its AGM. Despite the room having a capacity of over 250, the meeting had to be held in three batches, with members forming an orderly queue. The result of the massive turnout was clear in political terms – pro-Corbyn candidates won every position on the local executive committee. 

Many in the room hailed the turnout and the result. But others claimed that some in the crowd had engaged in abuse and harassment.The national party decided that, rather than first investigate individuals, it would suspend Brighton and Hove. Add this to the national ban on local meetings and events during the leadership election, and it is easy to see why Labour seems to have an uneasy relationship with mass politics. To put it a less neutral way, the party machine is in a state of open warfare against Corbyn and his supporters.

Brighton and Hove illustrates how local activists have continued to organise – in an even more innovative and effective way than before. On Thursday 21 July, the week following the CLP’s suspension, the local Momentum group organised a mass meeting. More than 200 people showed up, with the mood defiant and pumped up.  Rather than listen to speeches, the room then became a road test for a new "campaign meetup", a more modestly titled version of the "barnstorms" used by the Bernie Sanders campaign. Activists broke up into small groups to discuss the strategy of the campaign and then even smaller groups to organise action on a very local level. By the end of the night, 20 phonebanking sessions had been planned at a branch level over the following week. 

In the past, organising inside the Labour Party was seen as a slightly cloak and dagger affair. When the Labour Party bureaucracy expelled leftwing activists in past decades, many on went further underground, organising in semi-secrecy. Now, Momentum is doing the exact opposite. 

The emphasis of the Corbyn campaign is on making its strategy, volunteer hubs and events listings as open and accessible as possible. Interactive maps will allow local activists to advertise hundreds of events, and then contact people in their area. When they gather to phonebank in they will be using a custom-built web app which will enable tens of thousands of callers to ring hundreds of thousands of numbers, from wherever they are.

As Momentum has learned to its cost, there is a trade-off between a campaign’s openness and its ability to stage manage events. But in the new politics of the Labour party, in which both the numbers of interested people and the capacity to connect with them directly are increasing exponentially, there is simply no contest. In order to win the next general election, Labour will have to master these tactics on a much bigger scale. The leadership election is the road test. 

Even many moderates seem to accept that the days of simply triangulating towards the centre and getting cozy with the Murdoch press are over. Labour needs to reach people and communities directly with an ambitious digital strategy and an army of self-organising activists. It is this kind of mass politics that delivered a "no" vote in Greece’s referendum on the terms of the Eurozone bailout last summer – defying pretty much the whole of the media, business and political establishment. 

The problem for Corbyn's challenger, Owen Smith, is that many of his backers have an open problem with this type of mass politics. Rather than investigate allegations of abuse, they have supported the suspension of CLPs. Rather than seeing the heightened emotions that come with mass mobilisations as side-effects which needs to be controlled, they have sought to joins unconnected acts of harassment, in order to smear Jeremy Corbyn. The MP Ben Bradshaw has even seemed to accuse Momentum of organising a conspiracy to physically attack Labour MPs.

The real conspiracy is much bigger than that. Hundreds of thousands of people are arriving, enthusiastic and determined, into the Labour party. These people, and their ability to convince the communities of which they are a part, threaten Britain’s political equilibrium, both the Conservatives and the Labour establishment. When the greatest hope for Labour becomes your greatest nightmare, you have good call to feel alarmed.