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Friday, 9 July 2010

Austerity and the economics of populism

Governments can be accused of cynicism when for example they mask sweeping tax rises with popular sweeteners to keep certain key voters happy.

Famously there's no money left,  but cash isn't the only currency of government.

On the surface the Coalition's willingness to get behind Nick Clegg and the Lib Dems' freedom agenda could be seen as part of the Lib/Con compromise deal.  Plus it shouldn't  be a surprise to see a Conservative government wanting to cut the bureaucratic burden in order to shrink the size of the state and ultimately lower taxes.

But there could be another driver for the Freedom agenda and it's linked to austerity.  Scrapping unpopular laws and business regulations can serve to improve national morale (and government popularity) at a time when spending cuts and tax rises threaten strikes and wider civil disobedience as seen in Greece.

If the intentions signalled by government are driven by a need to rebalance national morale, should this be viewed as a shrewd or cynical move by the Coalition?

I'm confident that some rebalancing of civil liberties was overdue despite the great recession due to the assault on freedoms during the second half of the Labour government - I'm not trying to make a party-political point here, I support many of the earlier laws passed by the Blair government, including Freedom of Information and minimum wage.

But populism does have a price, and I see the implementation of populist policies as analogous to borrowing money, in that many unpopular policies are actually driven by long-term goals: short-term pain bearing long-term gain.

Take for example the scrapping of plans to build additional runways at London airports.  For many years travellers to or from Heathrow Airport have faced delayed takeoffs and queues (stacking) prior to landing when travelling at peak times (early morning and early evening).

Personally I'm hopeful demand for air travel can be curbed.  I'm painfully aware of the environmental impact, carbon emissions and problems with oil security.

Yet I think Heathrow probably needed a third runway even if the number of flights was to remain constant.  This could even be a "green" measure to save fuel wasted when planes are stacked waiting to land.  Queues and delays are exacerbated in extreme weather such as fog, when additional time is allowed between each aircraft using the runway.

But what if demand for flights into and out of London increases, and the UK starts to lose business because of the hassle and cost of flying in and out of the country?

Even seemingly simple cases such as the recently announced postponement of the switch-over to digital radio (DAB) and the hugely unpopular closure of all FM radio stations comes at a price.  The introduction of digital radio in the UK has in my opinion been a complete shambles, but that doesn't necessarily mean that leaving the system in limbo for a few more years is good for the broadcasting industry and the country as a whole in the long term.

Listeners have been let down by the failure of the UKs digital radio strategy but will continue to be let down whilst the long-overdue introduction of new technology is delayed.

Many parts of the UK would benefit from an increased diversity of radio stations.  Digital broadcast radio in some form is probably the best way to achieve this to meet all existing demand (e.g. in cars, out walking, at home, on building sites...).  The FM impending switch-off would at least have served as a catalyst for the government and broadcasters to sort out the system or face outright revolt!

I'm supportive of the Freedom agenda, I want to see rights at the centre of government policy, and I'm even quite pleased that additional runways and the FM switch-off are early casualties of the Coalition government.

But broadly speaking populist policies of now can impact future prosperity, so in that respect courting popular opinion now is building a debt that needs repaying at some stage in the future.


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