May 4, 2010

The British election on May 6 is not just business as usual. It will reconfigure British domestic politics and foreign policy.

MARK BLYTH is Professor of International Political Economy at Brown University. JONATHAN HOPKIN is Senior Lecturer in Comparative Politics at the London School of Economics
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British Prime Minister Gordon Brown could delay the inevitable for only so long. Convention requires the government to hold general elections every five years, and with the last election held in 2005, that deadline was drawing inexorably closer. Although Brown and his Labour Party were slipping in popularity, Brown called elections for May 6.
This election will be far from ordinary. It is not only a referendum on Brown, who became party leader and prime minister in 2007, after waiting ten years for the more charismatic Tony Blair to resign; it is also a referendum on Labour’s 13 years in power and, on an even more basic level, on the economic principles that have guided the party’s rule.
It is in such moments that, as Karl Marx once mused, “all that is solid melts into air.” Britain has had a few such upheavals before. The 2010 election will likely be one, and its consequences for foreign and domestic policy will be profound.
In 1997, a public hungry for change after almost 20 years of Conservative Party rule handed Labour a landslide victory in the House of Commons. Labour — which had rebranded itself New Labour during the campaign — initially adopted a degree of economic conservativism that even actual Conservatives had shied away from when in power.
It granted operational independence to the Bank of England, honored campaign pledges not to raise taxes, and favored fiscal prudence over more traditional left-wing redistributive policies. It also abided by the economic principles that the Conservative government of Prime Minister Margaret Thatcher introduced in the 1980s, avoiding inflation above all.
This political course was made possible by the economic conditions of the late 1990s. The global boom of those years, and the consequent jump in property prices in the United Kingdom (and elsewhere), improved the living standards for most voters.
A booming City of London generated abundant tax revenue, and Labour was able to boost public spending on education and healthcare, increase state pensions and salaries for doctors and public-sector managers, and expand public services — all without increasing taxes on individuals or growing the public deficit. Brown, who was then chancellor of the exchequer, had apparently succeeded in reconciling free-market capitalism with traditional Labour values. Voters, linking their good fortune to New Labour’s economic policies, rewarded the party by renewing its mandate twice at the ballot box.

If Blair’s folly was to get too close to Bush, Brown’s was that he never met a banker he did not like.

But the boom masked two problems. The first was the division of responsibilities — and intense rivalry — between Brown and Blair. Blair’s interest in economics was minimal. Brown managed the economy while Blair took credit for its success.
In the meantime, Blair indulged in foreign policy adventures in Sierra Leone and Kosovo and decided, against party and public opinion, to back U.S. President George W. Bush’s invasion of Iraq. British politicians can be forgiven for many things, but kowtowing to the emperor in such an obvious way is not one of them. By 2007, Blair had to go, and Brown seized the moment, just as the global economy turned against the great British bubble machine he had helped to build.
This brings us to the second problem: all that had seemed solid (that is, the British economic wonder) melted into air. By the end of Blair’s tenure, the financial sector constituted nearly 10 percent of British GDP (almost double what it had been in the previous decade), around 40 percent of corporate profits, and was the source of over 20 percent of taxes.
Economic growth was increasingly concentrated in the financial sector, and real wages began to stagnate. When the global financial crisis hit in 2008, Brown’s government had to commit over 25 percent of a substantially smaller GDP to rescuing the banks — and it did so on a much reduced tax base. In the meantime, poverty rose and welfare programs, such as unemployment compensation, kicked in. By 2010, the government’s deficit had ballooned to a size exceeded in Europe only by the so-called PIGS: Portugal, Ireland, Greece, and Spain.
If Blair’s folly was to get too close to Bush, Brown’s was that he never met a banker he did not like. This was forgivable until it became apparent to the voters that the miracle of Brown’s Third Way — low taxes with high spending, low inflation with high employment — was a mirage, and Britons were left with a future of higher taxes, lower spending, and higher unemployment. The public understandably felt cheated.
In theory, the opposition Conservative Party only needed to stand aside and watch New Labour disintegrate in order to emerge victorious in the next election. And in 2005, it elected a likeable and young politician, David Cameron, as Conservative Party leader. Positioning himself to the left of traditional Conservatism on issues such as the environment, crime, and diversity, Cameron conceivably could have ridden the wave of popular disgust all the way to the prime ministership.

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