Thursday, June 30, 2016

The Brexit Ponzi scheme

The shockwaves unleashed by the financial crisis of the late 2000s have finally swept away the established political and economic order of the UK. It took some time coming, but it turned out that neoliberalism isn't so resilient after all. This vote is a sweeping challenge to the model of open markets and deregulated finance that has governed us since the 1980s.

The problem is, the challenge is based on a fantasy. Brexit is a classic catch-all concept, that can mean almost anything. The basic appeal of the Brexit campaign was the notion of 'taking back control', which of course contrasts with the essential logic of the market economy, where nobody has control, and resources (including labour, ie people) are allocated in accordance with the signals we send when we buy and sell things. By 'taking back control', we supposedly allow ourselves to stop things happening that we don't like and that we feel we cannot choose to opt out of: immigration, externally imposed rules, competition for scarce resources such as housing, jobs, doctors' appointments, and so on.

These things are in large part incompatible or simply impossible, but the 'leave' campaign very successfully escaped any real scrutiny on how they were supposed to be delivered simply by leaving the European Union. Voters flocked to the stall offering free goodies.

This reminds me a lot of one the iconic events of the 2008 financial crisis: the collapse of Bernie Madoff's Ponzi scheme. As is well known, Madoff ran a massive, but strangely under the radar, hedge fund that offered remarkably consistent returns for investors, and grew to a colossal size, but which turned out to be a fraud. Madoff's returns were not profits from smart trading, but instead simply slices of the funds new investors provided, doled out to existing investors. When the credit crunch hit in autumn 2008, some investors were forced to pull out, and the flow of new entrants dried up. By December, Madoff no longer had the funds to pay off investors who wanted to cash out, and the game was up. The investors' capital, supposedly invested in various profitable assets, did not actually exist - it had been paid out in fictitious profits, and spent by Madoff himself in running the operation and making a pile of his own.

The basic structure of a Ponzi scheme is that people are persuaded of something that is too good to be true, and as more and more people pile in, the better it looks, encouraging others to suspend disbelief. Until something happens, the flow of new gullible 'marks' dries up, and the reality hits home: you've been had. The same logic drives the development of 'bubbles' in asset markets: valuations are hyped for some apparently plausible reason, more people pile into the market, thus validating the hype, and then at some point reality bites and it comes crashing down.

What happens next is that people get mad. Mad at themselves, yes, for falling for a scam. Definitely mad at the scammer, for stealing their money. But also mad at the authorities, for allowing it to happen. After the Madoff scam was revealed, officials from the SEC (Securities and Exchange Commission) were hauled before Congress and subjected to humiliating questioning as to why they did not see a gigantic multi-billion dollar fraud happening under their noses.

Who should we get mad at when Brexit fails to deliver the nirvana of low immigration, more spending on public services, and the freedom of the UK government to ignore the rules set by its main trading partners? This is what is worrying me. The authorities, of course, gave very clear warnings in this case: they were ignored, dismissed as out of touch 'experts'. Yet they may well be proved right in the end. How will Brexiters react?

My fear is they will cry 'betrayal', especially since powerful forces in the UK political economy will be trying desperately hard to stop Brexit actually happening, for the most part for good reasons. And betrayal is not a concept associated with the mainstream political centre. It is the language of violent extremism. We will not see the end of UKIP even if its dream of a UK outside Europe comes to pass. The poverty, stagnation and decline that is likely to result will stoke more fear and loathing. Will Farage, like Madoff, be the target of our wrath? Probably not. Instead the grown-ups in the room forced to deal with the consequences will be the first to be blamed.

Ponzi schemes in politics last until they have to confront reality, but given the very real constraints on political votes shaping political reality, they can survive for a long time before actually having to pay out. As with Trump in the US, the only true way to convince the punters that Brexit is a disaster is to allow it to happen. And at that point, the scheme brings down the rest of us with it.

Tuesday, June 28, 2016

Let's do it again some time: Voters' remorse and the case for a second referendum (at some point...)

So, it happened. The great British public, in its wisdom, has chosen to leave the European Union. Despite all the warnings of economic chaos and the costs of losing our rights to live, work and trade in the largest market in the world, a majority of British voters decided that it was a risk worth taking. Almost immediately, the markets set about proving that the dire warnings of the consequences of Brexit were not just scaremongering. As I write, the pound is down 10% on its already diminished value of last week, and the political chaos ensuing at Westminster is if anything worse than predicted. Planned investments are being put on hold, deals cancelled. We have a lame duck executive, and total confusion as to how and when we will leave the EU, and what kind of relationship we will have afterwards with the rest of what remains our continent.

This raises the question: did British voters really want all this? If so, the 52% who voted leave must have a remarkable taste for risk, an obsession with the abstract principle of sovereignty, or a masochistic desire to see their country become poorer. Or simply such a degree of discomfort with current levels of immigration that any price is worth paying to reduce it. This seems implausible. The same electorate, last year, rewarded a Conservative party that nailed its colours to the mast of economic stability and fiscal prudence. Now, we have opted for the opposite. Growth forecasts are revised down, the Bank of England has prepared emergency measures to help stabilize the banking system, and the ratings agencies have downgraded UK government debt. And it's only Tuesday.

It seems much more likely that many voters simply did not believe the warnings that Brexit would make us poorer. And why should they? Fully understanding the complex workings of a modern market economy embedded in a global context is beyond the abilities of even our finest academic specialists, who notoriously failed to foresee the great financial crisis of 2007-8. The economic models most voters have in their heads are at best extraordinarily crude, and in most cases almost non-existent. Given such intellectual uncertainty, voters could either take on trust the statements of a rather alien group of distant technocratic elites with a patchy track record, or go with their guts. The latter was even more likely given that leave voters disproportionately did not expect their side to win.

However, the economic downturn already emerging is likely to encourage a rapid updating of many voters' views. In much the same way as inveterate smokers can ignore the widely available medical advice on tobacco yet only give up their habit at the first real signs of damage to their health, the economic consequences will almost certainly change minds. Sure, many Brexiters will remain convinced they made the right choice, responding to cognitive dissonance by clutching at whatever consistent narrative they can to make sense of it all (a recession was coming anyway, or was caused by the failure to remove the foreigners quickly enough, or by our embittered European neighbours sabotaging our economy in revenge... the headlines write themselves). But the most exposed will surely begin to wonder if they made the right choice. Given a second chance, they may vote to remain, if a vote is held before full withdrawal takes place.

This raises a broader issue about democracy. After losing the vote, Remainers (including myself) took to social media to broadcast their anger, frustration and bitterness, often belittling the intellect of the leavers. Many insisted a second referendum should be held, because of the egregious lies told by some of the leaders of the Leave campaign. Leavers (or at least the politer ones) insisted that democracy means accepting the result, even when it goes against you. But there is a serious democratic case for a second referendum.

A vote is in part a choice under uncertainty, based on the expected utility of the policy chosen. It appears that many voters felt that the choice of leaving the European Union would reduce immigration and/or enhance British sovereignty, with relatively bearable economic costs. But it may well turn out to be the case that the costs are unbearable, perhaps especially for many lower income supporters of Brexit.  Put another way, they made a mistake. They were warned of that mistake, but made it anyway, perhaps swayed by the well-funded propaganda machine convincing them that Brexit would work in their interests. They should be given a chance to reverse that decision, if evidence emerges of a significant number of voters changing their view (perhaps through a general election, a likely scenario given current chaos).

Would this be undemocratic? Referendums are notoriously blunt instruments of democracy. They reduce complex questions to a binary choice, and unlike other votes, offer no chance to revise our choice in the light of new information. When we elect a parliament in general elections, we do so on the basis of the concept of parliamentary sovereignty, which means, amongst other things, that 'no parliament can bind its successor'. This is the very opposite of the logic of the democratic vote as one-off, irreversible decision. And, in the case of the European Union, it is worth recalling, this is already the second referendum we have held. The reasons for holding a second vote were ostensibly that the European project has changed dramatically since 1975, when we first voted on membership. In other words, we chose to change our minds in the light of new information.

So there is a case for holding another vote (probably on a new arrangement, such as the 'Norway option', rather than on EU membership itself). The problem is that it is hard to imagine doing so quickly, since that would obviously subvert the people's choice. The evidence of serious damage to the national interest must be allowed to pile up. But some of the direct consequences of voting to leave last week could well be irreversible. Choices to move production out of the UK to retain access to the single market, individual decisions to leave the UK to work elsewhere, long term investment decisions that can only be made once, not to mention the destruction of trust in relationships with other countries' governments, are unlikely to be rewound even if we do change our minds. It is perfectly possible that we have already done ourselves permanent and irreparable damage. Like the smoker, we had to suffer the heart attack before we took the medical advice seriously.


Friday, June 3, 2016

Brexit, Sovereignty and the Market

The current EU referendum campaign in the UK is probably no political theorist's ideal of how democracy should work. The debate has been suffused with at best tendentious interpretations of how the EU works and the likely consequences of leaving, at worst with outright lying. Somewhere in the middle there is a copious amount of bullshit, as politicians and voters try to make sense of things they do not understand, give up, and resort to meaningless and often contradictory verbiage. In short, Habermas must be tearing his hair out.

There are plenty of good reasons why most people misunderstand, or know next to nothing, about the EU. Most of what it does is dry, technical and frankly boring. It makes little attempt to engage with the citizens who will experience its decisions, and national level politicians have little incentive to improve citizens' understanding, given their propensity to use the EU to deflect the blame for national problems. But I submit there is a more fundamental reason why the EU is so ill understood, and that is to do with our understanding of political economy - how politics and markets interact and constitute each other - more generally.

The EU is primarily a market. The key founding principles which Brexiters are most concerned about are its 'four freedoms', and in particular the freedom of movement of people (very few seem bothered about movements of capital, goods and services). These are constitutive of the European single market, and inform a body of legislation whose purpose is to ensure that national governments cannot subvert the market by introducing protectionist measures that will undermine competition, usually to the benefit of national producer interests. EU rules are pretty much all about doing this, and establishing common minimum standards so that competition does not lead to nefarious social consequences such as risks to workers' and consumers' health, fraud, pollution and so on. Its interventions in social policy are pretty limited, except in that discrimination in social provision on the grounds of nationality is outlawed.

Because the EU is all about freeing up markets from protectionist rules, it is actually far less threatening to the UK government's autonomy than that of other governments, because our political economy is already built on rules to facilitate the operation of market forces. Worker protection is amongst the lowest in Europe, and this is one of the reasons why the UK is an attractive destination for economic migration: our labour market is very open, particularly to workers who are prepared to work for low wages. Hiring and firing rules are very loose, unions are weak and worker organization actively discouraged, there are no automatic wage indexation arrangements, and welfare provision is not very generous by European standards. So if EU rules are so consistent with the UK's own institutions, why is there such hostility towards the EU?

The Brexit movement, and in particular that element of it that is concerned primarily with migration, is - usually implicitly - in fact demanding constraints on the market. Even the use of the term 'sovereignty' reveals that the power of the government of a nation state to regulate social life in whatever way it chooses is a value to be protected from outside interference. Unfettered market forces produce uncontrollable movements of money, goods, services and people across borders. Sovereignty is the right to put brakes on those movements. It is the right to curb, control or even suppress the market.

There is a deep contradiction within the Brexit campaign, and that is the contradiction between those who - for reasons of ignorance or ideology - argue that the EU is a restraint on free trade and the market, and those who - sometimes without realizing it - demand that our government protects us from unfettered markets. Brexiters who argue that uncontrolled migration makes Britons poorer are in effect demanding labour market protections to replace those that were removed by their heroine Margaret Thatcher. Thatcher herself, of course, encountered this contradiction in the late 1980s, when realizing that the single European market she had initially championed brought with it the need to regulate economic activity at the European level, thus undermining British 'sovereignty'.

Faced with this contradiction, even Thatcher's love of free markets ceded to the greater value of national autonomy. The Brexiters in the Conservative Party are banging their heads against the same contradiction today. The resulting confusion is not edifying, and the Leave campaign's intellectual case is embarrassingly thin. In her Bruges speech, Thatcher famously said 'We have not successfully rolled back the frontiers of the state in Britain, only to see them re-imposed at a European level'. Since then, the EU has been rolling back the frontiers of the state across Europe. Ironically, her successors on the Tory right now want them re-imposed at the national level, in the form of migration controls. But there appears to be no way of doing this without renouncing full access to the European single market, which would restrict Britain's ability to trade.

This confusion gives rise to the utopian, if not entirely fanciful, nature of much of the Brexit discourse, and explains why few credible intellectuals have offered their support. However, western publics are in the mood for a nostalgic form of utopia, as can be seen in the US, Austria, France and many other countries where far-right nativism is taking off. Betting markets suggest Remain will win, but Brexit is far from impossible. What is impossible is squaring the circle between free markets and the closure of borders.

Tuesday, August 25, 2015

Why I'm not voting for Jeremy Corbyn

The quick answer is: because too many already have.

If Corbyn was likely to lose, I would almost certainly have put him first, because there is a very real danger that the party would overreact to the disappointing election result by ditching Ed Miliband's timid move to the left and signing up to most of what the Conservative government currently stands for, but with a little less brutality towards the poor and immigrants. An attractive proposition indeed. But if the polls are anything to go by (and I remain a bit unsure that they are, given the difficulties involved in sampling in this kind of election), it looks like he'll probably win. And I'm pretty sure that is not a good outcome, at least in the short term.

But there are many many good reasons for voting for Corbyn, as long as he doesn't actually win. For a start, I find myself agreeing with just about everything he says. Sure, he's been too close to extremist elements in the Middle East, but so has the British government. Yes, he is talking about quantitative easing without showing a clear grasp of how and when it should be used. And he has a beard. Nobody ever wins elections with a beard. Or at least, nobody since Disraeli. But basically, on the key questions of our time - austerity, inequality, the role of the state in the economy - he is actually the closest thing to the zeitgeist we have. Innovative and smart thinking about the economy - Piketty, Mazzucato, Summers, Haldane - is much closer to the kinds of things Corbyn is saying than to any other major political figure in the UK. That doesn't necessarily win you an election of course, but it does suggest that you are asking the right kinds of questions, and could even have some answers.

There is no point in my rehearsing the arguments against Corbyn, because we are being bombarded with them from all quarters. Most of the time, these arguments are boneheaded and facile: he can't win an election (polls show none of the others can either, for now)! He's old-fashioned! He has shared platforms with people who hate Israel! However, there is no denying that if a basically honest, decent and intelligent guy like Ed Miliband can be destroyed by the press, there is little doubt what they will do to Corbyn. Most of the likely propaganda will be a pack of lies and gross distortions, but it will be effective enough to stop him winning over the kind of essentially conservative middle income English voters that Labour has to win over if they are to get into government again.

But I very strongly believe that whoever does win the leadership election, or take over when Corbyn finds he cannot actually control the parliamentary party, needs to take on board a good part of what Corbyn is saying. Not only because I think he's right, but because strategically it's good politics.

First, if we think Conservative economic policy is wrong, because it is depressing living standards unnecessarily and penalising the poor, then you have to make that case, otherwise it is hard to see how you can do anything different when you are in power. In particular, Labour needs to be ready for when the results of the Tory economic experiment come in. I believe that the experiment will prove to be a failure, and that it would be much better for Labour to have been opposing it all along. Of course, you have to do this in a smart way, and not open yourself up to the charge that you just want to print money (even though that is an option under certain conditions). But you have to be ready for the economy to tank (it may even happen as soon as this autumn). After all, if the Tories are right and the economy does improve sustainably and grow living standards, Labour will lose anyway.

Second, the stock of older property-owning voters that have kept the Conservatives in power won't be around forever. In the next 5-10 years the generation of people shut out of the property market and penalised by austerity will start realising that things aren't going to get any better for them, and will demand change. The older voters will die. Immigrants will have children, claim citizenship, and start to vote. Demographics currently favour the Tories, but they won't forever. Labour needs to have a progressive agenda that can appeal to the changing electorate. I don't think they can make many inroads amongst the current over 65s, but they can mobilise the younger electorate, and at some point that may well produce a winning coalition.

Finally, of course it is true that to make change you need to win power, and that involves focusing on the possible rather than the desirable. I lived through the 18 years of Tory government before 1997, and can remember the desperate need for it to end. But I think we are currently operating with an out-dated and one-dimensional view of what the possible is. First, in the 1980s and 1990s free markets were an exciting new (if rather old) idea whose time had come. By now, the limitations of blind market worship are coming clear, and the distributional effects of Britain's particular brand of neoliberalism are damaging the living standards of the majority of people. The Third Way made sense in the 1990s, it makes little sense now. Second, the electorate has splintered, and winning is not just about occupying a central position and expecting SNP, Green, UKIP voters and abstainees to suddenly flock to your door. We no longer have a two-party system, so more than ever winning is about building a coalition. It is not at all clear to me how signing up to Tory economic policy and hostility to immigrants, the poor and the young helps you do this.

So, these are the reasons I'm not voting for Jeremy Corbyn, but wish there was someone more credible out there ready to take on board much of what he is saying. I'm holding out for Yvette Cooper, with Andy Burnham in second. And as for Liz Kendall, well, I think she's on the wrong side of history.

Thursday, June 18, 2015

What is Labour for?

Once upon a time, the answer to this question was pretty obvious: Labour was the party of the working class - 'labour'. It was the political arm of the trade union movement. But somewhere along the line this original rationale disappeared, to be replaced by a party that had to pitch its appeal beyond the manual working class to the emerging middle classes. So far so good, this is all well understood and reflected in the history of the party from Harold Wilson to Tony Blair. But since Tony Blair something has changed, if the tone of the current leadership debate is anything to go by. Even Tony Blair, for all the abuse hurled at him by people on the left, did have a broad plan of how he wanted society to look. And of course Ed Miliband was groping towards one too. But the current leadership contenders do not have any kind of vision at all. Indeed, to listen to Liz Kendall you get the impression that she is making a pitch to manage a village hall. There is no sense of social transformation - instead politics is about efficient management of the existing system, ironing out the most obvious and visible problems with obvious and inoffensive solutions.

Yet there was never a greater need for vision. Inequality is eating away at the fabric of our society, as the appalling tone of the debate about our already measly welfare budget shows. And the main reason for this is that the broad set of arrangements we currently live under allow holders of capital to do pretty much whatever they like with minimal responsibility to society as a whole. As a result, people feel uncertain and vulnerable, because they are. Yet Labour's answer is to deal with some of the symptoms of this malaise in ways which for the most part will make no difference.

It is easy to understand the current vogue for managerialism because it is the safest and least costly way of trying to make a political pitch these days. Yesterday I attended an interesting meeting of Policy Network about participatory democracy as a response to growing populism. The whole tone of the discussion was localist and focused on specific, discrete problems - managing council estates, giving local people the chance to offer feedback on health services, and so on. All very laudable and valuable. But none of this comes close to addressing the fundamental problems in people's lives: job insecurity, low incomes for many, unaffordable housing, expensive and polluting transport arrangements. These problems - as indeed with immigration, if you think that is a problem (I don't) - actually require Labour to take on the vested interests of a relatively small number of very rich people. But because taking on rich and powerful people is really hard and politically fraught with risk, we don't even try. Instead we leave things much as they are and tinker around the edges with 'citizens assemblies' which may be a good idea but will do almost nothing to address the basic inequalities of power and economic opportunity that wreck people's lives.

In short, Labour is now a cut-price, low quality, political party. An Argos party. It's cheap, and you will probably have to throw it out not long after you bought it. Can we really not do better than this?

PS. Sorry for the plaintive, depressing tone, but if you're on the left, how can you sound upbeat right now?

Monday, May 18, 2015

It Was the Welfare Wot Won it: Age and Aspiration in the 2015 General Election

One of the most interesting - and barely commented upon - aspects of the recent election is that a strong relationship has emerged between party choice and age. Ipsos-Mori released some interesting data estimating the social characteristics associated with voting for different parties. The age dimension of voter choice is summarized in the graph below:




c/o Ipsos-Mori: https://www.ipsos-mori.com/researchpublications/researcharchive/3575/How-Britain-voted-in-2015.aspx?view=wide

We can see clearly that younger voters are more likely to vote Labour or Green, and older voters Conservative or UKIP. The effects are particularly striking in the 65+ category, which is of course the largest voting group, both because of the sheer size of the older population, and because of their high turnout rate (the UK has the biggest turnout differential between young and old in Europe).

Alongside the clear trend towards richer voters supporting the Conservative more than poor voters, this data suggests that the key to the Tory success was to look after a group of older and better off citizens. How did they do this? And in particular, how come they actually grew their vote amongst this group by 3%?

The answer is two-fold in my view. The first is that older voters are the biggest beneficiaries of the UK's house price boom: a typical homeowner in the 65+ category will have bought their home in the 1970s, when a typical home cost around 2.5 times the average salary. In London this same ratio is now 9:1. This cohort not only enjoyed mortgage interest tax relief, they were also big winners in the inflation of the 1970s, which wiped out the value of their home loans (whilst also wiping out the savings of the cohort born in the early 1900s - a generation as unlucky is the current 65+ cohort is lucky). The Conservatives have always done well with property holders, and the Ipsos-Mori data confirms that housing tenure has a strong relationship to the vote:



c/o Ipsos-Mori: https://www.ipsos-mori.com/researchpublications/researcharchive/3575/How-Britain-voted-in-2015.aspx?view=wide

Labour's appeal to social and private renters, and their threat of a 'mansion tax' on multi-million pound properties, is reflected in their much weaker performance amongst owner occupiers. In an economy where many families, and especially most older voters, have won big by buying property, the Conservative appeal had a ready market.

The second, less intuitive feature of this age skew is that the Conservative emphasis on austerity, living within our means, and reducing public spending did not extend to the retired population, the biggest recipient by some distance of welfare spending. It is well established that the coalition government's programme of cuts was directed almost entirely at the working age population and children, whilst pensioners were protected, indeed, guaranteed, by the 'triple lock' which updated pensions by whichever index happens to be higher. This strategy proved less than effective at reducing the deficit, but was very effective at securing the pensioner vote.

British politics is starting to look like the US, where support for the Republicans grows with age. The irony is that right-wing parties with clear political agendas to cut redistributive public spending find their strongest support amongst the parts of the electorate who receive the most spending. This paradox has baleful consequences, since the need to make cuts to government budgets whilst sparing the least productive part of the population from these cuts is almost guaranteed to have negative effects. Cuts to productive public investment, such as infrastructure and education and training, have to be made in order to pay for a dependent aging population. The resulting frustration amongst working age voters, as they pay higher taxes whilst suffering stagnation in their incomes, can be expressed in a variety of ways, from voting for extremist parties to not voting at all.

It is the Labour party's job to mobilise the losers in this particular trade and encourage them to support a more equitable distribution of the costs and benefits of economic change. Ed Miliband had a sense of the need to do this, as reflected in his impressive first speech as ex-leader this week, but was lacking in the ability to define such a project, much less win support for it. But the task remains the same, and the data we have so far shows that success of the Conservative party has very little to due with its appeal to aspirational voters, and more to do with doling out public money to a group of voters which has already done very well out of the financialization of the British economy over the past quarter century. There are more losers than winners, and what is more the winners will not be around for ever. It is Labour's job to show that growing the economy and helping those who have less are part of the same challenge.

Friday, May 8, 2015

Fear and Loathing Update: It Worked!

The failure of the polling before yesterday's election has left many commentators with egg on their faces, and what I wrote the other day looks totally wide of the mark. But here's what I make of the results, benefiting from the fact that we now know what they are.

Scotland, as expected, has kicked Labour out and the Scottish Nationalists have swept the board, failing to take only three of 59 seats. This is a pretty clear mandate for further devolution, and potentially even another independence referendum, in Scotland. As it turned out, the supposed legitimacy of an SNP-backed government in Westminster will not be tested, for now at least. But unless something changes dramatically the UK political system now contains two territories - Northern Ireland being the other - where the main governing parties are to all intents and purposes not represented. The legitimacy question will, obviously enough, not be raised by the London-based media, but it is worth pointing out that the new government's 331-seat majority consists of 319 English seats, 11 in Wales and just one in Scotland. Labour's Scottish meltdown means there is no longer a party with significant representation throughout Great Britain. Scotland's days in the Union look numbered unless some significant constitutional change happens.

Whether or not Scotland can remain inside depends on the degree to which the Conservatives prioritise preserving the Union over short-term political gains, and the way in which Scotland's place in the UK interacts with our difficult relationship with the European Union. The temptation must be for the Conservatives to allow Scotland's relationship with England to break down, hastening independence, because this would consolidate the dominance of England, and of its most successful party, over the government of the UK. Certainly, Labour's losses in Scotland mitigate this a little, suggesting the Tories can continue winning even though they have few Scottish votes. But Scotland's predictable hostility to the idea of leaving the EU changes the calculations somewhat. Hardline Euroskeptic backbenchers could see the loss of Scotland as a price worth paying to achieve their main goal of Brexit. Cameron's aim would appear to be to keep the Union and remain inside the EU, but it is not clear whether he has the authority in his party, with its slim majority, to hold off the Euroskeptic challenge.

Although we have returned, just, to the customary single-party majority, British politics is still a long way from the two-party alternation that characterised it for so long. The Greens and UKIP between them took over five million votes, close to a sixth of the total vote, confirming, in case there were any doubt, that Britain no longer has a two-party system. Yet these five million votes produced just two parliamentary seats. Electoral reform would appear irresistible given such gross disproportionality, yet the British electorate, even those who supported the under-represented parties, show little enthusiasm for reform. Indeed, the referendum on adopting the Alternative Vote for Westminster elections, held in 2011 as part of the coalition agreement between the Liberal Democrats and the Conservatives, delivered an unambiguous rejection of change. But there is little doubt that voter fragmentation makes the UK's traditional First-Past-the Post arrangement dysfunctional, as the election of a government on not much that more than a third of the vote demonstrates.

Finally, the election has huge implications for the British political economy. The Conservative-Liberal Democrat coalition chose to adopt a strict and demanding timetable for deficit reduction, with major cuts in important areas of the welfare state in a bid to bring the UK's public debt under control as quickly as possible. In fact, as many predicted, this effort failed, with the deficit remaining stubbornly high even though the economy began to grow again by the second half of the parliament. Yet despite this failure and the total lack of productivity growth over the past five years, the Conservatives campaigned, and won, on a message of economic competence. Labour, in contrast, with its clear albeit timid critique of austerity and rising poverty, suffered a major defeat, gaining little compared with its historically weak performance of 2010. This suggests that austerity, for all its obvious limitations as an economic strategy, is not necessarily an impediment to ruling parties retaining power. However the growth in the vote for parties which in one way or another set themselves up as alternatives to mainstream parties - the Greens, UKIP and the SNP most notably - enjoyed major success. So we can conclude that austerity may be more sustainable politically than suspected, but it does not comes without costs in political stability. The effects of the financial crisis of the late 2000s continue to be felt, and politics seems to have entered a new and quite different era.