(1) The caveat.  

The next months of severe weather may produce horrible new auguries. We’ll see. If the Macondo spill is or causes or triggers an unparalleled ecological disaster all bets are off. However, even if the Gulf suffers quite severe effects, there will be a colossal argument as to how much of the damage is from the present spill. It may be that the conclusion settles down to this: the Gulf has needed better care for several decades, and there is a limit to how much BP should made to pay for historic damage which its accident has worsened.

(2) It is likely that BP was in the process of becoming, under Tony Hayward, more of an engineering company. The next few months will reveal the degree to which this was true, and if, and then why, this message failed to reach the Macondo operation. It doesn’t seem very likely that BP was very far from being as technically competent and as safety-conscious as other majors. 

(3) It is likely that all oil companies will have to prove themselves increasingly safety-aware, just as all regulators will have to show themselves cleverer at their work. This will impose new costs on exploration and much else. But these won’t be transformative, surely?

(4) If BP loses its current CEO and Chairman, or either one, as sacrifical lambs, that may slightly effect the company for better or worse, but in itself wouldn’t be a transformation.

(5) As BP cashes in some assets to fund its liabilities in the Macondo aftermath, that may improve rather than damage its financial prospects (make it a more coherent or profitable firm, for instance). It may not amount to a transformation so much as a valuable readjustment.   

(6) In the bigger picture I can’t see how the Macondo spill will hugely change the logic of the USA’s desire to shift from a 60-odd percent oil import dependency and back to the historic 30 percent dependency. The foreign sources of oil and gas are not getting notably more secure or agreeable as the years pass. The spill won’t much dent the US’s appetite for home-sourced oil.

(7) People who want the US to embrace high-cost fossil fuels as a response to climate change have latched onto the Macondo spill though damage to the Gulf Coast is not related to climate change (or not much, yet). Even if the link was made, and the US citizen accepted a tax-hike to European levels (none of which is immediately probable), demand for oil would be high, and demand for Gulf oil (including deep-sea Gulf oil) would surely be barely dented.

(8) Taxing fuel is a tense political business. The UK adds about 70 percent in taxes to oil prices and the US about 25 percent. So notionally there’s room for manoeuvre in the US. But politicians usually set taxes at levels which maximise revenue, or at least optimise it. Very few dare set taxes at levels which change behaviour, not least because such levels would be punitively high in political terms. And there is a further dimension: if “carbon” taxes were very high, income and employment taxes would have to be reduced, so people would feel rich and maybe rich enough to pay quite a lot of carbon tax.

(9) All in all, it isn’t clear that the Macondo spill will bring about or even much encourage the political drivers for radical transformation in the US or global oil business. BP may change hugely, but that’s far from ceratin. The accident will encourage better safety measures, maybe produce a leaner and cleverer BP, maybe spur a new health regime for the Gulf coast, maybe promote more discussion and awareness of the wider risks of the oil economy, including climate change.

(10) Meanwhile, it’s important remember the men who died in the initial explosion. More generally, I should say that I write all the above with the feeling that I hate scapegoating and grandstanding, and have a strongly believe that things do getter better almost all the time, especially in the West, and especially because we take risks and learn from our mistakes.

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(1) Reforming the Welfare State

It’s a long old argument, and Tories have done well by ducking it, but how are we really to get the state to have an optimal (minimalist but efficient) role in guaranteeing rather than providing welfare? Maybe this country really does want and will insist on a state-heavy approach, but I doubt it.

(2) Living with global capitalism

It seems likely that this country faces a long hard economic future in which its appetite for public and private spending is challenged by its difficulty in competing with increasingly successful and aggressive countries all around the world.

(3) Being a world hub of capitalism

It seems very likely that a large measure of this country’s economic success will depend on its being one of the HQs of world capitalism. That will mean that it remains highly unequal and has to be extraordinarily clever in its treatment of financial regulation.

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Until Parliament sits, everything will look as though it’s a matter of leaders doing deals on the basis that they can deliver blocks of docile MPs who will vote according to party whipping. Good, we have to sketch in at least a temporary government and opposition.

But the real world of this Parliament will be more interesting.

Fact (1): The country has refused to back any particular party. This leaves it entirely open to individual MPs to open their eyes, get bold, and do the right thing.

Fact (2): All the parties promised to deliver unspecified pain to save the economy. This leaves MPs free to give their vote to whichever leader gets a decent programme together.

Fact (3): It will be Parliament and parliamentarians who will be seen to have failed if this country cannot now deliver a plausible economic policy. Conversely, this Parliament could go down in history as the one which rescued the UK’s small-g government and its economy.

Speculation: I imagine that the next government will be headed by David Cameron. His Tory MPs will be prepared to be pretty tough, if he is. I am pretty sure that enough non-Tory MPs will be alert to the nation’s need for firmness now. I’d be fascinated to see what argument might be adduced by those non-Tory MPs who don’t row in behind a policy of keeping a triple-A credit rating.

Back story

I am pretty sure David Cameron would have secured more seats if he had campaigned as a recognisable Tory type: a leader committed to good, sound, Cabinet government at the head of a stable team enjoying the confidence of a competent, professional Whitehall. Instead he decided on a Blairite strategy of presidential charisma. In short, as my “ romp through the intellectual traditions of British conservatism” Mr Cameron’s Makeover Politics (SAU, 2009) argued, he decided to seek power in the manner outlined in my Mr Blair’s Messiah Politics (SAU, 2006, and described as “acute and entertaining”  by Rod Liddle in the Spectator.)

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At this moment (tea time on election day, 6 May 2010) almost any outcome is possible. Let’s count the good things we can expect.

(1) A change of generation in parliament

The new lot may be clots. But they may well be independent-minded, lively, serious, patriotic, realistic, market-minded but compassionate and emotionally-intelligent.

(2) A period of slim majorities

We are in such dire straits economically that circumstances may provide the discipline which makes disparate parties, leaders and backbenchers work out sensible policies to follow and in ways which break old ideological and class moulds.

(3) An invigorated Civil Service

With luck, MPs and even ministers will understand that their role of oversight and direction requires and allows them to make sure that the Civil Service is celebrated as it generates good advice and guidance.

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Plenty of people thought that Cameron’s “Nice” Tories are a cover for the “Nasty” Tories lurking within or behind the smiling faces. That’s a possibility, and I have no idea whether it’s true. I rather hope it is.

A lot of comment seemed to think that the Cameroons are genuinely very like the Blairites in being the embodiment of the centre-right (or, according to view, the centre-left) settlement reached by Thatcher’s children.   That seems plausible, if only because the Cameroons look like realists.

Anyway, the point of my book and Cif piece was to argue that it is governmental competence which may be the thing which appeals to voters now. No party - and none of the comments to my Guardian piece – has picked up on that yet.  Here’s why I wish they would.

Put very briefly: 
British politics is now about the canny management of economic life and the taxation required to fund the public services whose competent delivery and very gradual reform are mostly administrative problems. This isn’t romantic, exciting, ideological work. New Labour has shown how not to do the business of government. Whichever party persuades the country it can do better will win the country’s voters who don’t even know that’s the question they seek answers to. 

In more depth:
I’d have thought that whoever does it, the country has to be managed as a mildly Eurosceptic, mildly pro-US, 35-45 per cent tax-take sort of place. (That is, in tax-take terms, somewhere in the middle of the Anglosphere range, and well below Scandinavian and a bit below the Franco-German levels.) 

I don’t think anyone has the courage to seriously reform the Welfare State as a matter of stated desire, though balancing the books will tend to discipline the later Brownite extravagances and that will open up some possibilities.

I believe the country is mildly entrepreneurial; mildly illiberal on crime, punishment and civil liberties; mildly permissive on the family and sex and drink; and quite attached to its Welfare State, but also the military and police.

The huge centre of politics unsentimentally understands these facts. If one fielded a “Milliband + Darling” against a “Clegg + Cable” against a “Cameron + Osborne”, I’m not sure that the electorate would see much difference, or care.

I am of course an “extremist” by idealism, and I think that over a generation or two the Welfare State will be transformed (made redundant), squeezed between taxpayer reluctance and market success. I think the Conservative Party will be on the road to being meaningless or dead if it doesn’t start to say that sort of thing soon. However, that project is a long-term goal and should be framed as such.

I don’t know if Labour will frame itself as the representative of the trades union power of the Welfare State. If it does, I’d have thought it will have scant reach. If it doesn’t it really will be head-to-head with the Tories who will always have the edge as the “taxpayers’ alliance”. I don’t know if the Tories can hang on to any serious low-tax principle without alienating that part of the middle class which through guilt or self-interest thinks the Welfare State works quite well. In short, there is electorate hell to the left and right of the centre and muddle at its heart.

The centre ground is now so crowded that we may be about to see a new fractured politics. It’s far from inevitable, but imagine a new, lively parliamentary scene with prime ministers and Cabinets coming and going as old and new parties coalesce and dissolve. That has been the  norm for much of British democratic history.

Out of such shifts there may come a strengthened administrative ability and willingness to deliver an underlying consensus.

A very fluid political system will lead to a desire to have a professional elite – Whitehall - anwerable to Parliament and in charge of developing and delivering sound policy. That will prefigure a return to a British constitutional settlement which can be very modern but also authentic and effective.

Call me a dreamer. On the other hand, the British never have screwed up their government for long. Why assume this generation will?

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This is more or less what I said.

Capitalism is of course rather lovely, but it isn’t cosy. Like freedom, it isn’t by itself virtuous. It is (like freedom) something people want and make when they live in an orderly society with fairly decent government. It grows where people get to make choices.

It is arguable that in bad societies, capitalism itself could become a Bad Thing. But it doesn’t seem to work like that. We find – by living in them – that the great capitalist societies are also agreeable and interesting places. It is pretty likely that societies get nicer the more capitalist they become (at least we hope that’s what will happen in China and Russia and other spots).

This may well be because capitalism has so many benign features. It requires trust, co-operation, good laws, sophisticated information flows. It is mostly a process of voluntary agreements.

So one can perhaps say that capitalism has been the product of good societies, and is as good as they are good, in a process of mutual reinforcement.

Capitalism is often posited as the cash nexus which destroys human relationships, community and small business. This is nonsense since for every small business (a high street grocers, say) which is destroyed by competition, capitalism (a bank loan or overdraft) is helping to set up another small firm (an organic farm perhaps).

Insofar as big business thrives, it does so because people like the services and products big firms provide.

Capitalism is inventive and that produces problems as financial structures and institutions run away with themselves. The financial world is of course prone to herd-mentality and unwarranted enthusiasm, when the vigour of greed – so valuable much of the time – looses the bonds of (boring) caution. But even with boom-and-bust and the pains of these cycles, the history of capitalism remains one of growth in material prosperity punctuated by occasional and frankly marginal dents. (And yes, the downturns cost real suffering, no doubt about it.)

Of course there is heated debate about how much capitalism ought to be regulated, and how much of its wealth ought to be syphoned off for socialised welfare.

Its critics describe capitalism as a monolithic system with its own interests. This is the bit I find hardest to counter.

On the one hand, it is manifestly true that for all working purposes capitalism is sort of total. The leftiest commune would have to bank its loot somewhere, etc. On the other, capitalism offers a huge variety of engagements with its tentacles, and especially a wide range of riskiness in occupations and investment opportunities.

I think capitalism is beautiful and interesting and quite or very good in its influence. But I like it for reasons which its critics hate: I like its providing a range of experience – civilising a range of experience – from the most obviously virtuous to the frankly all-but piratical. I don’t think it would be any good if it didn’t. 

I may be on the winning side in this sort argument, though it hardly ever feels like it when I am talking with audiences of the kind which turn out for debates. This may be the first modern recession to have left intact a generalised if wary respect for capitalism.

Of course, the way I talk about capitalism may be coloured by my general enthusiasm – it has been called Panglossian – to think positively. It won’t entirely do for me to say that capitalism’s critics seem to indulge in negativity. But I do think they are longing for a rule of virtue which would be boring and perhaps nasty if it were achievable.

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The point is, surely, that the days are over when one could defend a state-owned monopoly provider of a cheap, universal, overnight, daily mail service. Many things militate against it, including the decline in demand for the service, the reluctance of the government to invest any more money, and the stroppiness of staff. All these add to the logic of seeing the whole proposition as a redundant and obsolete extravagance.

Presumably, there might be justification for (and money to be made in) a service which used cheap labour to deliver mail less frequently. It might even be required to offer a one-price universality, though a rural premium would presumably be justified. I may be thick, but I can’t see how such a service would much offend equity or fail consumers.

Truth is, very little snowmail is urgent. A few days here or there make very little difference to bills (or cheques to pay them), letters from granny, begging letters or junk mail. I imagine even weekly magazines could be delivered within a day or two of their due-date. The big point is that whatever service is offered, its being reliable would be a big part of its appeal.

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I should perhaps remind you that I am not a professional economist, still less are my remarks here endorsed by either of the thinktanks I work with. You will think – perhaps – that this item on BBC Radio 4’s Today (25 September 2009)  programme is a useful background to what I say. I did.

(1) The background
Governments in Anglo-Saxon or Anglophone markets sense that they should do very little, else they risk creating moral hazard. That’s true whether they guarantee firms against collapse or regulate them against risk. Either makes Alpha Male firms cocky, which we wouldn’t mind provided there was plenty of fear about too.

(2) Since governments find themselves protecting “innocent” consumers and the total financial system, they are involved in last resort rescue, and so they get into regulation to reduce consumer and systemic risk.

(3) How to regulate in the best way (ideally)
One is to force firms to advertise their riskiness. That is, to speak frankly about how prone to disaster they are. (Yes, I know: in the case of CDOs, etc.,  they actually didn’t know how prone they were. But if we lived in a less regulated environment, the media and ratings agencies would have demanded more sceptical interrogation of their mysteries, which might have revealed themselves.)

 (4) But what regulation look like in the real world?
I imagine that regulation would work best which looked most like what the regulator imagined an unregulated market would produce. Cross-industry guarantees, insurance against collapse, etc.

(5) How to get it?
Instead of writing lots of rules which must be obeyed, the best regulators would name and shame firms and sectors which had not produced the sorts of voluntary schemes which offered appropriate (always optimum, not always maximum) safety. Those warnings would then reinforce the market’s tendency to produce satisfactory safety. The firms and sectors which were exposed would see custom drying up or stakeholders demand premiums, etc.

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In my intro above the digital fold, I have slightly exaggerated. I am going to argue that regulation is hazardous. It is truer (but a bit more complicated) to say that de-regulation would optimise (balance) safety and risk (or, fear and greed) in a way which suits the Anglo-Saxon temperament.

Now read on (if you would).  

(1) Government involvement creates moral hazard
Financial firms know that if their failures are big enough, they’ll be saved

(2) Regulation makes people devious (or relaxed)
Risk-takers devote too much energy to satisfying and circumventing regulators instead of delivering the right safety and risk to their stakeholders.

(3) Regulation robs people of the right to risk
It limits the scope of people to choose risky ventures to increase their chance of profit. (People ideally don’t choose to reduce risk, but to optimise it.)

(4) But: governments can’t avoid regulation
If you know you’ve got to save firms, you to try to make them as safe as possible.

(5) How can Nanny let go?
The trick is for government to find the silver bullet. That is: to act just sufficiently to neither cosset nor corset capitalists, whilst being the backstop of last resort.

(6) Safety is for Continentals
The Anglo-Saxon economy believes the risks of under-regulation are smaller than the risks of over-regulation. The former may allow more collapses but the latter stifles capitalistic vigour.

(7) No regulation would be best
The safest markets would be completely unregulated. Fear would then make investors and consumers demand optimal safety (and more likely to get it).

(8) The single most important thing
It should be as clear as possible how much risk a firm is undertaking.

There was a total and totally understandable lack of this knowledge in the case of CDOs etc. In particular regulators, governments – and the media – cheered on the fearless Alpha Male Bankers.

(9) Why financial markets would self-regulate
The market would discipline risk by insurance, mutual assurance schemes, premiums charged, etc., and by demanding high capital resources. If you risk losing your shirt, you care about the cupboard it’s in. Also: financial centres (The City, Wall Street) would have a vested interest in being secure. If governments guarantee bank deposits, they should charge firms for the privilege.

(10) So the oddity is….
Regulation will have succeeded only when firms can fail without damaging the system. Governments can only keep us safe and affluent by making us feel at risk. If we are fearful, we will ensure the market keeps us as safe as is possible.

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