Since the unexpected Tory victory in the British general election earlier this month many analysts have expressed opinions as to the reason for the strength of the Conservative government’s outright return to power. Interestingly, one of the explicators entering the debate is Professor Paul Krugman. I was fortunate enough to meet Professor Krugman early in my academic life, as a postgraduate student, when he attended my university in Australia in the mid 1990s; giving a stimulating presentation and holding a coffee chat with a fortunate few of us (student-tutors) who were invited to the faculty dining room for a brief interlude with the future Nobel laureate (2008).
In a recent speech delivered at Oxford University the renowned economist appears to have turned away from his neo-classical roots by suggesting that the British government was returned to power due to economic circumstances that (to a great extent) it engineered in a strategically planned and calculated fashion. The conclusion one draws will likely be a result of one’s particular view of political-economy, but Krugman’s position certainly provides impetus for discussion and conjecture… whether or not his theory holds is questionable, though it highlights many an interesting aspect of current politico-economic thinking.
As a strategy professional, and long time reader of international economics and politics, I am surprised at the position taken by Professor Krugman. No doubt government intervention is a contributor to - and a facilitator of - economic stimulus or cooling, but the point he makes is rather elusory, difficult to sustain and runs counter to his previous neo-classical positions. A leading light of the neo-classical school Krugman railed against “Statist Theories” of economic development such as those which provided government-driven explanations for certain East-Asian economies rapid economic growth post WWII.
His argument was that the state should not intervene except in the event of complete market failure, and moreover, that in cases other than this it was Adam Smith’s’ invisible hand alone that brings about economic equilibrium and growth. This carried the explicit inference that planning for a national economy was too great a task for any government and that many factors other than ‘administrative guidance’ or ‘strategic policy direction’ are at play in order to produce prolonged economic growth. In my view, this also carried the unequivocal logic that governments are unable to bring about any specific economic outcome with a high degree of certitude through policy planning and implementation alone.
The above is further accentuated by global trends that have recently created rapidly increasing uncertainty, complexity and ambiguity. These include globalization of finance and capital flows, availability of information, global tensions and conflicts, as well as disruptive technological change that impacts economic circumstances in all countries. These variables are beyond the control of national governments more today than ever before. In light of this, one would suggest that there are more factors at play in delivering the result of the British election than the incumbent government’s alleged long term plan to manipulate the economy to its political advantage.
Essentially, such an equation is too complex for any government to comprehend, design and implement let alone control with any certainty. Certainly, for everyone, including the British voter, a dollar today is more valuable than a dollar tomorrow…But in my view the British electorate is far more likely to have returned the Tory government because it recognized a political deficit in the alternative, because of the popularity of David Cameron (and the reverse case in regard to the hapless Leader of the opposition), ruthlessly disciplined electioneering by the Tories as well as the positive economic trend in the UK.
These reasons (and more), in combination, are attributable to the return of the Cameron government rather than a singular, contrived response to a ‘short term’ economic upswing. The long-term view is always difficult for the politician to make compelling for the voting public. However, in my view the economic improvement in GB over recent years and the subsequent election results are impossible to ascribe to just one factor - let alone to a coherent Machiavellian policy plan, preconceived and implemented by a national government.