David Cameron's dream could be President Obama's nightmare
The chilliness is understandable. When David Cameron, Britain's new conservative prime minister, met with Barack Obama this week, the president was also encountering his worst political nightmare. If Cameron succeeds, he will do more than save his ancient island from the economic fate of Greece -- he will provide a model for Republican victory in the 2012 U.S. presidential election.
In his passion for fiscal austerity, Cameron resembles the new breed of Republican governors for whom the art of governing begins with the discipline of accounting. He is a taller Mitch Daniels, a svelter Chris Christie. During the past fiscal year, Britain's deficit was larger as a percentage of its economy than Greece's. Cameron's June 22 emergency budget proposed the deepest, most sustained reductions in British spending since World War II. Health programs and foreign assistance are fenced off from cuts. But other government departments will see an average of 25 percent reductions over the next five years.
Bond investors and credit raters have responded positively to Cameron's austerity budget. When the cuts kick in, other responses could include strikes, demonstrations and riots.
This is a risky strategy in a nation where "socialism" is not an epithet but a founding commitment of one of the main political parties. But Cameron's austerity has the virtue of economic responsibility. It is easy to close a budget deficit with massive new taxes -- but it is also massively destructive to economic growth. So Cameron has proposed about four pounds in spending reductions for every pound in tax increases. A recent study of 44 major fiscal adjustments in developed nations since 1975 found that a one-percentage-point increase in taxes as a portion of gross domestic product cuts annual economic growth by an average of 0.9 percentage points. Reducing government expenditures by one percentage point, in contrast, increases average annual growth by 0.6 percentage points.
If Cameron's approach works -- dramatically cutting deficits without stalling economic growth -- it will be an obvious, powerful example for America and other nations.
But Cameron's progress offers two other lessons that some Republicans may be less willing to acknowledge.
First, Cameron's austerity measures have succeeded (so far) in the context of a coalition government with Liberal Democrats -- Britain's centrist third party. This alliance of the middle has made Cameron's government less dependent for support on the extremes of either party, resulting in a truce on divisive issues such as immigration and European integration. Cameron's alliance remains strong at the highest levels of political leadership. It will be tested as party activists from both coalition partners canvass against each other in next year's local elections and referendum on electoral reform.
A formal coalition government is not an option in America, which lacks a viable third party eager for power. But large, politically risky spending reductions will require spreading the responsibility and the blame beyond a single party. Some type of center-right alliance of fiscally conservative Democrats and Republicans -- a coalition of the complicit -- will be needed to act boldly and marginalize partisan extremes.
Second, Cameron makes clear that austerity alone is not a sufficient message for a political party. He calls deficit reduction his "duty." He refers to his social agenda -- the "Big Society" -- as his "passion." Cameron has paired his emergency budget with a series of measures designed to encourage volunteerism, empower local communities, create charter schools, reform welfare and fund the work of private charities. The problem with centralized, government-oriented policies, he argues, is not only their expense. They have "turned able, capable individuals into passive recipients of state help." The alternative is a "thoughtful re-imagination of the role, as well as the size of the state."
Cameron envisions a radical kind of devolution, not only to local governments but also to communities and individuals. Government, in his view, has an important role in building the Big Society, but it is mainly catalytic -- providing resources and authority to community institutions.
Critics in the Labor Party accuse Cameron of "cynically attempting to dignify its cuts agenda." But Cameron has been talking about these themes since well before the current financial crisis. The Big Society is not politically cynical, but it is politically smart.
Obama has every reason to fear the emergence of Cameron-style Republicanism. But American conservatives who respect Cameron's budget-cutting courage should also pay attention to his political insights. A successful austerity agenda depends on the assembly of an ideological coalition -- and it requires a domestic agenda more inspiring than responsible accounting.