Labour-saving: Britain’s probable next leader

The Economist.

Hello and welcome to The Intelligence from The Economist. I'm Rosie Bloor.

And I'm Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world.

Phones in the classroom are disruptive and undermine learning. Schools hate the devices, Children love them. But in America, why is it parents who are particularly keen that their kids carry mobiles?

And fine art hasn't been doing so well at auction recently. But don't worry, you can now enjoy your Picasso sketches and make money out of them. If you can't sell it, auction houses are now letting you borrow against it. First up though, it's one week out from Britain's general election, and for the Labour Party that's widely, I mean really, really widely predicted to come out on top, this moment now seems like distant history. 6 minutes past 5 in the morning, and we are now in a position to say that this election of 2019 formally has been won by the Conservatives. In the election 5 years ago, Labour got trounced. The final result: a landslide 80-seat majority for the Conservative, or Tory, party.

I feel distraught that we have lost so many great comrades in Parliament, and I also feel so disappointed. I don't believe that this was a rejection of our policy program or our manifesto.

Labour has now been out of power for 14 years, and in the wilderness for some of that. Largely down to its previous leader, a divisive hard-left firebrand named Jeremy Corbyn.

Shake your chains to earth like dew, which in sleep had fallen on you. Ye are many, they are few.

Mr. Corbyn's brand of unabashed socialism was popular with a slice of the Labour faithful, but it was a mess for the rest of the party. His leadership was dogged by accusations of antisemitism and political infighting. And under him, an unloved Labour lost twice. Just after that pasting in 2019, The Economist wrote, "Don't expect the Labour Party to move back to the centre quickly." 5 years later, it's a markedly more disciplined, more electable party. One man can take credit.

Up and down the country, Keir Starmer has a clear message. I have changed the Labour Party and I will do the same for Westminster.

Matthew Hallhouse is The Economist's British politics correspondent.

His transformation of the Labour Party has indeed been pretty remarkable, and that is partly why The Economist has announced this morning that it will be endorsing the Labour Party for the first time since 2005.

So, Matthew, before we get to the endorsement point, let's talk about the transformation that Mr. Starmer is claiming and go back to what he started with. What was the party like when he began?

It's sometimes hard to recall just what a wreck the Labour Party was when he took it over. So in the 2019 general election under Jeremy Corbyn, it won 203 seats. That was its lowest showing since 1935. And that was not necessarily the nadir. There was a report by Labour Together, a pro-Starmer caucus, the following year that said if you look at the demographic tide, there is no reason why it could not be losing dozens more seats in the next election to come. The party had been riven by crisis over antisemitism, For Starmorites, the heart of the problem was that this party had turned inside out. Corbyn was merely a symptom of a cultural malaise, and that was that it had come to elevate the views of its members over those of the public. It had become, in their eyes, an expression of virtue, a way for its members to show good things and express their feelings, rather than what it had been founded to do, which would be an instrument of power for the industrial working classes, something that had to get into government and set to serve their interests.

So, in short, Mr. Starmer had quite a job to do. How did he do it?

So, from that analysis, there were 3 things that really followed. One was that he had to get back into power in one term, as they saw it. It had to win back seats in the north of England and Scotland. This idea that was going around in circles that maybe there was a sort of progressive coalition, that Labour could just lean into the new seats it was winning and let those other ones sort of slip away, they said was fatalistic, and they had to row against it very, very firmly. And the third was that he had to had to be willing to breach some internal taboos, some internal norms that had historically prioritized party unity.

And so that's the diagnosis of the problem. What's the method? What's the Starmer way?

There is something of a Starmer modus operandi, we think. There's a bit of a ratchet approach. He's quite slow to build to change. He focuses on the really obvious fixes, and as he goes and he encounters more problems, his solutions get more radical. It's sort of inverse of how we typically think politicians operate. The second trait is that he doesn't necessarily narrate what he's doing, at least not in sort of grand speeches. And that means that it can be quite, unless you're really sort of watching it, it can be quite hard to appreciate just how far he's moving. So one example of that is that famously when Tony Blair changed the Labour Party rulebook on Clause 4, which was this historic commitment to public ownership, you know, he made a huge speech about it. It was a big symbolic moment. When Starmer changed Labour's rulebook in 2021 to wrest power away from members a little bit, he doesn't even mention it in the speech afterwards. And it means that actually, actually, you know, some people in the party who are losing out at this process don't fully realize quite how far things are moving. And the third trait, which is something that everybody has noticed, is that he's pretty ideologically dexterous. You know, the single most important goal of this mission is to get Labour back into power. He wooed Labour's electorate, Labour's members, to get this job through a fairly sort of Corbyn-like pitch. He then pivots, and really to focused very, very firmly on the voters who had historically voted for the Labour Party and then had moved away in 2019. But his supporters would say, well, this is a virtue. This is a guy who doesn't have rigid views. He's going to look at everything on merits and come to a decision in an open-minded way.

How does all that translate when we move from changing the Labour Party to changing the country?

One parallel is that his analysis of what's wrong with the government is a cultural critique. It's not that the state is too large or too small. It's that it's become sort of self-serving and inert, much in the way that, you know, the Labour Party itself had come to be seen as sort of self-serving. And I think it's clear that we're going to have to see this sort of ratchet at work again because he set himself these enormous missions that Britain is going to achieve the highest sustained productivity growth in the G7. And yet what he set out in the manifesto for this election, which he terms the first steps, are really pretty nugatory. You know, there are some fairly small changes to the planning code and some fairly small amounts of money that have been set out. So clearly we can see that to get from the first steps to completing the mission he's going to have to become a lot more radical.

And so we come with all of that to The Economist's endorsement of Labour. Let's lift the curtain a little bit. How does The Economist come to a decision on that?

The way we do it is at the leader meeting, which is where the editorials of the newspaper are debated and discussed, you have 3 authors putting the case for different political parties, and then there's, you know, extensive debate afterwards. The argument put for the Liberal Democrats is that this party is essentially, you know, a factory of some quite interesting and innovative ideas, including things like the value tax, which I think The Economist has historically approved of. The case for the Tories is this: Britain needs a moderate, effective centre-right that can make the case for markets, for public sector reform. If it is obliterated, which some polls suggest is possible, that task becomes much, much harder. It becomes much, much more vulnerable to effectively a takeover by the populist and radical right. It is in Britain's long-term interest that there is a successful Conservative Party. But these did not prevail. The case for Labour was this, you know, this is not a party which is at the moment fully aligned with The Economist's historic principles. It's swinging behind the new Washington consensus, which is sceptical of globalisation. It's very keen on industrial strategy. However, there are two overriding reasons. One is that a job of an election is for people to send a message to their political leaders about what sort of behaviour they want to reward and what sort of behaviour they want to punish. And Keir Starmer's remaking of the Labour Party into a more credible and moderate force is something that should be rewarded. If only to encourage other parties to follow course. But the single most important factor is that Britain's overwhelming problem, the one that underpins all others, is its fairly weak growth, and that the Labour Party in its current formation is the best option on offer for cracking that. So the party has said that planning reform will be at the very, very center of its economic and political strategy. It wants— and, you know, let's not over-egg this— but it wants a moderately closer relationship with the European Union, which has the potential to be good for growth. It has the potential to do sensible things to the tax code because it may come to power with a large mandate on the back of a large majority. The real risk that this is a party that's going to be blown off course, it's going to be too cautious, too timid, but they have stated that this is their number one mission, and based on the reformation of the party under Sikhi Asthana, they have earned, we think, the chance to try.

Matthew, thank you very much for your time.

Thank you.

For a lot more on Britain's next government and the future of the country, mark your calendar now for our subscriber-only event next Friday, July 5th, at 1 PM London time, one day after the election. Matthew will be joined by his brilliant colleagues on the Britain Desk to take your questions and discuss whether the election result means that Britain is, at last, back to normal. Book yourself in and get your questions in early by going to economist.com/ukelectionevent or click the link in the show notes.

Okay, I admit it, school used to be a bit boring sometimes. But these days it's quite fun. Kids can message their friends, post videos, and play games. Smartphones have made class a lot more entertaining. But they're less good for learning. The debate over how much access young people should have to phones is happening the world over. In America, some schools are simply locking devices away during the day. Perhaps predictably, many of the kids aren't too happy about it.

It was a big problem before.

Yeah. They're blowing it out of proportion. But it just feels like they don't trust us or something.

Yeah. Some parents also have a trust issue. They want their children to carry phones so they can track them at all times. So what's the answer? Who gets a phone and when?

People have been concerned about smartphones in schools for a long time.

Tamara Jilks-Bohr is The Economist's US policy correspondent.

There's been big debates about the role of these smartphones on students' mental health and general well-being. Two states have passed laws banning cell phone use during instructional time. That's Florida and Indiana. But a number of states are discussing the possibility of passing similar laws.

It's interesting because this is a debate that's being had around the world right now about banning phones in schools or limiting their use, but it seems Which is particularly interesting to me in the US, a country where a lot of people don't think you should be allowed to ban guns. You know, the idea of banning phones seems rather far-fetched.

It's a really good point to make that connection to guns because yes, in a country where we really do believe in the freedom to carry guns and also potentially cell phones, that is actually part of the reason why parents want their kids to have cell phones. Many of the parents I spoke with actually mentioned that they want their children to have cell phones in schools because they want to be able to contact them in case of a mass shooting incident, to know that they are okay and to know where they are.

Tracking kids in a potential gun situation obviously brings an even greater dimension to the phones debate. I'm interested in what the teachers and the schools actually said about what they think the problem is with kids having phones.

I was actually a school teacher for 5 years a couple of years ago, and teachers said basically what we were concerned about back then, which is that, you know, students are getting distracted. They are taking extra long breaks in the bathrooms to go through their phones to watch videos. So teachers are really concerned about mainly having to police these phones, but also that kids are not learning as much because they're super distracted throughout the day.

How do you think the kids are going to respond to all of this?

Obviously, the children are not happy with this. Many of the students I spoke with, they wish that they could use the cell phones, some for entertainment purposes, but others were claiming that it was really important for academics to use using a calculator, being able to look things up, etc. But the reality is that these students are getting 50 notifications every school day. That's incredibly disruptive. And they're getting over 200 notifications throughout the entire day if you go into after-school and nighttime. So the students are getting bombarded with these notifications. And as adults, we know what a life was like before all of this, but they don't. So they might be arguing for something that they don't really quite know the alternative.

Have schools actually successfully stopped children using phones at school?

Well, as you can imagine, it's really difficult to ban phones in schools, and the kids are going to find ways around any rule that you give them. So when I spoke to a few students at a middle school in Washington, DC, they talked about, you know, having secret pockets in their backpacks to hide the phones. The students also in some schools have these pouches that supposedly lock your phone during the school day and can only be unlocked by a magnet. But of course, sometimes those pouches stopped working. And of course, the kids never told anybody that the pouches stopped working. They discussed having two phones. They discussed a lot of different things to get around this barrier. So I think just like with anything, any rule you have in school, you're up against the ingenuity of children.

So the checking your phone at school is the modern-day smoking a cigarette behind the bike sheds then? Absolutely.

It's all of that and more.

What's the answer? Is there any way to satisfy everyone?

It's so complicated. It's hard because parents want their children to have cell phones during free time, but it's really difficult to manage that for teachers. I think that the answer is in many ways just start to go old school. Parents have to just stop giving their kids these phones, and that's going to be incredibly difficult to do if parents also want to be able to contact their children in case of a mass shooting situation or other emergency. So unfortunately, the answer is tricky. I think we're going to have to see families and parents start to get more comfortable in schools, to start to band together with schools to agree that, you know what, we are not going to give our children these smartphones. And at the very least, give your child a flip phone, a smartwatch, or some other less disruptive device so that you can still stay in contact with the children, but they can't also scroll through YouTube.

Tamara, thanks so much. Great to talk to you.

Thank you for having me.

On Philips.com, ahead of our telephones.

I'm here in Mayfair in Philips headquarters watching a Picasso auction.

Kala Subbarana Artus is a journalist at The Economist.

I'm sitting here in the middle of the room. God, this one started at 16,000 and in like 5 seconds we're at 20,000. It's another jar with Picasso's characteristic face. Wow, 26,000. 28. Most of the action is in the phones, clearly. Everyone's It's quite tense. I think it's the last chance. She's asking if anyone else wants one.

Sold!

Yeah, $32,000. Wow. So investors have long been able to console themselves that if their paintings fall in value, at least they will have something nice on their wall. But now they can also console themselves that they will have something to borrow against. There has recently been a boom in art-secured loans, which were until recently only available sort of as a premium service to the wealthiest clients of private banks. But now auction houses and boutique lenders are also becoming more involved. So according to Deloitte, these outfits have increased their lending by 120% since 2019. So it's really quite remarkable how lending has risen.

So rather than keeping your Picasso as something to sell when you need some money, what you're saying is that people are actually borrowing against the Picassos or other fine art on their walls to secure loans. Is that right?

Yes, exactly, Rosie. So this is happening in part because of developments in the art market. So when central banks started increasing their interest rates in 2022, banks tightened their lending standards. So I spoke to a lot of people in the industry who told me that minimum loan requirements have gone up from $1 million to $10 million. So they really tightened their standards a lot. And then what happened was that this opened up a gap in the market and auction houses and specialized lenders saw this opportunity and they saw their demand increase by a lot. But another factor was that art prices have actually fallen quite a lot since 2022, especially for the most sought-after pieces like Picassos or Basquiat. And according to UBS, prices for top art fell by 40% last year. So basically what that meant was that collectors preferred to leverage their art instead of selling it. And a lot of the new demand was from young collectors.

I'm really surprised to hear you talk about young people. It was definitely not my stereotypical collector in my mind. Did you see young people at the auction you went to?

Yeah, that surprised me a lot as well. There were a lot of young people at the auction I went to, and they were actually bidding for the art quite a lot. So it is a new development that is impacting the market. And Christie's told me that they're seeing a huge rise in demand from younger people. It's mostly younger people inheriting from their parents or their grandparents. And surveys show this as well. Deloitte does a huge survey every 2 years, and in the latest one, which was released last year, 85% of collectors under 35 said that financial considerations were a big reason to buy art. And that was at the highest level ever since the survey began.

And Carla, how are auction houses responding to this shift in demand?

Well, they're actually competing quite aggressively with banks, which is quite surprising. So the main front where they're trying to compete with is interest rates. So auction houses charge much higher rates than banks, and that puts them at a disadvantage. And this is because banks are financed by deposits, which are very cheap, but auction houses have to tap private markets to lend, and that's very expensive. So now what they're trying to do is lower their financing requirements to make their loans more attractive. And so Sotheby's is leading this trend. They recently announced an asset-backed security worth $700 million made up of art-backed loans, and the loans include more than 2,000 works of art, of the finest art in the world, like Rothkos or Basquiats. But while this is a good idea, I think the problem is that very few other specialized lenders will be able to replicate this. Because Sotheby's was able to issue an asset-backed security because they have very detailed information on the performance of their loans stretching back 15 years. But not every institution has such detailed information, so it will be quite hard to replicate.

Fascinating to think of auction houses as banks, but we know that the art market is no stranger to fads and fashions that dazzle for a while and then fade. Do you think this trend is going to last?

So I do think that there is a limit as to how much the market can grow. First of all, because once art prices begin to rise again, maybe collectors will just prefer to sell their art. So there will be more activity on that front. But I think that a big reason is that art is a very risky investment. So lenders only accept as collateral paintings from the most renowned artists. So that limits how much the market can grow. But in any case, if you're lucky enough to have a Picasso to hand, a new way of unlocking funds has opened up.

Thank you so much, Carla. No Picassos, but great to speak to you.

Thank you, Rosie.

To hear more on the business of art, this week's Money Talks show is dedicated to the art market. The episode explores how an item is actually valued and the large role of trust in the market. If you're already a subscriber, go right ahead and listen. If not, you'll need to sign up to Economist Podcast Plus. The link is in the show notes.

That's all for this episode of The Intelligence. We'll see you back here tomorrow.