Make or Break Time in Lib Dems' Identity Crisis

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David Cameron's new coalition government is going to be a wild and unpredictable ride in British politics, with death or glory possible for all three main parties, Conservative, Labour and Liberal Democrat.

The stakes, peculiarly, are probably highest for the Lib Dems. At the end of the day there will almost certainly be a Conservative Party and a Labour Party in more or less recognisable form. Nick Clegg's Lib Dems, on the other hand, face two opposite, but equally plausible, scenarios.

They could morph into a genuinely sensible party of the centre, like Germany's Free Democrats, a permanent swing factor that could credibly form an alliance with either main party and be readily trusted in government.

Or the rigours of office and responsibility could destroy them, much as the Australian Democrats were destroyed by having to take responsibility for the GST, after uncharacteristically sensible negotiation.

Do the Lib Dem voters want their party to be one that embraces the hard disciplines of government, especially in a time of necessary fiscal retrenchment, or do they want it to be permanently a party of protest? Will the real Lib Dems please stand up?

The coalition arrangement is second best for the Conservatives but it offers them some real advantages. It would have been best if the Conservatives had won a stable majority of 50 or 60, the sort of majority Tony Blair won in 2005 with a smaller vote than the Conservatives got this time. Then they could have applied their solutions for Britain's economic crisis coherently and offered it up for judgment in five years.

This is what Margaret Thatcher did in 1979. In her first couple of years in office she was pretty unpopular. It was not until the invasion of the Falklands by Argentina, and her heroic liberation of those islands in 1982, that she forged a real connection with the British public. That gave her re-election in 1983 and by the end of her second term, British voters could see she had resurrected the British economy.

She had sorted out the accounts, reconciled expenditure to income, cut taxes, deregulated and broken the power of trade unions. In doing all this, she made Britain hugely prosperous and a global force again.

But this was all accompanied by great internal polarisation and social conflict.

The British Left has had great success in defining the Thatcher legacy as one of heartless cuts and reactionary social oppression.

There is a lesson here for the Australian Liberals. If they are ever tempted not to defend John Howard's legacy they will have ceded a huge lever of political advantage to their opponents.

In any event, being in coalition means the British Conservatives cannot offer Margaret Thatcher Mark II. But there are more ways than one to skin a cat.

In the early 1980s, the Australian government of Bob Hawke followed many of the same policies as Thatcher: privatisation, tax cuts, welfare cuts with a special emphasis on limiting middle-class welfare, tariff cuts and free-market deregulation. Unions were given a substantially meaningless consultative role in national policy but stripped of their stifling influence over the workplace. Labour markets were partially deregulated.

Because this was all carried out by a Labor government rather than a conservative one, it never acquired the class-warfare atmospherics of similar policies in Britain. Clegg offers Cameron the chance, just the chance, of pulling off something similar in Britain.

Clegg has signed up to Cameron's first round of budget cuts. These cuts are nowhere near enough. Britain's deficit is of Greek proportions. Its debt is proportionately smaller but rapidly rising. As Deputy Prime Minister, Clegg will have to approve and defend, and bear political responsibility for, future expenditure cuts.

This could lead in due course to a crisis in the coalition and the Lib Dems eventually bringing down the government. Or it could lead, just possibly, to a steady period of sustained reform in Britain, a la Hawke in the 80s.

Australian commentators have tended to describe the Lib Dems too simplistically as a centre left party that would be more at home with the Labour Party than the Conservatives. The truth is, liberal and conservative traditions sit very well together politically. This is what happened in Australia in 1909, when the free traders and the protectionists, the liberals and the conservatives, joined together in the process called fusion to oppose Labor. They quickly became the Liberal Party of Australia and it has been a great benefit to the conservative side of Australian politics to be called the Liberal Party (never the Conservative Party) for most of the last 100 years.

The Lib Dems emerged from the merger of two parties. One was the Liberal Party, which ruled Britain on and off for many years until the 20s, and was economically and socially liberal. The other was the Social Democrats, who broke away from Labour in the early 80s in protest against the power of the Left. They were never anti-market.

Liberalism and conservatism can combine very well. Howard always argued that the Liberal Party in Australia was uniquely dynamic because it is the custodian of both those political traditions. Clegg in Opposition adopted many soft left postures, but he is much less ideological than Gordon Brown or most in the Labour Party.

The Free Democrats in Germany made themselves into an indispensable party of the Centre. Unlike parties of the Left, one of their key credentials became competence in government. Even the Greens in Germany were changed forever by the experience of government and in coalition supported, for example, the deployment of troops to Afghanistan, as Clegg now will.

Clegg could well take to government and may even convince his team to spend five years in office, by which time they might quite like being there. The move to an Australian-style preferential voting system should help the Lib Dems because they came second in a lot of seats. But it may help them less than they think, and certainly less than proportional representation would seem to.

But PR is no certain gift to the Lib Dems either. It would surely enshrine the British National Party in parliament as well as the UK Independence Party. It would fracture and polarise British politics in an unpredictable fashion.

Clegg has to show the world now whether he is really a liberal or a leftist. In his peculiar and inexperienced hands the future of British politics, and a good deal of ideological discourse in the West, may well rest.

Greg Sheridan is the Foreign Editor of the Australian.
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