Monday, 30 March 2009

Bashing Bozza

Channel 4's Dispatches did a hatchet job programme on Boris Johnson as London mayor last night. It's evident that Bozza has his faults: no overall strategy; too keen on getting in the media (but which politician isn't); and obsessed with bendy buses which are not as problematic as he claims.

However, this problem lacked any balance whatsoever and I thought that Channel 4 had a public service obligation. It even dragged up a conversation that Boris had had years ago with a friend subsequently convicted of fraud. This was trailed as a great revelation given that the friend was proposing to have a journalist worked over, but Bozza seemed to be trying to restrain him, at least in terms of the level of violence applied.

At the start of the programme Bozza was blamed for not doing anything about the global financial crisis, although quite what the Mayor of London is supposed to do about that, or what powers he has to do anything, escaped me. In many ways, although there are considerable planning powers attached to the post, it is a symbolic role.

Bozza was also quite right in one of his major decisions, to get rid of the Metropolitan Police Commissioner. Whatever the Minister for London (who has hardly covered himself in glory over his expenses) may say, the post was politicised under New Labour.

Quite understandably Bozza got a bit irritated at the television team that trailed him and I ended up feeling sorry for him which I am sure was not the programme maker's intention. Ken only made a brief appearance, but I am sure he enjoyed the programme.

Sunday, 29 March 2009

Hamish and Kirsty go bust

I advised a family member that a Scottish mutual would be a safe place for their money and now the Dunfermline Building Society, the largest in Scotland, has gone bust. Investors will, of course, be protected and the profitable parts of the business sold off. However, the fact that such a body could go under does bring home the extent and depth of the financial crisis.

A senior executive of the Society was on television this evening complaining that 'faceless mandarins' in London had failed to bail out his society. Admittedly at £60m the cost is small compared to some financial bail outs. But why should taxpayers shell out to save an institution which has been caught out by risky commercial lending, as well as other failings?

There is a Scottish politics dimension to all this. Dunfermline is next door to the prime minister's constituency and there will be job losses. The Scottish Government has been involved in discussions about the Society's future. However, it may be that the Government feels that it owes them no favours, particularly when it comes to the independence of Scottish financial institutions.

Saturday, 28 March 2009

Michelle trips up Gordon

The writer (centre) enjoys one of the best glasses of red wine he has ever had in the courtyard of Chile's presidential palace

Gordon Brown's quest for support ahead of the G20 summit has taken him as far south as Chile. Nothing wrong with that: Chile is a country I like a lot and I am looking forward to returning there in July.

Gordon denied that he was going round the world looking for comminqu├ęs, but probably did not expect a rebuke from Chilean president Michelle Bachelet. Ms Bachelet pointed out that Chile had saved revenues from its copper exports 'during the good times', enabling it to put in place a fiscal stimulus package worth 2.8 per cent of GDP.

Britain is now running out of money for any substantial further fiscal package and George Soros has raised the spectre of a bailout by the International Monetary Fund. 'You couldn't make it up,' chortled shadow chancellor George Osborne. 'Gordon Brown is getting lessons from the Latin Americans about sound public finances.'

Friday, 27 March 2009

Bash a banker

It's always interesting when you are out of the country for a week and stories develop a momentum without you being fully aware of them. Clearly there's something of a 'bash a banker' mood in the UK (and in the US). This has been to some extent whipped up by politicians who see them as convenient and popular targets that can distract attention from their own mistakes. However, now they are starting to think that this might have developed to such a stage that it could impede financial recovery.

What used to be called a day of action is in preparation in connection with the G20 summit and there is quite an interesting story here:

It would be very difficult to defend the claiming of rewards for failure in the banking sector, although some of the mechanisms that have been proposed to deal with this in both the US and the UK are unconstitutional/illegal and represent an unwelcome return of punitive taxation. An uncomfortable fact about capitalism is that 'greed' is what actually drives it to a large extent.

Wednesday, 25 March 2009

A spectre is haunting Europe

There is a spectre haunting Europe and it is the spectre of industrial policy. Some of the more ambitious dirigiste aims of President Sarkozy have been tamed by the European Commission, but there is no doubt that interventionism is back in town. I even heard someone argue the other day that the market is finished as a form of social organisation.

Whether politicians and bureaucrats can make better decisions is far from proven: rather the contrary. Those of us who studied industrial policy in the 1970s came to the conclusion that it was a highly dysfunctional form of policy for the following principal reasons:

1. It enables multinational companies to play one country off against another to extract funds (which is why we need an EU state aids policy).
2. It is very difficult to demonstrate 'additionality', i.e. that the additional funds made available lead to investment that would not otherwise occur.
3. It is very difficult for politicians and bureaucrats to pick winners (or 'losers')
4. Often decisions are made on electoral grounds, e.g., the sensitivity of a particular constituency or region.
5. Often investments were replicated in different parts of the country for political reasons when there was no good economic case: steel and aluminium provide good examples.
6. Large companies were generally favoured over smaller countries.
7. Industrial structures were ossified, particularly in terms of over capacity.

The political pressures to 'save jobs' are nevertheless enormous which is why it was encouraging last week to hear Lord Mandelson say that government (or the taxpayer) is not a huge bail out fund.

Capitalism has recurrent crises, but they also have a purgative effect, producing a leaner and fitter economy. In this respect I await one of the first books by a leading political economy academic on the global financial crisis. The Spectre at the Feast by Professor Andrew Gamble FBA of Cambridge University will appear from Palgrave-Macmillan in the next couple of months. Gamble

Monday, 23 March 2009

Labor wins in Queensland

Brussels: Labor has retained office in Queensland with a reduced majority. The merged Liberal National Party, with a singularly uncharismatic farmer as leader, was unable to make enough headway in urban electorates in and around Brisbane.

In Beaudesert, right-wing populist Pauline Hanson was defeated with 22 per cent of the vote. She blamed her defeat on hounding by the media and in particular the publication of fake photos purporting to show her in the company of a black adult actor with the stage name of Long Dong Silver.

The market for populism more generally remains buoyant in the recession and we can expect to see it as a strong force in the European Parliament elections, not least in Britain. What's wrong with populism in a democracy? It appeals to baser human instincts and pretends that there are simple solutions to complex problems.

Sunday, 22 March 2009

Dave sets out his stall

The extent of the problems facing the British economy in particular in the global recession are increasingly becoming apparent. Claims that it was particularly well placed to withstand the recession do not stand up to scrutiny. When I get time I will try and work through the evidence, but one only has to look at reports from the IMF or the ITEM club of economists.

Whichever government is in office after the next general election, it is going to have to raise taxes and cut public expenditure (in real terms when one takes account of the demands on services like the NHS). The key question is how one does it. Given that Dave Cameron is the most likely next British prime minister, a major economic policy speech by him last week is of considerable importance.

The only protected areas of public spending under the Conservatives would be health and the small overseas aid budget. The commitment to ring fence defence and schools spending will be withdrawn in April 2010, just before the likely election date. The commitment to sharing the proceeds of growth between spending and tax cuts has been abandoned. The priority will be to reduce the level of government debt.

It is hoped that savings can be made by scrapping the expensive identity cards project. However, Dave also pointed out that tax credits to help the poor had been extended to the point where they can reach people earning over £50,000 a year, so we can expect some cuts there.

Dave was careful not to rule out tax rises and made it clear that 'the richest in our society must bear a fair share of the burden'. Whilst the commitment to raise inheritance tax threshholds, which plays well in southern England, remains in place, the Conservatives will not reverse the 45p rate of income tax for those earning over £150,000 that is due to come into place in 2011. It's hardly punitive taxation, but it is a reversal of the policy started by Mrs Thatcher to reduce the higher rate of tax (which, in any case, has brought increasingly large numbers of people within its grasp).

The Conservatives believe that the electoral appetite of the last decade for more spending on public services has been sated. I think they are right in this assessment for a number of reasons. First, much of the increased spending does not seem to have had the desired effect if one looks at the problems at Birmingham Children's Hospital and in Staffordshire. Second, there is increasing resentment of what is portrayed by the media as a protected public sector, particularly in terms of fewer job losses in the recession and index linked final salary pensions. Dave has been able to make good use of the high salaries paid at Ofcom.

In 1997 one of the drivers that brought Labour into office was concern about the state of public services. The reverse effect is now happening. However, once a Conservative Government starts to make unavoidable savings, they may find themselves challenged by the unions and others and their popularity could quickly suffer. That is not to say that they should avoid difficult decisions and we are now getting more detail about what they would do as part of a deliberate process of lowering expectations.

Wednesday, 18 March 2009

Dave fazed by Beast of Bolsover

Dave Cameron was batting on a good wicket at PMQ's today with the largest ever rise in the claimant count, but it wasn't his best performance, although he managed to get his sound bites in about the Government's bunker mentality. Sometimes he tends to crowd too many points and questions into one intervention and the central take home message is lost.

He was also thrown off track by Dennis Skinner, the 'Beast of Bolsover'. Dave interrupted his peroration to advise him to be quiet. The veteran MP was a thorn in the side of Mrs Thatcher who regarded him with respect as a very effective Parliamentarian.

Then Dave got ticked off by the Speaker for suggesting that the prime minister was a 'phoney' and had to withdraw this unparliamentary language.

For his part, Gordon Brown's message was that the Conservatives wanted more to be done but to spend less. Brown was in between a junior Scottish Office minister and leader-in-waiting Harriet Harman. It was interesting to watch her body language. First, she sat there grim faced and impassive. But then she got annoyed by the bench opposite and started to point and mutter at them and nod in agreement with the prime minister. Later on, she reverted to grim faced passivity.

When I was in Australia, it was suggested to me that she had some kind of aristocratic family relationship with the Pakenhams, who included Lord Longford, but I have not been able to verify this. She certainly has a rather icy demeanour. However, she plays well with the trade unions and with women Labour supporters and is now trying to present herself as a person of the left as prospective Labour leaders often do - it was a tactic used by Harold Wilson.

Nick Clegg actually made an impressive intervention about the link between the shocking events at Stafford Hospital and the Government's targets culture. Of course, if you don't have some means of measuring public sector performance, one can spend a great deal of money without any effect on outcomes.

In this case the outcomes were negative in the most serious sense for patients who received completely unacceptable treatment. For once the overused phrase 'Third World' was justified. The devoted advocates of targets like Michael Barber who wrote the book Instruction to Deliver have something to answer for. However, it was evident from the book that he had tremendous belief in what he was doing, but it really became a kind of ideology that was pursued in a very zealous way.

Photos of controversial candidate are a fake

I tried to make friends with this resident of the Beaudesert electorate where Pauline Hanson is standing but with little success. I saw a lot of yard signs for the Greens.

It seems quite a while now since I was in Queensland, but I thought I would catch up with events as the campaign enters its final phase. An oil slick off the Sunshine Coast has given the opposition a stick to beat the government with, but even more fuss has been caused by alleged photographs of controversial candidate Pauline Hanson in skimpy attire.

The Brisbane Times has conducted an investigation and it appears that the photos taken by a former boy friend are in fact of someone else: Fake

We have had similar incidents in the past involving women British politicians.

Local bloggers seem to think that the result is too close to call, with Labor losing a substantial number of seats, but perhaps just clinging on in the Executive Building (a singularly nondescript modern building): Election

Just in case anyone in Brisbane complains, the original Executive Building was a more distinguished piece of architecture which subsequently became the Lands Administration Building

Tuesday, 17 March 2009

Je ne regrette rien

Being on the other side of the world for three weeks has an odd effect on one's perception of short-term British politics. Of course, one can visit the BBC and other websites. Papers like The Australian include quite a lot of coverage of British politics. That's just as well as the ABC nightly news seems to focus on shark and crocodile attacks and cats fighting off snakes.

Of course, one can get interested in Australian politics, in particular the election in Queensland. Australian state politics is poorly covered in the UK and I have to confess that I was not aware that the state Labour government had been voted out in Western Australia last November.

I come back to Britain and find there is a fashion for political apologies. I suppose it was all started by those rather grudging and scripted apologies made by bankers to a Parliamentary committee.

Dave Cameron is a very smart tactical politician and he set a trap for Gordon Brown by apologising for past Conservative errors last Saturday. The difficulty is that if Brown makes a partial apology, it can gives ammunition to the Conservatives, but also allows Dave to claim that it doesn't go far enough.

Brown now seems to have made a rather guarded and partial apology here:

It's supposed to be the start of a fight back, but I doubt whether it will get off the ground. A return to statism is pledged, although the Conservative seem to be edging in that direction as well. That leaves open the question of where a classic liberal might vote.

Not for the rather lightweight utopians represented by the Liberal Democrats, although I would have to qualify that by saying that Vince Cable is a very impressive politician who has been proved right by events and communicates very effectively. In fact, he is now regarded as a national treasure and sage.

Interesting that in an ageing society ageist considerations barred him from the Lib Dem leadership. Of course, Ming Campbell was mercilessly satirised on television as giving bedtime talks from his nursing home with a blanket over his knee and a cup of cocoa in his hand.

Satire often defines politicians. Some of us can remember David Steel portrayed as being in David Owen's pocket. It was a very damaging image.

A coffeeless Seattle

Jon Stewart in last night's re-run of some material from The Daily Show had a brilliant piece on Gordon Brown's visit to the US. The comparison of clips showed that Brown had lifted a number of phrases, admittedly some of them rather vacuous, straight from Obama's speeches.

Stewart reasonably pointed out that there was something a bit odd about the British prime minister coming on a rescue mission to the US. (To me it was reminiscent of Margaret Thatcher going to the States to rally the troops when Ronnie hit a bad spot). After all, the UK economy is probably in a worse state (more detailed analysis of this soon) and has less traction power.

Stewart pointed out that Britain only sees the sun about two days a year and likened it to a coffeeless Seattle which I thought was very funny. I have lived and worked in Seattle and it's a great place to live, but there is quite a lot of cloud and drizzle. It's a rare day when you see the mountain in all its glory.

In the past six months I have vistited colleagues of my age at their homes in the States and Australia (city home and estate in New Hampshire in the US case). Sometimes I think that the biggest mistake I made in my life was staying in Britain.

Saturday, 14 March 2009

Can government(s) solve the global financial crisis?

A common assumption is that if there is market failure, as there has been in the global financial markets, government must step in and sort things out. This overlooks the risk of government failure.

A great deal of hope is being pinned on the forthcoming G-20 summit in London but will it amount to anything more than warm words or photo opportunities? The predecessor G7/G8 summit did not have a very distinguished record of achieving anything, other than perhaps in the 1970s.

Now we have a G-20 which may represent a trade off of legitimacy for effectiveness. The Foreign Office has recognised the realities of the situation by creating a list of A list and B list countries which to their chagrin has leaked out. Australia is on the B list which will go down well there where they understandably dislike being patronised by poms. Australia has moved a long way from the 'stone age diplomacy' it was accused of in the 1970s.

Getting anything meaningful out of a G-20 discussion is going to be very hard, particularly given that some countries such as Germany are reluctant to provide a further fiscal stimulus. Meanwhile government debt piles up with no discernible effect on the economy. Of course, traction takes time but there has been a massive failure of confidence in the financial markets.

Meanwhile, the UK government has been plagued by initiativitis, often badly coordinated with tensions within the Government and between the Government and the Bank of England coming to the surface. One response has been to beef up the Treasury press office which was used to being busy just twice a year for the main budgetary events. At least Alastair Darling seems to have realised that the cupboard is so bare that he cannot afford more ineffective tax cuts.

The latest idea from Peter Mandelson is that if you get a car that is nine years or more old recycled you will be able to claim a £2,000 credit that can be used to purchase a new or nearly new car. Bingo! It's green and it stimulates the car industry.

But wait a minute. How many people with nine year old cars can afford a new one? And what about the taxpayers who have slightly older cars and don't benefit from this handout? I have to declare a personal interest here as my car is seven years old. But I am going to look at a replacement next week and provide my own stimulus to the economy.

At the end of the day it's going to come down to individuals and their confidence in the economy rather than government gimmicks and declarations from the G-20. That confidence is not going to be easy to restore. David Cameron is going to inherit a poisoned chalice and is going to have to make some very tough decisions.

I don't envy him his task and it will be interesting to see how the new influx of Conservative MPs is likely to shape up such as Chris White who is odds on to win Warwick and Leamington. Chris, of course, has motor industry experience and getting that industry going again will be one of the biggest challenges.

The harsh fact is that there is overcapacity in the industry. General Motors have been going round with their begging bowl threatening to close plants and playing one European government off against another. It's all very reminiscent of the game that Chrysler played in the 1970s, allowing them to walk away with a large pile of public money, leaving a business that was far from viable. Whether we learn from past mistakes is open to question.

Thursday, 12 March 2009

The force of the regulatory state

The man from Transco knocked a large hole in the wall of my recently upgraded basement this week. I was very pleased that he did because he discovered that our mains gas regulator dated back to the introduction of natural gas in the late 1960s (gas used to be manufcatured from coke) and the switch was incorrectly positioned.

However, what really amused me was his comment as he surveyed the debris: 'You'll be right with the regulator now.' The regulatory state does indeed penetrate our own homes.

Monday, 9 March 2009

Lib Dems go in for gaming

Following Nick Clegg's speech at Harrogate which at least seems to have enthused his own activists (but was the pale blue tie a subliminal message?) unconfirmed reports suggest that they may use game theory should they hold the balance of power after the next election: Gaming

There are those who would argue (e.g., Colin Hay) that such rational choice approaches have undermined the democratic process by calling into question the role of political decision-making. Should that be the case, the adoption of game theory fits ill with the commitment of the Lib Dems to reinvigorate democracy.

Which game will they use? The chicken game? Or perhaps they would be better off cutting a pack of cards or rolling a dice?

Wednesday, 4 March 2009

The global financial crisis

While I have been away from Britain, the news seems to have been getting worse and worse. Australian television referred to the meeting between Brown and Obama as one involving the heads of two of the world's weakest economies.

Obama has had to throw good money after bad to bail out AIG yet again and prevent systemic failure of the financial system. General Motors has the begging bowl out again and one has to ask whether taxpayers' money has to be used to prop up any failing company, at least without a major restructuring. There are employment consequences, of course, but there are also opportunity costs.

At one time there was some hope that the acquired assets could be nurtured back to health and taxpayer funds recovered. This now looks much less likely. At some point politicians will have to be honest with voters: public services will have to be cut and taxes will have to go up. This is going to be a long and deep recession with painful consequences.

Tuesday, 3 March 2009

More from Beaudesert

Brisbane: Australia has some sophisticated politicians and some good ideas. After all, that's why I'm here, to do some policy learning. But you wouldn't think it if you were following the campiagn in Beaudesert.

#1: Warwick Capper's short political career is at an end and he can return to Surfers Paradise. Having undertaken to launch his campaign with placard waving bikini clad girls, he failed to file his nomination papers. Add a 'r' to his name and it would be a good pseudonym for a student writing in the Warwick Boar.

#2: The seat is currently held by the LNP although the incumbent is not standing again. The LNP candidate was arrested and fined for storming the set of Big Brother apparently to promote his rock band. I know the federal environment minister is an old rocker who still does the occasional gig for a good cause but ...

#3: Pauline Hanson has already had a go at free trade. Immigrants next? Of course, there's always a market for nativist populism, even more so in a recession. In vox pops, some voters praise her for her honesty. So accepting Australia as a multi-cultural society is not honest?

At least it's a distraction from increasingly grim financial news.

Monday, 2 March 2009

Quantitative easing

If reports in The Australian are to be believed, the Bank of England is poised to introduce quantitative easing. Electronically created money will be transferred to the accounts of banks to buy up bonds.

Against the background of ever more gloomy financial news, not least bad results from HSBC, this is the last shot in the locker. It effectively undermines the authority of the Monetary Policy Committee which in many ways has been the central economic-policy making institution since 1997.

Is this the end of depoliticisation as a fashionable academic concept? Those who would defend its value would point to its cyclical character. The preferred default position for a capitalist system is an automatic decision rule not tainted by poltical intervention.

Brown features in Queensland poll

Brisbane: With the Queensland state election now under way, voters watching television this evening were confronted with the grim visage of Gordon Brown in an election advert. For reasons best known to himself, the LNP opposition leader seems to be in denial about the fact that there is a recession. His words of repudiation were juxtaposed with those of the British prime minister and President Obama.

At least the election is providing a little light relief. Former fish and chip shop owner Pauline Hanson at one time led the populist One Nation Party. She then went on to found Pauline's United Australia Party. This could start a fashion: Dave's Conservative Party or Nick's Liberal Democrats.

Now she is standing as an independent in an electorate south of Brisbane. Confronted with old allegations about the misuse of election funds, she had an impressive temper tantrum on television.

One of her opponents is a former rugby player who is being backed by a mens' magazine and has free false teeth as part of his platform. Read more here: Beaudesert

And we thought that Lembit Opik had a few kangaroos loose in the top paddock!