Why localism is key to test and trace

Sometimes you have to keep banging away about something. For some time I have been complaining that the government’s system for providing tests for Covid-19, and then for its approach to contact tracing, suffers from a fundamental flaw of process design. I see this being occasionally mentioned by others, but the idea hasn’t caught on. So I will say it again.

This is relevant because the testing regime seems to be in a state of complete dysfunction. The government is not being transparent about what is going wrong, a an issue which is not unrelated, so I’m having to join some dots, based on a flood of anecdotal evidence from people at different levels in the system that have popped up on the news. The system has been overwhelmed by a surge in demand. Whether or not this should have been foreseen is one question, but taking a step back and looking at the outcome prompts another. This excess demand seems to have caused the whole system to fail, so that while testing capacity is very high (the government claims it is higher than in most other countries), all, or most, of the tests are taking far too long to return results, which completely undermines their usefulness. I have heard experts suggest that if results take longer than 48 hours to be returned, then they are of little practical use. That sounds about right. Results seem to be taking much longer than this in the official system, or at least that which serves most users (I think hospitals are linked to a different one, which might be working a bit better). The problem seems to be at “Lighthouse” labs where samples are analysed. The government suggests that this is just a numbers game: these labs have a capacity and demand is in excess of it, leading to delays – which is perfectly plausible explanation and doubtless at least part of the problem. There are other stories of staffing issues as these labs are losing temporary workers as the university terms start, and finding them hard to replace.

How to manage this? The first response is to stop people taking tests through the booking system, by telling them that they are unavailable, or only available hundreds of miles away. One story is that the only way that people living in the London suburb of Twickenham can get a test locally, rather than one in Aberdeen (in the north east of Scotland), is to say that they are living in Aberdeen. This is causing an immense amount of distress, which is feeding back in complaints to MPs. The government is now trying to impose some form of prioritisation on tests to give this more rationality. But that will be hard going, with goodwill in short supply. There is a least one new Lighthouse lab in the pipeline, and the government doubtless is placing its hopes on this. Alas any relief is unlikely to last for long. The whole thing gets much worse when the need for contact tracing is brought into the picture, where similar problems are emerging, though not, excess demand. The whole damn system is flawed.

What’s gone wrong? The designers of the government system are bewitched by the idea of scale economies. The unit cost of a large scale system operating at full capacity is generally very low. And because covid tests are basically quite standard, at first sight the building of such high volume facilities looks like a sensible way forward. When the government suggested that the system would be “world-beating”, this is doubtless what lay behind it, as many countries have gone for a much more artisanal approach. But that is only one aspect of process design. The problem comes from how you manage the whole process from end to end (i.e. from the moment somebody decides that they need a test to the moment they get the result). The more steps there are in the process, and the more disconnected their management, the less efficient the whole becomes. This can seem quite paradoxical. Each part of the system can seem to be operating well, but the whole can be dysfunctional, and doesn’t seem to be anybody’s fault. The problem is compounded by the the government’s preference for the use of mass-sampling facilities. People are sent to drive-in centres that are able to process large volumes. But these are often idle and simply make the whole process more disconnected. The symptoms of such a disconnected “silo” based process design are very familiar. Bottlenecks, queues, delays, lost files, and all the while managers working frantically hard at their own little section in the knowledge the the problems are all somebody else’s fault. And managers blaming users for making unreasonable demands. There is so much at stake in the overall design that nobody dares point out that it might be better to scrap the whole thing and start again. Instead they work on fixes that ameliorate the worst problems but make the whole process more cumbersome. In this case designing systems to prioritise demand.

What’s the alternative? It is to create local facilities that do the whole job end to end, or as much as possible. Best of all is if the testing function can be integrated with a similarly localised system of contact tracing, all accountable to a local director of public health, part of local government. Where possible staff should be able to cover multiple jobs, rather than specialising in just small parts of it. This is more or less how it works in Germany, among other places. Such a system cannot solve all problems. It may not be able to overcome shortages in critical supplies (reagents for tests, and so on), though managers are more empowered to find work-arounds. How would it cope with excess demand, as is happening at the moment? It is superior in several ways. Firstly because managers are likely to have a better overview of the whole system, problems are more likely to be foreseen. Secondly bottlenecks are more easily fixed. It is easier to recruit two or three extra staff in a local centre than a couple of hundred in a centralised facility. And where there are problems, they will not bring the entire country to a halt. And finally communication with the end user is likely to be far superior, as they are much closer to a knowledgeable, human interface.

These principles have been well-understood since the 1990s (when I used them to reorganise processing operations that I was managing). Alas the government, and those it appoints as advisers, are far too wedded to the imperial silo-based model and seem incapable of understanding that they are dealing with poor systems design rather than a few teething difficulties. Doubtless the silo approach works well in some contexts. But not here. But quite why the lessons of the 1990s are so widely forgotten in 2020 remains something of a mystery to me – my guess is that managers and politicians have been distracted and beguiled by new technology.

The Lib Dems search for a new strategy

To be a Liberal Democrat in Britain is to experience long spells in the political wilderness, interspersed with short intervals of relevance. After passing through most of 2019 in one of those intervals of relevance, the party is well and truly in the wilderness now. What should it do?

It is worth asking what is the party for. It provides a political home for those who want a party which has liberal values at its core, rather than a peripheral part of a wider coalition (as is the case for Conservatives and Labour, and indeed Scottish Nationalists or Greens). It then seeks to advance those values, either by winning elections and taking political office, or by forcing other parties to compete for liberal votes, and so making them more liberal in their exercise of power. What are those liberal values? It is about individuals taking control of their lives as far as possible, regardless ethnic or national origin, or sex or sexual orientation. That’s how liberals are classically defined, and it matters in the current world because many prefer a political narrative that elevates the nation-state into something close to sacred, rather than a mere means to an end, and there is a widespread belief that multiculturalism has failed. But modern liberals have attached other beliefs to this classical core. One is a strong belief on the need to intervene to protect the environment, and another is the need for the state to play a very active part in the management of the economy, through the welfare state, public services, redistribution of wealth and regulation of private business. There is a further belief that political power should be distributed amongst international bodies, national government and local government. That makes them in favour of such bodies as the United Nations and the European Union, as well as much stronger regional and local government. Liberals (or at least those that the Lib Dems seek to represent) think that too much power is concentrated in Westminster, where often it is captive to an out of touch elite, even if that elite is often liberal in its instincts.

But there are people who believe in all of this who are members of the Conservative and Labour parties. The problem is that in these parties liberal ideas have to compete with others. Among the Tories the nationalist narrative plays very strongly; they overlook the unbalanced distribution of wealth and power; and they are reluctant to take on corporate vested interests for environmental protection, amongst other things. Labour is less concerned with individual empowerment and have a tendency to see the answer to all problems as being concentrating more power in national government. This was taken to extreme lengths under the leadership of Jeremy Corbyn. But it is perhaps a measure of success for the Lib Dems that both major parties are making a pitch for the liberal vote, and that many voters struggle to see the need for another political party. Answering that question lis at the heart of any Lib Dem strategy.

Which is why it matters so much to Lib Dem strategy what the other parties are doing. There are some in the party who think that the party should ignore the other parties to go full on with the promotion of liberal values, and so build a loyal core vote. Alas this can only be one strand in a larger strategy, and not the most important. For now Lib Dems are much happier defining themselves against the Conservatives than Labour. The Tories are controlled by radical ideologues, more interested in wrecking things that they dislike than in governing competently.

Labour is the conundrum. Its new leader, Sir Keir Starmer, has resisted defining a clear ideological path, concentrating his fire on government incompetence. The ideological legacy of his predecessor, Jeremy Corbyn, is slowly being pushed into the background. This creates a blank canvass onto which voters, including liberal ones, can project their hopes. This is not unlike Sir Keir’s most successful predecessor, Tony Blair. How do the Lib Dems compete?

The answer I most often hear is to this is locally. To win the next election Labour must climb a huge mountain. That journey would be slightly easier if they decided to ignore the Lib Dems in a few critical geographical areas and let them challenge the Conservatives there. And if Labour thought that the Lib Dems were picking off Tory votes that they would be unable to reach, then this semi-cooperative strategy looks more attractive. But at the same time Labour does not want to leak votes to the Lib Dems, and would prefer the party not to exist. There are something like 30 seats where Lib Dems are first or second placed and able to mount a credible challenge (they are second-placed in about 60 more – but so far behind that this hardly matters). In their current state the Lib Dems would happily settle for that.

That is all very well, but the party needs a degree of national strength and purpose if it is to present a convincing local challenge anywhere. To do so it needs to champion causes that the Conservatives and Labour are ignoring, but which are both popular and highlight the party’s values. Two lines of advance are often advocated. The first is to continue the party’s strident pro-Europe stance by proposing to rejoin the EU as soon as practical. Labour are anxious to win back Brexit-supporting voters, and so are making their Brexit challenge about competence and not principle. The trouble is that most people are thoroughly fed up with the politics of Brexit, and accept that the Brexit side won. Meanwhile the Conservatives are anxious to promote a narrative that the country is being undermined by Remainers who have not accepted the democratic verdict of the people. So a pro-EU strategy risks either flopping because it is too out of touch with the national mood, or, if it gets traction, of supporting the Tory narrative and distracting attention from government incompetence.

The second possible line of attack is to attract leftists disillusioned by Sir Keir’s prevarications. The party is already adopting a mild version of this strategy, through adopting a robust environmental agenda and talking up such ideas as universal basic income. And yet the party’s most promising constituency is soft Tory voters who find left-wing radicalism suspect.

So the party is not doing much of anything. That will do for now. Tory-inclined liberals are throughly disgusted with Boris Johnson’s government. Many voters are thoroughly suspicious of Labour. Sir Keir will have to break cover on economic and environmental issues; when he does so opportunities will open up for the Lib Dems.

The key is to find issues that show how liberal values favour ordinary people. To discover what these might be the party needs to listen more, as its new leader Ed Davey is doing. There are some straws in the wind. The Black Lives matter movement has shown how disappointed and frustrated people from ethnic minorities are that so much prejudice remains. The government’s struggles with covid testing and tracing are showing how nationally centralised systems are often ineffective, and that local centres should be given more scope to find their own ways and mobilise local resources. Grand government schemes to soften the blow of lockdowns are all very well, but far too many people, especially self-employed, are falling through the cracks. Can a narrative of diverse local communities working together to overcome local challenges be developed, to compete with the Conservative and Labour ones focused on winning national power?

The wilderness period will continue for a while yet for the Lib Dems, but there is always hope.

The world in August 2020: the dance of the Great Powers

I haven’t posted at all in August. This is mainly because my wife and I finally completed our house move to a village in East Sussex. We have been reunited with the bulk of our possessions after nearly four months of storage, and we have been unpacking figuring out what to do with them. Then came choosing and ordering all sorts of new things to fit our new house and lifestyle; getting to know the neighbours has been constrained by social distancing, but there has been some of that too. It just hasn’t felt appropriate to take time out to do some blogging. Besides I quite like to take extended periods off for reflection. I’m sill not sure what direction to take the blog. I’ve had two main ideas. One is to try to dig a bit deeper to develop some ideas in series of essays. The second is the opposite: to fire off quick opinions on the issues of the day. Of course I can do both. I’m going to try the second idea first, by reflecting on the month that has just passed.

The pandemic gets messy

The biggest issue of the day remains the Covid-19 pandemic. In the developed world the good news is that death rates have plummeted (outside the USA). But infections remain persistent, which makes loosening restrictions much harder. The exponential nature of infectious diseases means that things can quickly get out of control. Not enough people have caught it to confer herd immunity, and it looks likely that immunity isn’t conferred for long periods after illness anyway. Meanwhile the impact on jobs and normal life has been heavy, and could get worse as measures to head off the worst, such as paying people to do nothing, run out of steam. Difficult decisions pile up on governments and members of the public, and everybody, across the world, is struggling. Apart from trying to head off another wave of nasty, slow deaths, the biggest worry seems to be the effect this is all having on children’s education, closely followed by how to rebuild economies as people realise (or not) that the we can’t go back to how things were before.

The US election: is Trump catching up?

The month started with US President Donald Trump trailing his Democratic challenger Joe Biden for November’s presidential election. It ended with all sorts of experts from both sides saying that Mr Trump is closing the gap with his relentless focus on law and order, following riots in various US cities over police racism. The betting now has the two contenders nearly even. The hard evidence for this catching up is rather thin so far, so we await polling based on the month end, after the republican convention. Doubtless both sides have their reasons for talking up the President’s chances, but I remain sceptical. Compared to four years ago, many more people have already made up their minds. Those that have plumped for Trump will be cheering him on, and remain on fire. But Trump sceptics will have seen nothing in his transparent politicking and outright lies to persuade them to change their minds. Mr Biden seems to be holding his nerve, and appears to be well-advised. Mr Trump, on the other hand, remains his own worst enemy. Still the polls don’t have to narrow by very much for the election to become quite close, such is the built-in Republican advantage. But this is no rerun of 2016.

Belarus: spheres of influence

The big idea of the moment on the political right (taking in some on the left too) is national sovereignty and the primacy of the nation-state, with a reaction against supranational structures and treaties. Alas, just as it did in the 19th Century this soon morphs into an international system based on a small number of “Great Powers”, surrounded by minor powers, satellites and colonies who are not fully independent in any practical sense. Each Great Power demands its sphere of influence, where other Great Powers must keep their noses out. This is evident in Belarus, where there is a popular uprising against a rigged election and a dictatorial regime that has been in power for too long. But Belarus is, more clearly than any other country, within Russia’s sphere of influence. The rest of the world seems to accept this, and are keeping out of it. This is bad news for the people taking part in the uprising. President Lukashenko’s support in his security forces looks strong, and the Russian government do not want the uprising to succeed. They only want to weaken Mr Lukashenko’s regime so that they are less able to resist Russian influence, which doubtless involves making the Russian oligarchy richer. Belarus’s claim to be an independent nation is probably the weakest in Europe, after all; it only won independence from Russia by accident.

China: victim culture

Another Great Power seeking to undermine the independence of others to further its interests is China. Like Russia (which feels it was shafted when its communist regime collapsed in the 1990s) and the USA (where Trump supporters are convinced that their country has been taken advantage of by all and sundry), this assertiveness is driven by a strong sense of historical victimisation. In China’s case this is based on abuse by colonial powers in the 19th Century (it did not achieve Great Power status and was treated as fair game, by the values of the time) and then subjected to a decade of attack by Japan from the 1930s, in which it was devastated. China’s sense of victimhood has more historical validity than Russia’s or Donald Trump’s. But victim mentality is hard to turn into mature, constructive engagement and long-term success. The country is demonstrating its contempt for Western liberalism by crushing dissent in Hong Kong (where nobody questions its sphere of influence). Its subordination of all to its national interest, and its willingness to bully and bend rules, including its tolerance of cyber attacks from within its borders (or worse) have raised security fears for equipment supplied by businesses based their, and any data they might get their hands on. This is causing costly commercial disengagement with the West, not helped by Mr trump’s paranoia. It has now also deeply antagonised the other Asian giant, India. It is hard to know where all this is going. Personally I’m not as convinced as most commentators by the country’s unique combination of central party control with rampant commercialism, with the former increasingly taking priority. There are distinct financial instabilities which even China’s highly competent management may be unable to control, and the rest of the world is slowly ganging up against it.

A revitalised European Union

The EU hit a low point early in the year, as the advance of Covid-19 made it look irrelevant, and Britain’s exit diminished it. But the institution advances in times of crisis, and release from the Brexit saga seems to have invigorated it, as well as fresh leadership within the Commission. Its scheme to deliver collective relief for the Covid crisis broke new ground, especially with the issue of collective debt. The usual Anglo-Saxon sneerers (like the New Statesman columnist John Gray) predict the EU’s imminent demise, but, not for the first time, the institution lives on. The flaws of the nation-state system may not be evident to these critics, but it surely is to the EU’s member states. But it is sobering for British Europhiles like me to realise that the EU’s step forward has been made much easier by the UK’s departure. shared debt would have been a very hard sell in Britain’s political climate, even if Brexit had been headed off.

Brexit endgame

But Brexit isn’t done yet. What will happen once Britain ends its transition period from leaving the European Union on 1 January 2021? Negotiations seem deadlocked, with both sides blaming the other for intransigence. They may well both be right. Britain’s light-headed government as a strong belief in cobbling things together at the last minute, and does not want to end up as appearing to be an EU satellite. It hankers after status somewhere in between being a Great Power, where it develops spheres of influence, while not being in a minor power, where it would be in somebody else’s sphere of influence. There is no sign that this has been properly thought through, and so what it is prepared to compromise on. But the EU is behaving decidedly in the manner of Great Power which doesn’t mind denting a neighbour’s sovereignty for its own convenience. But a no-deal would be very costly to both sides, so the betting is that a way will be found of saving face.

Britain’s essay-crisis government

Britain’s Conservative government’s approach to Brexit, leaving everything difficult to the last minute and trying to bodge through, is reflected in everything it does, and the results aren’t pretty. The most egregious example in August was the collapse of its attempt to replace A-level and GCSE exam results with a moderated system of teacher assessments putting the overall results in line with previous years. Instead there has been massive grade inflation, and doubtless injustice as some teachers were more generous with their assessments than others (though, of course, this may be the case with exam marking too). The government had plenty of time to prepare, and yet walked straight into the elephant trap, relying on moderation by algorithm rather than human intervention. This partly reflects the managerial approach of the Prime Minister, Boris Johnson, who celebrates his light touch, but abhors competence and dissent amongst his ministers. But it goes deeper. Britain’s political class has for a couple of generations become political specialists, with little experience of serious organisation and management beyond election campaigns. The civil service is little better, drawing a critical distinction between “policy” and “implementation”. Civil servants take pride in specialising in the the first, and assuming that the second can be dealt with by separate implementation specialists. In the real world policy and implementation need to be in a close feedback loop which separation makes impossible. And when the government (in both political and civil service guises) asks for help from practical people, it usually asks the wrong ones: people from big business or the major consultancies that support them. Big business succeeds by making things simple and employing economies of scale; public services are in the public sector largely because the have to deal with human complexity, for which this approach is ineffective (otherwise the private sector would already be handling them). The government’s sub-standard Covid testing and tracing regime arises from the false application of big business wisdom.

Ed Davey: the new Lib Dem leader

The British Liberal Democrats chose a new leader, Ed Davey, who comfortably beat his rival, Layla Moran. I know them both quite well. The party went for the experienced Ed, who was a coalition minister. Many of Layla’s supporters had hoped to put those coalition years, with their student tuition fees and benefits cuts, behind them. But many members had joined precisely because they thought the coalition was a worthy project. On being chosen, Ed said that the party had to “wake up and smell the coffee”. A rather tired cliché, but he is right that the party needs to broaden its appeal beyond an opposition to Brexit that tipped into taking sides in a culture war. Like the Labour leader, Keir Starmer, he seems to want to make competence centre stage, as the Conservatives seek to distract the public from their failures with cultures wars. But will the party be crushed by Labour? Or will Labour seek to operate in a sort of partnership depending on relative local strength? The answer to that depends on the party’s local strengths, and relatively little on the leadership. Meanwhile there is a lot of quotidian work to be done to make the party’s national infrastructure more effective, after years of crisis management have created dysfunction . The same can be said of Labour, but, as a smaller party the job is much easier for the Lib Dems. The party’s President, Mark Pack, and Chief Executive, Mike Dixon, recent appointments both, are up for this patient work – the signs are that Ed is too.

We need to talk about class

We hear a lot about racism in politics. But we don’t hear so much about another form of prejudice that is arguably just as important, and indeed adds an important dimension to the understanding of racism: social class.

What do I mean by social class? It is quite difficult to pin down exactly: it reflects combinations of social circumstances, such as education and where you live. Social class confers advantage to some and disadvantage to others, and to gaps in mutual comprehension. For example there is total exasperation in the Labour Party between middle-class metropolitan liberals and conservative working class union members. There is a lot of evidence that working-class people suffer disadvantage, for example in the job market. Middle-class people are often clueless about how to deal with this, except by creating abstract talking points such as “social mobility”, and trying to make everybody middle class like them. Middle-class privilege goes largely unrecognised.

Funnily enough, I have often heard the assertion that British society is riven by class distinctions which have barely changed over generations, in a uniquely British way, in contrast to both European neighbours and former colonies. But this goes hand in hand with outdated stereotypes of what class looks like. This divides society into upper, middle and working classes. Upper class people are thought of as landed aristocrats, middle class people as suburban professionals and working class people as blue-collar workers. All are predominantly white, and the common mental picture cleaves to old-fashioned gender stereotypes too. In fact social class has changed radically over the last few generations, and the divisions in British society are not particularly unique to Britain.

Changes to working classes have received some recognition through the work of Claire Ainsley, author of The new working class: how to win hearts, minds and votes, who is now working for Sir Keir Starmer, the leader of the Labour Party. Much of the modern working class is from ethnic minorities or are recent immigrants, many are in insecure job contracts, and the women are as likely to be working as the men. This analysis has to be taken seriously, but it may distract from more important dynamics that affect working classes as a whole.

The new upper class is perhaps better understood. This is the elite of the super-rich. The new aristocracy is no longer so closely tied to the ownership of land, but instead to big business. It has deep political influence in nearly all political systems, from the United States to China, and is doubtless behind the erosion of capitalist competition. But we should not exaggerate its influence either: western democracies (and the Chinese Communist Party, come to that) retain powers to hold it in check.

It is the new middle classes that seem to be the least understood. They are as heterogeneous as the new working classes, but I know of no work comparable to Ms Ainsley’s trying to get to grips with its complexity. The artist Grayson Perry observed two very different middle classes in a television series exploring class. On the one hand he talked to the anxious inhabitants of a suburban housing development, keeping up with appearances and ever-changing fashions. On the other there were self-confident liberals who didn’t care what others thought of them. And what about those young metropolitan Momentum activists creating Labour’s collision with the party’s working class roots? They clearly feel that society is stacked against them, for example for property ownership, and yet they are university educated and have access to professional careers.

Two forces in particular are shaping the new class landscape. The first is economic. Working class livelihoods have always been vulnerable to advances in technology. Advances in manufacturing and office technology has shrunk the number of traditional working class blue- and white-collar jobs, replacing them something more rootless. This has militated against traditional working class solidarity and union organisation, and reduced both pay and job security. The second is the massive expansion of education. Educational standards have risen across the board, and the availability of university education has increased dramatically. This has opened up access to middle class work, both expanding its extent, and making it more precarious. Meanwhile immigration has served to backfill working class roles from families that have transitioned to middle class. The interaction of these forces is complex and their effects are not well understood. In my opinion (I am getting a bit ahead of the evidence here) it has created a big problem of what might be called middle-class privilege (though my mother would have objected to that use of the word “privilege”, which to her was loaded with a sense of responsibility). If you are born into a working-class family it is much harder to make your way into a good middle-class life than it should be, based on ability. And in particular if you make a poor start in your educational career it is much harder to make progress than it used to be. Meanwhile the living conditions of working class people don’t get enough attention from the political class, making life harder than it should be.

Let me illustrate the new class dynamics a few examples. The first is about language. Grammar and, to a lesser extent, spelling serve a linguistic function to reduce ambiguity. But the opprobrium attracted by bad usage is totally disproportionate to this usefulness – it is surely used as a means of maintaining a class filter. If your grammar and spelling is a bit weak, you are liable to be dismissed as not being up to standard, even if you communicate quite clearly. I speak as somebody that enjoys linguistic pedantry – but I have to be careful it doesn’t get in the way.

A further example is the use of educational qualifications to pre-select job applicants for interview. This doubtless makes sense in some cases, but it is applied much more widely than it needs to be. When recruiting myself I tried to disregard qualifications, especially if the individual had a significant work track record. That track record, and understanding how the individual goes about their work, was to me much more important. Indeed overcoming a poor educational start is a sign of ability. And yet sifting by educational qualifications is deeply embedded into our job market without regard to how appropriate it might be.

A revealing linguistic tic is the habit of middle-class people calling working-class jobs as “low-skilled”. This has rightly been called-out during the Coronavirus crisis in the case of care workers, but it remains pervasive. It demeans working-class people, who work often requires a lot of skill, but not of the sort you get through a university degree.

Class cuts through racial politics. The most egregious racism comes from white working class people – who think that non-white people (or immigrants) are being given an unfair advantage. This may be well-known, but few seem interested in finding out what drives these feelings – it is easier to put it down to working class ignorance. A different class dimension affects the Conservative government’s narrative on racism. Led by middle-class people from ethnic minorities (like the Home Secretary Priti Patel, or the Downing Street adviser Munira Mirza), the message is that a lot of the fuss about racism comes from a victim mentality in many non-white people, which can be overcome if they engage more constructively with society at large. This has led to a spectacular parliamentary spat between Ms Patel and Labour minority MPs with a more working-class background, who complained about being “gaslighted”. The truth is that the experience of racism for ethnic minority working-class people is very different from those from middle classes. The current fuss is driven mainly by a cry of pain from working-class non-whites.

And then we have the case of university tuition fees. These are an attempt to move the cost of university tuition to those that benefit most from it – a push back against middle-class privilege. But those middle classes are often enraged by them – hence Labour’s promise to abolish them at the last election. Their argument is that state-funded university tuition improves access to it and hence social mobility. But this is a bit like the Conservatives’ attempts to address the high cost of housing by subsidising first-time buyers. The substantive way to improve lives of working class people is through making their work better-paid and more secure, and to reduce the cost of life’s essentials, such as housing. There is at last some sign that both Conservative and Labour politicians are starting to recognise it (I wish I could say the same for my own Liberal Democrats, who have become something of a middle-class ghetto – though not irretrievably).

That is welcome. But politicians need to address two further aspects of the class system. The first is fairness – ensuring that people from working class backgrounds are not disadvantaged by prejudice. The second is empowerment – to give all communities, working-class or middle-class, more say over their lives. One big cause of working class dissatisfaction is that they feel sick that things are done to them without their consent. This was ably picked up by the Leave campaign in the Brexit referendum. But politicians are better at exploiting anger than dealing with its causes.

Deadly and contagious, this virus is reshaping our society

When the pandemic started to seriously intrude into our daily lives, in March, my view was the it might accelerate some changes, but it was being overplayed by some commentators as a society-changing event. My view is changing. And it is changing because the virus is proving so hard either to beat or to live with. It just won’t go away. In this week’s statement the Chancellor, Rishi Sunak, made some steps towards acknowledging this. But many people are still in denial.

It is too early to develop a clear view of how this pandemic is evolving. But I can see at least three phases. The first phase is over. This saw the initial emergence of the disease, and immediate hard lockdowns to try and contain its spread, alongside the mobilisation of the health systems. In East Asia and Europe, and in some parts of America (such as New York) this strategy has succeeded in preventing or stemming a rapid advance. Elsewhere weak health systems or perverse political leadership means that the disease is still spreading rapidly. But that aside we are now in an awkward second phase. The lockdowns are being eased, but alongside this the disease is making local breakouts. It is becoming clearer that restrictions on our daily lives cannot be relaxed fully. Even if the disease can be stamped out in some areas, it remains prevalent in neighbouring ones, and the threat of it returning ever-present.

We still don’t know enough about the virus that is causing all the trouble, how it spreads, and its effects on the human body. But some aspects are becoming clearer. The first is that it is deadly. It does not seem to affect many of the people it infects, and some people seem to think that it merely hastens the demise of people already at death’s door. And yet 20-30% of the population appears to be vulnerable in most places, and it has the capacity to double the death-rate, or more. Hospitals become overwhelmed and unable to deal with other health conditions. The second aspect is that it is highly contagious, much more so than other viruses that are deadlier to the infected (such as ebola). Just how contagious is unknown, but we do know that super spreading events occur, where dozens of people are infected by a single individual at once. Being indoors seems dangerous, as does being in proximity to people who are exhaling heavily, such as people singing, shouting or exercising. Wearing masks seems to be a significant help in reducing infection risk. What makes the virus so much of a problem is this combination of lethality and contagiousness. We are conditioned to deal with diseases that are highly contagious but not so deadly (like most flu) or deadlier but much less contagious. To these two known aspects there is an important unknown. Does catching the disease confer immunity to it? There is a widespread assumption that it does, meaning that we can expect herd immunity to arise at some point, when most people can’t catch or spread the virus. But the emerging evidence is troubling. Antibody tests show low rates of prevalence even in places where the disease has been widespread. And there are reports of people being infected multiple times. A second unknown is how quickly we can get an effective vaccine. There has been impressive progress, but plenty of reason to be cautious.

So where does that leave us? Developed societies have no choice but to try and contain the disease. This means changing behaviours to reduce the risk of catching it. This arises partly through public policy and partly through private choice. As I said in my previous post this means that many people are going to avoid social gatherings indoors, including going out to pubs and restaurants. The more prevalent the disease at any time and place, the more such measures have to be taken. The best we can hope for is containing the disease to low prevalence, allowing quite high levels if freedom, but stamping on local outbreaks as they occur. This is being done most successfully in East Asia; in Europe Germany is the main large exemplar. But even this is far from normal. The big problem is that we are going to have to live with this disease for a year at least and probably a lot longer. This has profound consequences.

The main consequence is in the world of work, and in the economy generally. There are two main aspects to this. First is that sectors that rely on close social contact and free movement are going to shrink, perhaps drastically. This includes hospitality and travel. The second is that productivity in most sectors is going to be dented as health precautions take effect. This will inevitably reduce the standard of living. Prices will rise faster than pay; taxes will probably have to rise to curb excess demand and inflation. All this is too much for most people to take on all at once. Many are still trying to negotiate with the virus. I hear owners of indoor gyms complaining about not being allowed to open, like other businesses are. And yet an indoor gym must be one of the best spreading environments conceivable, after a mass indoor choir.

So how did Mr Sunak face up to this huge challenge in his budget statement this week? Pretty well in the circumstances. The most important thing is that he is pivoting from trying to keep old jobs alive (e.g. through the furlough scheme) to creating new ones, in particular focusing efforts on younger people, whose livelihoods are most at risk. His generosity towards the hospitality sector with his VAT scheme and meal discounts may look hopeless against the tide of events – but it does demonstrate some empathy towards one of the sectors most under pressure, which could reduce the short-term trauma somewhat. His £1,000 bonus for firms that retain furloughed staff until January looks harder to justify. It is hard to believe that it will make much difference to job retention, and yet it is estimated to cost huge sums. Surely it would have been better to top up benefits for the out-of-work. His reduction of stamp duty on property purchases looks like an expensive sop to party donors – though I personally stand to benefit.

But, as most people see, this is only a start. In the pipeline are more job losses and business failures, which will bring more problems in their wake. There is also an upcoming crisis in local government finance, as central government support to meet the extra costs of the crisis is woefully inadequate, and the role local government needs to play in combatting the virus is becoming ever larger. This will be the third phase of the pandemic, as the economic crisis deepens, while the struggle to contain the virus continues. Conventional economic management tools are not going to help as much as they should be. A lot of the problem is restriction to the supply side of the economy, while demand is suppressed by fear as much as lack of funds – so boosting demand simply risks creating inflation or a currency crisis. However job creation in public services: health care, social care and education, looks like a sensible way forward. Lower productivity means more people will be needed in these sectors. A rebalancing of the economy from private to public sector will surely mean tax rises in due course, but with no shortage of liquidity in financial markets the government can probably defer some of the hard decisions.

And meanwhile the public will have to confront some hard truths. The virus shows that the free-wheeling individualism at the core of western societies has its limits. It is not sustainable to suggest that individuals can judge the health risks for themselves, since by spreading a lethal disease the consequences of their actions will mainly be felt by others. The failure of so many people in Britain and parts of America to wear masks in public shows how far we have to go. We have something to learn form the East Asians. But not China. That is another story.

The two worlds of post-lockdown Britain

Joss Bay Broadstairs 31 May 2020
Joss Bay Broadstairs 24 June 2020

On Monday the Prime Minister, Boris Johnson, happily announced a tranche of relaxations of England’s lockdown restrictions, to be timed for 4 July. The public weren’t going to wait, flocking to the country’s beaches to take advantage of a few days of sunshine. I took the first picture here in Broadstairs, Kent on 31 May, thinking it was crowded (we had become used to this beach being deserted), but look at yesterday by comparison. The country seems to be making a dash for normality. Disappointment lies ahead.

The relaxations come after some hefty lobbying by businesses, who are experiencing huge strains. They highlight a legitimate concern, as many jobs are under threat as businesses face the danger of folding. Public finances are under strain too, though by how much and why remains a matter for debate. But the problem is a deadly virus for which there is no vaccine or cure, not overzealous lockdown regulations. So if you don’t want to risk catching the disease, and the prospect of a horrible death, just how safe are you being made to feel? The country is dividing on this question.

I have heard quite a few lobbyists for the hospitality industry on the radio. For the most part they do not inspire confidence. They are anxious to abolish the two-metre social distancing rule, but are reluctant to explain how they can still be safe. Some of them even grumble about the idea that they would have to keep records of all those attending their establishments, even though this is an obvious quid quo pro to relaxing distancing requirements in the high-risk settings that most of them obviously run. One expert offered a list of potential mitigations for reduced distancing: not facing people, masks, reducing time of contact, low noise levels so that people can talk softly. Not much of this helps if you are indoors in a pub or restaurant, although if customers are seated at tables only with members of their isolation group, then at least you won’t be facing others. To be fair some hosts on television are doing a better job of explaining themselves: instead of whinging about the rules they are showing viewers all the precautions they are taking to make people feel safe.

But a lot of people don’t really care. They are fed up with confinement, and note the reduced prevalence of the disease, and therefore the reduced risk of catching it. Many are younger and fitter people who feel less at risk of suffering badly. Many also draw confidence from other countries where restrictions have been relaxed. They miss two aspects of these overseas examples. First is that in the more successful countries they applied relaxation after they had beaten back the disease further than England has, and that even then they have had to identify and manage local outbreaks. And England’s track and trace infrastructure inspires little confidence that it is up to this task. The second is that in other countries that have relaxed (notably in some states of the USA), they are moving headlong into a relapse. Two things about the epidemic strain our intuitive way of understanding the world. First is the time lag between picking up the disease and diagnosing it, then between diagnosis and hospitalisation, and finally between hospitalisation and death. The second is the exponential nature of the spread, and the way a small number moves very rapidly to a big one and so the need to intervene when it feels too early. This is what led to some countries failing to take the disease seriously enough until too late. It is clear that the US President Donald Trump, ever the intuitive leader, struggles with both these things.

But while one, very conspicuous, group are making a headlong dash for normality, another, usually older and more vulnerable, group remain very frightened. They are staying indoors, so remain nearly invisible. But this applies to my household and many others that I know. This is both good and bad news. The good news is that if this group stays out of trouble, then the most vulnerable people will be protected, keeping hospitalisations and death rates down. The bad news is that this large number of often quite high-spending people will not be the free-spending agents needed for a full economic recovery. And if infection rates start to rise, they will become even more scared.

All of which gives an impressive of a government that doesn’t think things through. If it wanted to tempt older people back into shops and other facilities it needed to work a bit harder to reassure them. The words are there but the body-language isn’t. For example the government says that the 2-metre rule is replaced by “one-metre plus”. The plus is meant to suggest alternative mitigation, and yet this has been totally drowned out in the messaging. If it had been combined with a clear directive for people to wear face coverings in virtually all indoor settings, then it might have been easier to convey this. Instead they promote the idea that the risks are reduced so you don’t need precautions like masks; of course they don’t say that, but observing people around me that seems to be what is happening. And the problem about masks is that everybody needs to wear them for it to work. It is no use if just the worried people do.

Still, the government has probably bought itself a month or two before any obvious problems emerge. And then it looks likely to face a twin threat. A faltering economy as the worried sit on their savings while government support schemes, like furlough funding, run their course. And rising infection rates working their way slowly but surely through the system, beyond the country’s capacity to contain it on a local level. I really hope I’m wrong.

Henry Ford’s shadow: from France 1944 to Covid-19

A Sherman tank of the US Third Army in WW2

In September 1944 the US Third Army under General George Patton approached the Eastern French city of Nancy. Its vehicles, notably Sherman tanks, had driven there under their own power after landing in Normandy in July. And not by the most direct route: the army pushed south from Normandy before turning east. This journey of hundreds of miles, with rail networks unavailable, had taken a very low toll on the army’s vehicles, including the Shermans. The Germans were organising a counterattack. But their Panther tanks had to make the trip mostly by rail, subject to Allied air attacks, and a third of their strength broke down while driving the 30 or so miles from the railhead to the jump-off point.

This was a triumph of US engineering and industrial organisation. The Panthers had a much better gun and thicker armour than the Sherman, but that was no use if they couldn’t make it to where they were needed. American industrial superiority was repeated everywhere: air, land and sea. Robust, well-designed weapons were put into combat in overwhelming numbers. The Germans produced clever designs in all these fields, but their artisanal industrial organisation led to unreliability, limited production capacity, and often, as in the case of the Panther, designs that were hard to fix when they went wrong. The Americans outshone their German and Japanese enemies and their British allies. Only the Soviet Union could compare. The Russians could not match the Americans’ production quality or sophistication, but their designs were robust and factory output reached the battlefields in vast numbers. They didn’t need to last long when they got there. Only for lorries did the Soviets crave those vehicles made in Detroit.

It is often assumed that the way the Americans and Russians outproduced their enemies was just a matter of scale and resources. But that is not so: superior industrial organisation was necessary for those nations to respond with the speed that they did to the German and Japanese onslaughts. They also needed strong military organisation and tactics: and both nations also had these, though the German methods continued to outshine both until mid-1944. But the lessons of military organisation were quickly forgotten when the war ended, whereas industrial organisation was needed to win the peace. It is no wonder that the way their industry won the war so dominated public policy in America and the Soviet Union, and in Britain too, as it tried unsuccessfully to emulate American prowess.

And what was the American method, successfully used also by the Russians? It was the production-line, developed in the motor industry by Henry Ford. Its key features were the use of standardised designs (“Any color as long as it is black”), simplified as far as possible, high technical specialism in the workforce, segregating human tasks so that minimal skill was needed, and a highly centralised, hierarchical command and control structure. And above all it celebrated economies of scale, the expectation of which became the standard for business and political elites Small was regarded as necessarily inefficient. It is an approach suited to those with an imperial frame of mind, so it is not hard to see why it was popular with Russia’s Communist leaders, and even in post-imperial but backward-looking Britain. It is interesting that it took such hold in democratic America, but the scale of that country invited imperial thinking too amongst it is business leaders.

But the Henry Ford method has weaknesses. It is slow to respond to change, and becomes very inefficient where a feedback loop is needed between user and supplier, or any area where complexity is built-in. Bottlenecks, delays and queues become routine. Furthermore organisations built around the production-line mindset, especially outside the urgencies of wartime, become ossified, divided into fiefdoms that fail to cooperate. But leaders remain locked into its thinking. When things go wrong, the management response is to tinker, by adding bureaucratic controls that slow things down and promises that lessons have been learned that always disappoint in their results. That the Henry Ford method was failing first became apparent when Japanese manufacturing started to outcompete American and British firms in the 1960s and 70s. At first this was put down to “cheating”: underpaid workers doing excessive hours, and so on. But then managers started to realise that the Japanese had been adapting their manufacturing techniques using an idea referred to as “Total Quality Management” (TQM), which involved much more delegated decision-making, and organisation-undermining cross-departmental teams. This realisation came too late for most of British manufacturing industry, with the motor industry weighed down by mediocre management and bad industrial relations, often driven by demarcation disputes, a common outgrowth of Fordism. The new ideas were beyond the imagination of management and union leaders alike. America embraced the new ideas more successfully, notably by Jac Welch’s General Electric in the early 1990s.

But the world was moving on, as Baumol’s law started to diminish manufacturing industry’s economic importance, just as it had done to agriculture a century before. Service industry became critical, and services are less easy to fit into a standardised mould. At first management thinkers adapted their manufacturing techniques, arguing that services were just another product. But by the mid 1990s thinking had moved on to an idea that was centred on a service mindset, where manufacturing products were seen as just another service. This was Business Process Reengineering (BPR). The user experience became central to business organisation, delegated decision-making critical, and layers of hierarchical management were dismantled. This was catching on just as I was taking responsibility for a mediocrely performing organisation administering savings plans. I used it to reorganise everything, doubling productivity and improving quality of output too (actually, that was linked). This was a heady time in management thinking, with optimistic “both and”, and “win-win” ideas taking hold. In Britain the most eye-catching business using BPR was Virgin Atlantic, offering a superior travelling experience at a reasonable cost. It even infected Tony Blair’s New Labour, who took on the heady optimism of leading business people, with the idea of “Stakeholder Capitalism”. Mr Blair’s subsequent period in office showed that he had no idea about what all this actually meant, however.

But then things turned darker. The rise of the internet was the most eye-catching aspect of this: but there is no reason that this should have undermined BPR thinking. A bigger issue was the rise of cheap labour in Asia, which new technology could help tie into longer supply chains. Meanwhile managers were bewitched by the idea of “Shareholder Value”, which quickly pushed away the fuzzier and more inclusive thinking of Stakeholder Capitalism. This legitimised management and shareholder greed and corporate empire-building.. The customer experience was given lip service but not priority. Ryanair replaced Virgin as the airline success story.

And Henry Ford made a comeback, with a twist. That was that businesses embraced outsourcing (Ford wanted his organisation to do everything itself), which improved communications technology now enabled. But hierarchical management, standardisation, deskilled work (preferably done by robots) and economies of scale reestablished themselves in the way managers thought about organising work. New technology, it was thought, could make up for Fordism’s defects (more recently with high hopes being placed on artificial intelligence). Conservative ministers in Britain accepted this without question as the remade public services by reorganising and outsourcing to firms that embraced the new Fordism.

Which brings us to Covid-19. A lot of the way Britain has organised itself to meet the challenge reflects Henry Ford thinking. This particularly applies to testing, but also to PPE procurement and the contact tracing system, which has been outsourced to one of the usual large-scale suppliers. And the weaknesses of the Henry Ford approach have become evident. Queues, delays, bottlenecks; promises made by management that cannot be kept; bureaucracy being added in to try and make a broken system work better.

But some countries never fell for Henry Ford ideology. Service efficiency is legendary in Switzerland partly because they never embraced large-scale thinking, and they know instinctively how organise and delegate decisions so there are no delays and queues. Germany stuck with its artisanal, delegated approach, with much of its modern industrial prowess driven by medium-sized companies, which Forders would dismiss as being sub-scale. In German Covid contact-tracing is done by small local and professional multi-functional teams who carry out their own tests; in Britain newly recruited tracers helplessly sit by their computers waiting for referrals to come through, while their German counterparts are kept busy, using local knowledge to solve problems. British political and business elites fail to comprehend. It is probably too much to hope that Henry Ford’s ghost will be one of the casualties of Coronavirus.

What are Donald Trump’s chances in November?

Like many Britons who follow politics, I follow US politics enthusiastically. But I don’t like to comment so much on it here. I have no special connection to the US zeitgeist,and it seems to be a bit rude to comment on somebody else’s politics. But we can’t help but be affected by the US, so I feel I must comment from time to time. The big question is whether Donald Trump will be reelected as President this November.

At the start of the year Mr Trump’s position looked strong. The economy was doing well, he was delivering to his base, and all of his potential Democratic opponents had limitations and weaknesses. He easily saw off impeachment, successfully portraying it as a manifestation of partisan politics. Mr Trump’s divisive style never made him a shoo-in in this year’s election, but he was the betting favourite. But then things started to go wrong. The Democrats resolved their selection race with unexpected speed, in favour of Joe Biden, the candidate, apparently, that Mr Trump most feared. And then came the Coronavirus epidemic, which saw Mr Trump conspicuously flailing. This was followed by the Black Lives Matter explosion after the murder of George Floyd, and more presidential flailing. Mr Biden has a steady and growing poll lead both nationally and in the battleground states, a lead that is bigger and steadier than Hillary Clinton achieved at this stage in 2016. But we have over four months to go, and a lot can happen.

To win, what Mr Trump needs to do is to motivate his base, demotivate the Democrats’ base and win over independent voters. The first part of this is going well enough for him. Mr Trump’s base has two main components: his fanbase and anti-liberals. The fanbase consists of less well-educated white people, who have felt excluded by political elites for decades. Mr Trump speaks their language and expresses what they feel. They experience a sort of euphoria when Mr Trump expresses their values from the top of the political system; they are happy to disregard incompetence for the sheer joy of seeing one their own in charge. And with Mr Trump, unlike many other populists, what you see is what you get; there is no guile about him. This increases the bond of trust. The anti-liberals, on the other hand, are not admirers of Mr Trump personally, but they love him because because he is a bastion against the advance of liberal values. They are passionate about such things as stopping abortion and maintaining complete freedom over the ownership of firearms. They don’t believe in a strong Federal state, apart from having strong armed forces, so they aren’t bothered by Mr Trump’s evident incompetence. This group is diverse, but religious groups are prominent. They also include many business owners who dislike government regulation and taxes, and seek opportunities for cosy deals. For this group Mr Trump has delivered on his promises, most notably in the appointment of Supreme Court (and other) justices, but also with tax cuts for companies and the neutering of federal regulation; he has also held the line against gun law reform, in spite of a spate of mass shootings. For the anti-liberals the Democrats pose as great a threat as ever, and there is no sign that their enthusiasm for reelecting Donald Trump is fading. Doubtless Mr Trump’s partisan approach to the Covid crisis and the BLM uprising helps motivate this group too. They are on fire.

How about the Democrats’ base? Their main weakness is their candidate. He’s been around for a long time, and there is lot of grey in his record, not least around claims of sexual harassment. Before the BLM explosion there were signs that younger voters were becoming demotivated by all the questions being raised by his record. But Mr Trump clearly doesn’t get why people are so angry about the Floyd murder. To him this is just an isolated crime, and not evidence of a systemic failure. He doesn’t feel the pain of decades of being fobbed off with talk of progress. In fact his behaviour has given succour to the forces of darkness. He has thus become a channel for anger across the Democrats’ base, and has managed to fire them up.

And how about independents? This is a harder group for people on this side of the Atlantic to read. Mr Trump picked up many independents in 2016, because his campaign to undermine Mrs Clinton’s credibility was so successful, and her campaign to reassure them was so weak. Mr Trump fitted the American model of a successful and admirable businessman much better than the European one, so people there were prepared to give him the benefit of the doubt, while most Europeans had written him off as a nutcase. It is probably this group that is gradually coming over to Mr Biden as Mr Trump showcases his incompetence. But they are doubtless wary of the Democrats too.

So what next? The campaign hasn’t really got started yet. We know that Mr Trump will try to make it about Mr Biden and not himself, by hammering on his weaknesses. He already refers to him as “Sleepy Joe”. But this is surely not as effective as “Crooked Hillary”‘; voters are tired of hyperactive and hyper partisan politics; “sleepy” doesn’t sound so bad. But there are plenty of cracks in Mr Biden’s candidacy, so the attack could work. A further issue is whether the need to keep his base fired up moves Mr Biden into tricky policy territory. The demand to “defund” the police may not be as bad as it sounds, but it sounds like an invitation to criminals.

A big question hangs over the future course of the epidemic. Mr Trump is playing on the idea that the threat was exaggerated and lockdown measures were overdone (by Democrat governors and mayors), and he is supporting the lifting of the lockdown, even though many think this is premature. This builds on the different experiences of the epidemic across America. It has been devastating in big, crowded cities, such as New York and New Orleans, but much less so in less densely populated places. By and large Republican voters’ experience has been much less severe than that of Democrats. So if the disease retreats even as the lockdown is removed, and the economy bounces back, the Republicans will claim vindication while the pain of many cities will be forgotten as they will vote Democrat anyway. And the administration’s financial management of the crisis has been perfectly competent, largely because Mr Trump has been happy to leave that to others, and not disrupt it.

On the other hand, the disease could boomerang, hitting Republican areas hard, and disrupting the economic recovery. This is particularly likely as Autumn approaches and the weather cools: i.e. just as America approaches the vote. This could create a perfect storm for the Republicans. Mr Trump’s plan to hold mass election rallies in defiance of social distancing and mask-wearing looks especially risky.

And that points to something that I think will be the deciding issue against Mr Trump. He has become very dependent on his own judgement. When he was first elected, it was expected by many that he would surround himself with competent people, and let them do most of the work. And that seemed to be what was happening, with the recruitment of many generals to his administration, and with Steve Bannon advising on political strategy. But Mr Trump hates to be managed and he has replaced almost everybody with more compliant people who will go along with his madnesses, with the interesting exceptions of the Treasury and the Federal Reserve. This has made Mr Trump much more likely to make mistakes. Mr Biden, on the other hand, while gaffe-prone, surely knows how to ask for and accept advice.

But four months is an eternity in this crazy year.

Are buoyant stock markets a sign of financial trouble ahead?

I have written before about how well many stock market indices have performed, notwithstanding the pandemic. That good performance has continued, with the US S&P 500 reaching record levels last week. This is puzzling, and might be a sign of a crisis in the making.

What is clear is that few, if any, of the world’s economies are going to shake the crisis off quickly. A rapid partial recovery from the depths of the lockdown is more than plausible, but it is hard to see things getting all the way back to normal. Consumer demand, the main driver of modern economies, looks to be dented for the long term, as many of the public, older people in particular, remain cautious, even if most lockdown restrictions are completely lifted – which they won’t be. You can take a horse to water, but you cannot make it drink. And, of course, a lot businesses are going to fail because of the lockdown, meaning that a lot of people will be put out of work. Meanwhile many businesses and public agencies will suffer a significant loss in productivity as safety measures continue to be in operation. While that might benefit jobs, it implies reduced living standards too, which will also make it hard for businesses to bounce back. The prospect of a vaccine being universally available is distant. The whole world cannot eliminate the virus like New Zealand has done, at the expense of cutting itself off from the rest of the world.

So if the economy is unable to bounce back to where it was in December 2019, why are stocks doing so well, after they fell so far earlier in the year? The obvious answer is that investors have taken leave of their senses, falling for optimistic stories peddled outside the mainstream media. Well I have seen such craziness take hold, back in the late 1990s with the tech boom, but this does not look like it. There must be a more rational explanation. I can think of two, and neither are good news.

The first is that not all companies’ share prices are doing well, and the rise in well-publicised indices is based on large companies who are expected to do well out of the crisis. Companies like Amazon, Microsoft or Alphabet (i.e. Google). When businesses fail, others benefit. The crisis will provide stronger companies with opportunities. The stock market indices are not a representative cross-section of businesses in the economy, but a collection of the bigger ones. But for this to justify such a high level of price gain, it means that investors think these businesses will be able to take advantage of their market dominance to raise prices. In other words, the wreckage left behind by the crisis will lead to widespread price-gouging, which will benefit the companies represented in the indices. This would be bad news because it means that yet another dent in productivity that will reduce living standards of everybody except the lucky. I don’t think this is very likely, but it is plausible that this is what many investors think will happen. There would be parallels with the tech boom of the 1990s if so.

The second possible explanation for high stock prices is an idea I have read in quite a few commentaries. It is that investors “have nowhere else to go” except to put money into shares. In other words, there is a savings glut, and the alternatives to shares look a worse prospect. There is plenty of reason to think that there is a savings glut. Many people are saving more as a result of the crisis, because there are fewer opportunities to spend, while incomes are being propped up by government support schemes. Meanwhile businesses, with a few exceptions like pharmaceutical companies, are cutting investment due to uncertainty. More saving plus reduced investment means a glut. And many people have suggested the world economy has been stuck in a chronic savings glut for the last couple of decades anyway.

The main alternative investment to shares, if you are are looking for a home for trillions rather than mere billions of dollars, is bonds. But interest rates on public debt have been cut to minimal, even negative, levels as part of the monetary response to the crisis. This means almost no prospect of a positive return either from interest payments or capital gains (which would require interest rates to fall even further). Some private companies have bonds offering higher yields (i.e. ratio of interest to price), but that is because of a higher risk of default. These do not look an attractive prospect in the current environment.

Which leaves either keeping the money uninvested in bank accounts, or investing in shares. A lot of people are keeping their money in cash, but this suffers a similar problem to bonds: low interest and no capital gain. Which leaves shares, whose price then rises because demand exceeds supply. That does not necessarily mean that shares offer a better return in the long run. Most investment decisions are not made by people for their own money, but by middle men such as investment managers. They need a good story rather than a sober assessment to justify their decisions. One advantage of shares is that it is very easy to spin a story, and picking crisis winners, as well talking up a rebound, might be just such stories.

But the savings glut explanation is bad news. It is not a stable situation because it implies that demand is being sucked out of the economy. This is one of the standard principles of Economics that is taught in undergraduates’ first year (the so-called Economics 101). It is what caused economic depressions before the economist Maynard Keynes showed that governments could offset this with deficit spending. Governments are indulging in deficit spending to an extent that is unprecedented in peacetime, but the rise in stock markets seems to be showing that they are not doing enough, or rather that their interventions are being parked in savings rather than spent.

How might this play out? The financial system is under a high level of stress. Levels of private and public debt are very high in most of the major economies. Private debt is the most likely breaking point, both in terms of bond default and bank bad debts. This vulnerability plays out in different ways in different countries, but the USA, the EU and China all look vulnerable this time in their different ways. Britain has its own vulnerabilities too, with a high current account deficit, a badly managed epidemic and full departure from the EU about to impact later in the year. This could then lead to a more widespread financial calamity.

The Great Financial Crisis of 2008-2009 was preceded by over a year of unreality, when the nature of the crisis was exposed, but markets were in a sort of stunned disbelief. It was like a supersaturated solution waiting for speck of dust to start a mass crystallisation: the Lehman Brothers collapse was the speck of dust. I was scared enough in 2007 to move my pension fund into index-linked government stock – so I’m not using hindsight here. The situation now is different, but I think the same sort of unreality is present. This will be a very different crisis if it comes.

I don’t think that most countries will suffer a 1930s style depression. Governments will have to intervene big, but they can and look ready to do so, though this will be more complicated in the EU. My prediction is that this will not just take the form of measures to stimulate demand, but interventions to keep businesses going.A lot of wealth will be destroyed. It will be a great moment to be a socialist.

Have I finally succumbed to cabin-fever? I have noticed more than one columnist I respect going a bit off the rails (look at Matthew Parris in The Times this weekend). I will have to leave that to you to judge!

The Liberal Democrats need a new vision, not a new constitution

The British Liberal Democrats suffered a poor election result last December, and it will have to bear the consequences for up to four more years. The party has commissioned a review to ask what went wrong, and to help it set a new course, which was published recently. Now it needs to take on board the report’s recommendations, and the first one above all:

Based on the lives of ordinary people in the country today, create an inspiring, over-arching and compelling vision which can guide the entire Liberal Democrats organisation for the duration of a parliament, ideally longer

The review was chaired by Dorothy Thornhill, former mayor of Watford, and the party’s most successful and effective politician, now retired, alas. Her skills were much in evidence. It is a good read, and the complete report was sent to all members, rather than a select few, with an edited version released publicly much later, as has been the case before. It does not name names, neither does it try to second guess the decision to expedite the election in the first place, where the party played a critical role. And yet it doesn’t pull its punches, describing the election as a “high speed car crash”.

The biggest problem it identifies was a lack of coherence and realism about the party’s aims, and especially muddling whether the party was trying to stop Brexit or win the maximum number of seats. Instead of resolving this, the leadership became entranced by the idea that the party could massively increase its parliamentary representation, resulting in the severe wastage of effort and resources. This was because of some encouraging polling in the summer 2019, after its spectacular performance in elections to the European Parliament. In fact the party’s strategic position became very difficult as soon as Labour came down unequivocally for a Brexit referendum in the autumn. The review is clear that there were in fact only limited opportunities for the party to advance. Fifty or more seats was never on, but increasing representation to twenty seats from twelve maybe was; instead it ended up with just eleven.

Within the “car crash” a lot of organisational dysfunction was on display, of a type seen in the two previous elections in 2015 and 2017. Nobody was sure who was in charge and different parts of the party pushed in different directions, getting in the way of each other. This dysfunction is spelt out in quite a lot of detail in the second section of the report “Summary of Findings”, after initial “Review” section which sets out a clear narrative (the narrative style did upset some people, but it adds a lot to the report’s impact).

So what next? The review after the 2017 election said a lot of the same things, but was sidelined by organisational wrangles. This time it helps a lot that there is a new President (Mark Pack) and Chief Executive (Mike Dixon – an outsider to the party), while a new Leader will be elected with the review already published. The wrangles at the party’s Federal Board, its ruling council, do not seem to be being repeated this time.

Nevertheless there is a powerful temptation for the party use the organisational dysfunction as a jumping off point for a restructure, and in particular for changing the constitution. There have already been some calls for this. There are plenty of obvious targets: the absurd size of the Federal Board, the overlapping remits the various ruling committees, the Polyfilla construction that is the English Party, and so on. But Dorothy in person is very clear that it is the organisational culture that most needs changing, not the structure. People obsess with organisation structure as a displacement activity for dealing with harder problems; I know because I have made this mistake too often myself.

And the report gives pride of place to what that much harder problem is: developing the party’s vision so that it is grounded in the way non-political people live (I dislike the term “ordinary people”; there are no ordinary people in my book). The party talks to itself too much, and has used the idea of a “core vote” strategy to provide camouflage for this. The result has been that the party has limited appeal beyond well-off professionals, at a time when all the other significant parties (Conservatives, Labour and SNP) have succeeded in broadening their appeal across social class. Alongside a core vote strategy the party must develop a powerful appeal for more sceptical voters for on an election by election basis.

One prominent finding of the report is that the party failed to develop its appeal to ethnic minorities. This is true, but the New Statesman’s Stephen Bush makes a good point that the report oversimplifies this. There is no “BAME” community; there are many communities and the other parties have made progress by recognising this and developing appeals to particular minority communities. That is true, but in the case of the Lib Dems I think the BAME issue is part of a wider problem: its neglect of working class communities. Of course the persistent problems of unconscious bias mean that all parties must keep up scrutiny of their performance among BAME communities at all times – so it is right to give it prominence.

Vision is for the party leader to set, and I hope the candidates will duly focus on this, as it is not an easy problem to solve. It needs to combine a powerful appeal to members and core voters based on what the party stands for, and a more triangulated approach that will capitalise on gaps in the political market, which will involve compromises.

I don’t think the party is in too bad a shape on the first part of this. I can be hard to articulate it sometimes, but the common ground among the party’s core support is clear. The main challenge is to make it more inclusive. There is no reason that people from ethnic minorities or working classes shouldn’t feel welcome in this group: liberal values are transcendent. But what of the compromises required to broaden the party’s appeal beyond the core?

First we must talk about Europe. The party has bet so heavily on membership of the European Union that a U-turn would destroy it. It has to say that rejoining the union is an aspiration. But not now. People in the UK want to move on; so do people in the EU. The party needs to stand for a close trading relationship, even if it means compromising on “the level playing field”, though the party might want to take a tougher line on fisheries, with conservation in mind. The case for being closer to the EU needs to be based on the idea that the world is becoming an increasingly hostile place. The United States owes Britain no favours and will always extract a very high price for free trade; China is no less easy; both have developed a tendency to bully weaker powers. Elsewhere the opportunities for trading and political alliances are no less tricky.

Another tricky issue is law and order, human rights and privacy. The party has got up on its high horse about this in the past, but has often failed to make its case to “ordinary” people. The party needs to be more pragmatic, and focus on making sure that criminal justice institutions work effectively and fairly. “Fairness’ has a stronger appeal than “rights”. That leaves plenty of scope to critique the other parties.

But the party must also take risks. The Black Lives Matter campaign may be an example. While Labour under Keir Starmer triangulates fearing the white working class backlash, the Lib Dems can be a lot more robust. Ethnic minority working class people understand very well the need for multiculturalism, and are desperate for Britain’s institutions to be fairer; Lib Dems can be strong on both. I think the party needs to start a period of outreach to ethnic minority working class people; that will require financial incentives from the central party to local parties, who would otherwise gravitate to easier, more middle class places.

What of the conservative white working classes and rural middle classes? There is a big gap in political outlook, clearly, but the party must try avoid the gratuitous insults, which the anti-Brexit campaigning all too often led to.

Well these are some random thoughts. I haven’t offered anything coherent about what I think the new Lib Dem vision should be. Developing it will be hard, and I will keep coming back to the topic. But for now the key message for the party is that it must embrace the hard choices now, and avoid the temptation to spend too much energy on rearranging its internal affairs.