The Troubled Families Programme shows the way forward for public services

I was interest to read about the British Government’s Troubled Families Programme (TFP) in last week’s Economist. Now I don’t find the Economist particularly reliable on British social policy – their coverage of education has shaken my faith in the paper, with its uncritical adoption of rightwing wonkery. So I thought I had better get an alternative view. That proved a bit more difficult than I imagined, since the programme attracts little public attention. I did come across one piece in the Guardian, though, from last November. This turned out not to have a great deal to say. Nevertheless, I think that the TFP is an exciting idea that is a potential model for future social policy – unlike so many of the government’s other ideas.

The TFP was set up by the Coalition government in 2011 in response to the riots that year, which set off one of our ruling elite’s bouts of moral panic about the lower orders. The programme targets the families that are creating the most problems for public services, initially 120,000, and appoints a key worker, who then works with the family to put them on the path to solving their problems. The key workers bring in other public services as required. The programme was extended to 400,000 families in 2014.

David Cameron, the Prime Minister, has lent his personal imprimatur to the programme, and claimed a virtually 100% success in “turning around” these families. This claim is examined by the Guardian, which unsurprisingly finds it wanting. Success is judged by rather unconvincing criteria, and includes families knocked off the list because they were found to not to be as “troubled” as first thought. Perhaps it is too early to judge the programme, as one of the Guardian’s contacts suggests, but that looks equally dubious. To me the programme is simply commonsense. No doubt there are many ways in which it can be improved, but we are better off seeing this as a glass half full than half empty – because its approach runs counter to so much of current government practice.

The problem with the normal approach to public services is that it compartmentalises them: social work, probation, police, mental health, housing, employment and so on. But the most persistent problems involve people that have multiple problems that feed off each other. Mental health, joblessness, housing, drug abuse, criminality is a common trail of destruction, for example. This leads to the classic paradox of public services (and many other dysfunctional organisations), where everybody is working hard and doing their job well, but the overall result is underperformance and failure – and constant demand for more “resources” as social policy types like to call taxpayer funding. Solving the complex problems that lie at the heart of so much demand for public services requires looking at the person at the heart of it and supplying leadership. This tackles two of the most difficult aspects at once – the lack of confidence or chaotic nature of the people involved, and the need to coordinate and access a multiplicity of services. That is what the TFP does. It intermediates the public services with a human professional who can adapt their actions to the circumstances – and provide personal coaching. That key worker may be the first person in public service that the troubled individuals have talked to who is interested in them as people, rather than through the narrow scope of their role.

This is interesting, because it takes public services in the opposite direction to most attempts to “reform” them, since Labour’s Tony Blair suggested that public services should learn from the private sector in the late 1990s. What followed were many attempts to make services more streamlined, and to intermediate them through dumbed down interfaces with low-skilled staff and workflow systems, which are quite unable to deal with human complexity. It turns out that the private sector gets by by avoiding the difficult cases and telling them to go somewhere else.  It also doesn’t like actually soving people’s problems – it want them to keep coming back for more. There is still much that the public sector can learn from the private – but not nearly as much as Mr Blair and his Conservative emulators think. The public sector needs operating models of its own – and the key worker idea is one. There is another around building self-helping communities, but that’s a story for another day.

And, to be fair, criticism of the TFP is limited. A lot is directed against Mr Cameron’s rhetoric, which talks about addressing the “twisted moral code” of troubled families. In fact it turns out that most troubled families do not engage in crime. But this is about creating political cover for the idea to readers of the right wing press – a bit like covering community cohesion initiatives with the label “British Values”. Nonsense, perhaps, but politicians of the left should learn from it in order to broaden public support for their ideas.

Then there is the old leftist trope that such policies address the symptoms of trouble, and not the root causes, such as inequality, injustice and many other of the abstract nouns beloved of the left. But this line of criticism is simply designed to provide cover for mediocre public services. It underestimates what humans are capable of given the right motivation and support.

In our world of polarised politics, this sort of criticism from the left is as close to praise as a Tory government will get. In fact there are two more substantive criticisms. The first is the rather obvious one: the government is pulling in opposite directions. The TFP may be a good idea, but it needs access to decent public services to do its job, and these are being run down  – especially local council social services and mental health facilities, both of which are critical in this context.

The second criticism is that TFP is subject to the government’s payment by results (PBR) policy, another signature idea from Mr Cameron. This means that the work is farmed out to non-government agencies, who are paid bonuses depending on their success rates. Using outside agencies is not necessarily a bad idea in itself, though anathema to the left. But PBR leads to two problems. First is that by subjecting the payments to risk, they will drive away many potential agencies, including smaller social enterprises, which are usually the most innovative. Instead they draw in a list of larger organisations, who tend to hollow out rather than add much value. They are able to do this because of the  second problem, which is that defining success criteria leads to arbitrary targets that can be gamed. It is the same regime of false incentives as the discredited target culture, beloved of Mr Cameron’s predecessor, Labour’s Gordon Brown.

In my mind this is the wrong way round. Key workers should be at the heart of the publicly managed service that commissions services from elsewhere: public, private or third sector, depending on how they meet client needs. This “care management” model has been very successful in social work, for example – although few councils now use it, with the pressure on short term costs leading to them to replace qualified staff with cheaper personnel with narrower remits. (Disclosure: my wife is one of the few remaining care managers, in adult social work).

But credit where it is due. Mr Cameron has hit on an idea that has real mileage: a people-centred approach to public services. This idea must be built on.



The economy is for Labour what tuition fees is for the Lib Dems

If there is something that unites British Labour Party people, from rightist Blairites, to Brownites, through to the leftist Corbynistas, it is that the Labour government of 1997 to 2010 should not be held responsible for the financial crash of 2008/09, and the terrible state of government finances that followed. They are made indignant by Conservatives (and Liberal Democrats) who go on about how Labour is to blame for the financial mess the government left the country in in 2010, when the budget deficit had ballooned to over 10% of GDP. But the public finds the Tory line more convincing. And if Labour are to throw off this albatross, it will have to move on from its air of injured innocence.

There are two dimensions to this question. The first is a question of fact, or purports to be: how much responsibility did the Labour government actually have for what went wrong in the economy? The second is what is going on in people’s heads when they think of Labour and the economy, and how the party might address it.

On the first question, Labour have quite a few sympathisers outside the party. And certainly the direct line of attack made by Tories is not all it seems. The Tory narrative is that Labour went on a spending splurge in the boom years, which then  proved completely unsustainable, leaving their successors  choice but to implement austerity policies. Defenders of Labour’s record point out that there was no big government deficit before the crash. It was a relatively modest 2.5% or so in 2006 and 2007, and not regarded as irresponsible at the time. Nobody foresaw the financial turmoil, which originated in American sub-prime mortgage markets.

The Labour defence against this charge is mostly true. But not quite. Gordon Brown, as Chancellor (he became Prime Minister in 2008), claimed to operate government expenditure on a “golden rule” which meant no net borrowing over the economic cycle. But he had taken to moving the goalposts rather than applying the rule strictly. Had he followed his own rules as originally intended, there may not have been a deficit as the economy turned in 2007. But that only accounts for 2% of the problem. There was another 5% that came from somewhere else, allowing for a normal cyclical swing of 3%, and which cannot be blamed on Labour profligacy.

If you take a wider view, however, Labour’s defence becomes more difficult. British government finances were worse affected than other major industrial countries, from France to the USA, and much worse than some, like Canada. There are broadly two reasons for this. The first is that Britain had a bigger financial crisis, because it had a bigger banking sector, especially in international banking, and so was more affected by its collapse. The second is that tax revenues fell unusually sharply in Britain. Both aspects have government fingerprints on them.

Take banking. Labour lauded the rise of the international banks, and celebrated Britain’s “light-touch” regulation that helped bring this about. They gave RBS’s Fred Goodwin a knighthood for no other reason than that he had expanded his bank, recklessly as it turned out – there were none of the usual good charitable works to point to as supporting a general aura of public-spiritedness, as is customary in such matters. Meanwhile, Britain’s success as an international banking hub helped drive Sterling up and manufacturing exporters out of business. Mr Brown tried to wriggle out of responsibility by suggesting that he wasn’t responsible for banking regulation under Britain’s tripartite system of financial regulation (between the Treasury, the FSA and the Bank of England). This is pretty damning, because this system was of his own design, and it was clear that overall responsibility for making sure the system was working lay with the Treasury. It couldn’t be anywhere else.

Then on taxes, Mr Brown engineered a switch from taxes on income, and Income Tax in particular, to an array of other taxes, like stamp duty, that turned out to be about milking financial bubbles. At the time, his reduction of the basic rate of income tax to 20% was lauded as a triumph. This proved a colossal misjudgement, as it has proved politically impossible to raise income taxes, even in supposed more left-leaning Scotland.

On top of this, a broader claim can be made. The world financial crisis was not some storm that happened somewhere else with unfortunate consequences for Britain. Britain was the world’s leading international centre of finance; Britain’s bankers were at the heart of it, Two of Britain’s big banks, RBS and HBoS, collapsed, not helped a Britain’s own reckless mortgage lending, which also affected smaller banks, like Northern Rock and Bradford & Bingley. These banks had all adopted highly risky business models, whose main assumption was that global banking markets would be stable. Sitting on top of one of the most prestigious finance ministries in the world, and trumpeting his own reputation as a financial manager, Mr Brown and his acolytes can’t really escape the charge of incompetence for not appreciating these risks. And these risks were plan to some, including his Lib Dem shadow, Vince Cable, whose warnings were pooh-poohed.

Labourites are on stronger ground when they suggest that, once the crisis emerged, their government handled it well. It wasn’t pretty (amongst innocent victims of the government’s shoot-first approach were Icelandic banks and Britain’s own Lloyd’s bank), but largely stands up to scrutiny. Another argument is over whether the Tory/Lib Dem coalition that took power in 2010 was too tight with its austerity policies, compared to how Labour would have handled the same situation. Many independent commentators agree with at least the first part of that proposition, though I don’t.

So, I don’t think Labour were quite as innocent as they claim, even if much of the direct criticism is misplaced. But, in politics, such arguments actually count for little. A more important question is how the public perceives things. This is where Labour’s real problem lies. What the public sees is a classic hubris to nemesis story, which is one of the oldest storylines in humanity, and takes some rebutting. Labour’s problem is their boastfulness before the crisis. Labour appealed to voters because a Labour government meant “no more boom and bust”, unlike with the Tories. And then one of the biggest busts in history happened.

And there is trust issue here. Labour’s position is a bit like that of the Lib Dems over tuition fees. The Lib Dems vowed not to vote for an increase in student tuition fees before the election, and yet later that year they supported the trebling of fees. Many Lib Dems will give you a convincing intellectual explanation as to how this not nearly as bad as it sounds, and that anyway there was little they could do in coalition. But this cuts no ice with the public, because of the way the party presented their policies before the election.

Labour are onto an equally losing wicket if they try convincing the public that the economic crash of 2008/09 was not their responsibility. Ed Miliband, their leader at the last election, was quite right not to even try. Besides, the alternative argument that Labour were the hapless victim of world events hardly counters the public’s perception of the post-Brown leadership (Mr Miliband and his successor Jeremy Corbyn) of being nice but ineffectual. The usual advice for when you are in a whole is to stop digging. The idea that if the party had come out fighting, public perception would be swayed, is pure nonsense.

The only way forward is for Labour to acknowledge their responsibility, and put forward hard economic policies that show they are capable of taking tough decisions if in power. And that means they have to stop banging on about austerity and get tough with some of their own supporters. For now, though, there is no chance of that.


Core voters are always shafted. Politics is made in the centre. Bad news for Lib Dems

Democracy and idealism do not sit well together. Idealists have the motivation to form political parties and keep them going. But in order to win power the party must bring on board people and, policies, that the idealists disagree with, in order to win round those less committed to politics. And these floating voters come to matter more to the party’s managers than the the idealists. Because the idealists have nowhere else to go.

In Britain, the latest challenge to this process comes from Britain’s Labour Party; in America the Republicans seem to be doing something similar. This all seems to be part of the great cycle of politics. A party’s core supporters, those that are ideologically committed, get fed up with being taken for granted and rebel. They struggle to accept that a majority of voters disagree with them – following a natural human bias that most people think as we do. They may also be enticed by the idea that they can win by accident – through their opponents’ mistakes. Sometimes such ideological parties do win an election that way – it has just happened in Poland, for example. It rarely ends well.

I know more about the Labour phenomenon than the Republican one. Labour members elected the ideological Jeremy Corbyn after the party’s general election failure last year. These members remain as fervent as ever, and indeed new members have flocked in. This burst of enthusiasm has convinced them that they have started a new and better form of politics. As they see it, the compromises used to chase the centre ground, as uncommitted voters are usually referred to, have disillusioned people with politics. Now Labour will create a sharper narrative that will go down a storm with the electorate. They equate their own disillusionment with the compromises of their party with the widespread political apathy of the population at large.

But is this is an illusion. This week Britain’s polling organisations published a report into why they called the 2015 election wrongly. They overestimated Labour support and underestimated the Conservatives’. They found this was mainly because their samples were biased towards Labour. And that was because they were biased towards the politically committed, who were much easier to reach. This is a vulnerability of the quota sampling technique that the pollsters use. The less committed, or more apathetic, voters were much more likely to vote Tory.

This leaves more thoughtful Labourites with two headaches. The first is that current polls show the Labour vote holding up compared to  the general election – so that electing Mr Corbyn at least hasn’t made things worse. But if the polling bias remains (and it seems to be, based on how the samples remember they voted in 2015), then in fact the Tory lead has grown. The second headache is that the army of the apathetic non-voters is more sympathetic to the Tories than many suppose.

Which leads to an inevitable conclusion. In order for Labour to win an election they need to convert people who voted Conservative last time, or who did not vote, but lean to the Conservatives. In other words, Labour must appeal to the centre ground.

Such thoughts cut no ice with Labour’s new members. When pushed they even suggest that winning is not that important. That leaves Labour in a terrible position, and the Conservatives thinking that they have the next election in the bag. Some hope that the European referendum will split the Tories. But the prospect of whacking Labour really hard if they hold together is the best possible incentive to hold the party together.

Labour’s prospects against the SNP in Scotland are no better; the SNP have cornered the middle ground in Scotland as masterfully as the Conservatives in England, while still retaining  a substantial core vote. This conjuring trick will eventually come apart – but an ideological Labour Party will not be the instrument of the SNP’s demise.

Meanwhile, sitting on the sidelines are the Lib Dems. A number of people have suggested to me that Labour’s woes present the party with a golden opportunity. But the political dynamics or the core and centre are not working the party’s favour.

The party thought that the usual rules of politics would apply to them when they went into coalition with the Conservatives in 2010. They shafted their core voters, but surely they had nowhere else to go? And meanwhile the party’s record in government would appeal to the centre ground. But a large part of what the Lib Dems thought was their core vote felt they did have an alternative: Labour. That weakened the party, and weakness is a big turn-off for centrist voters. The Conservative campaign exploited this ruthlessly, and the result was catastrophe, as the Lib Dem vote fell by two thirds, and their political clout even further.

So, somehow, the Lib Dems need to rebuild their core vote. The place to look is amongst Labour inclined voters who do not buy Labour’s new sense of direction. But the party also needs to win votes back centrist voters from the Conservatives if they are to win the all-important parliamentary seats. And that means the party must show distance from the Labour Party. So how does the party face the prospect of another coalition with the Conservatives? If they rule it out, they will lose the middle ground by giving tacit support to the ideological Labour Party. If they don’t, those Labour inclined “core” voters will think that the party has learned nothing from the coalition debacle, and leave the party alone.

This may not matter too much to the party at the next election, especially if it looks as if the Tories will win handsomely. There will be no danger of a coalition, so that awkward question can be ducked. The Lib Dems might be able to make a modest recovery based on local strength. But the strategic dilemma remains.

Probably the best thing for the party is to recognise that it is essentially of the left, and rule out any future coalition with the Conservatives. That will help the party rebuild its core. It then needs to apply thought to under what conditions it could work with Labour. But it will have to be a very different Labour Party from the one emerging under Mr Corbyn’s leadership.

Which would leave the middle ground in British politics to the Conservatives and the SNP. Which in turn means that political power will rest with them.  A grim prospect indeed.



2016 is nothing like 2008, but there’s trouble ahead for the world economy

In my New Year post I did not write much about finance, but made some rather throwaway comments that the economy could take a turn for the worse in 2016.  Having just read Martin Wolf’s rather sanguine piece in the FT, I hadn’t quite understood that my views were in line with conventional wisdom in the financial markets – and this not at all a position I like to be in. But pessimism is in, and reflected by lower share prices worldwide. This has filtered through to left wing commentators, like Will Hutton, who gleefully want to show that “austerity” or “neoliberalism” is leading to a repeat of the 2008 crash (though Mr Hutton is too good a writer to use those particular totems). This is definitely company I don’t want to keep. Time to dig a bit deeper.

It helps to think back to what happened in the last turndown, the crash of 2008 – as this is foremost on people’s minds. At the start of 2008 the banking system was in deep trouble, although on the surface things were quite calm, if gently sinking. “Holed below the waterline” was the description that I used at the time – alas I was not publicly blogging until three years later, or my reputation might have been made. Trust was breaking down because the banks were dealing a lot with each other, or off-balance sheet offshoots, rather than with the public or businesses. And things were starting to go wrong, beginning with US sub-prime mortgages. The huge tangle of interbank transactions and derivatives meant that nobody knew how the losses would play out or where – so everybody was tainted. Things kept superficially calm until quite late in 2008, when Lehman Brothers collapsed, threatening a chain reaction that would have brought much of the world’s banking system to a screeching halt. Since the banking system is at the centre of everyday life in developed economies the result could have been catastrophic.

That catastrophe was largely avoided, but only because governments bailed banks out to keep the whole system afloat. Even then the damage to the non-banking economy was severe, and government finances, especially here in the UK, were ruined. What was so alarming about the whole episode was that a fairly routine downturn in the business cycle infected part of the US mortgage market, which then completely disproportionately went on threaten the whole system. Defenders of Britain’s Labour government still can’t believe it was anything to do with them – though in fact ten years of complacent economic management had left the country highly vulnerable to such a chain reaction.

Why are people worried now? Well one thing that helped the ameliorate the disaster in 2008 was that emerging markets, especially China, were less badly affected, and in China’s case, government stimulus helped keep things afloat. Now that side of things is unravelling. The Chinese economy is slowing, and in the process it is undermining world markets for commodities such as oil, which presents the threat of widespread damage in the developing world. The Chinese situation arises partly because the country has hit an awkward point in the evolution of its development, and partly because their stimulus package after 2008 was largely wasted and bad debts are threatening its banking system. Indeed the whole soundness of China’s growth strategy is coming into question (its second, state-directed phase , rather than Deng Xiaoping’s original liberalisation from 1978).

This is serious, and no mistake. The role China has played in the world economy in the last quarter century is hard to exaggerate. What is happening there is much bigger than the US subprime crisis that was at the heart of the 2008 debacle. But it doesn’t have the same destabilising features that caused such a fierce chain reaction – which were in plain view as 2008 started. China is not at the heart of a cat’s cradle of complex derivatives sitting in off-balance sheet funds, with almost every international bank taking part. And the huge power of the Chinese state, and the depth of its financial reserves, means that the country’s financial system will collapse slowly rather than suddenly. The western banking system is a much soberer thing than it was in 2008 too, even if many left wing commentators would have you believe that nothing has changed. For these reasons 2016 does not look like 2008. A meltdown, or near meltdown, does not look likely.

But there could be a slower moving form of trouble. Secular stagnation, the affliction of the world economy I referred to recently, is here to stay. Western economies will slow. Worse things may be in store in the developing world. Share prices may well fall badly – many markets have been overpriced for some time.

And in Britain? In my New Year post I suggested that 2016 might be the year the economy here started to turn sour. That comment wasn’t based on any deep thinking. Britain is unusually dependent on the international economy, as is evident from persistent trade and current account deficits, and a value for Sterling that is hard to justify based on its “real” economy. So, with things going awry in the world economy, Britain might be vulnerable. The Pound could come under pressure; foreign investors could desert London’s property market causing a chain reaction; or a downturn in the City’s finance sector could do the same thing. On the other hand, capital flight from the developing world could benefit London in particular, allowing the country to weather the storm. Some left wing commentators have been trying to stoke alarm about the level of personal debt – but that doesn’t stand up to close scrutiny. Neither should we pay much heed to Labour’s economic adviser, David Blanchflower, who on the radio this morning suggested that Britain was less ready to deal with a crisis than in 2008, because interest rates were already rock bottom. That vastly inflates the effects of interest rate policy on crisis management. David Cameron’s and George Osborne’s luck could hold. I struggle to understand the alarmism on the political left – it will merely undermine its already shaky reputation for economic grasp.

it seems to me that 2016 will be the start of a good old-fashioned cyclical downturn for the world economy, with no more than the usual localised financial crises. Personally I think this will morph into a period of more prolonged secular stagnation that will put paid to economists’ lazy assumption that 1-2% rates of growth are a law of nature.

And that should pose some very challenging questions for the art of economics. But that’s a topic for another day. Meanwhile government bonds are a better bet than shares; cash is not a bad bet either; don’t mortgage up to your eyeballs in property; and interest rates aren’t going up.



The Oregon protest shows how different America is from Europe

What if a group of armed citizens seized a bird reserve in the Lake District and proclaimed their right to cut down trees and graze cattle on public land for free? It is actually unthinkable, on so many levels. And yet this is more or less what has happened as a militia group led by Ammon Bundy seized the Malheur National Wildlife Refuge in Oregon on 2 January. They’re still there, as the law enforcement agencies deal with them gently, letting pressure from local residents undermine the occupiers’ resolve. Such incidents are rare in the US, but not unthinkable, and that reveals a lot about the difference between our nations.

Of course Oregon is not like the Lake District. In the US West the Federal government owns huge tracts of land, and regulates, and charges for, its use by farmers and loggers and many others. In our National Parks the government places onerous regulations on private landowners. But that is even worse, probably, from the point of view of the Oregon protesters. They are building their case on an American idea that citizens should be self-sufficient, and that government agencies are violation of basic rights and freedoms.

That idea, of course, comes from America’s frontier history. Back in the 19th Century, and earlier, the settlers mostly did have to be self sufficient. The whole appeal of film dramas such as Westerns builds on this.  These frontiers have only formed a minority of the American nation, of course, and yet they command a special place in the American soul, for those of European (i.e. white) heritage. We may imagine how those of native American or African, and even Hispanic heritage work on a different version of how America came to be what it is. The European settlers came out to America to be free of oppressive governments. It is hardly a coincidence that movements like the Oregon protestors are white, and tend to have racist tinge.

Descendents of the Europeans who stayed behind have an utterly different outlook – though that racist tinge is there too, overlaid by an often intense nationalism, which has been subsumed by American nationalism in their descendents. For us government is part of our everyday lives. For some it represents the democratic will of the people; for others it a perhaps regrettable necessity. But we crave the order governments create, and feel that such things as welfare safety nets are part of what it means to be civilised.

And this is as true of the English as it is of their French and German cousins. Some English like to think that they are culturally apart from the rest of Europe (a delusion that their Scots compatriots in Britain tend not to share). We hear talk about common law and Anglo Saxon freedoms. And it is true that the English and British are different in many ways from other Europeans. But then so are the French, the Germans, the Danes, the Spanish, the Czechs, and so on. The idea that the British are uniquely different is a misconception. And a huge amount of history and culture binds us together as Europeans, and separates us from the United States in particular. Our attitude to the role of the state demonstrates that more clearly than anything else. Remember that many Americans feel that free ownership of military weapons is a fundamental right, and a vital protection. Europeans think that’s nuts.

That gulf between Europe and the US is clearly seen in US politics. Republican politicians only have point to Europe or Canada (which follows many European attitudes) to scare their supporters. To them these places are self evidently awful places to live in. Which puzzles, Europeans and Canadians profoundly. What is so wrong which lower levels of poverty, better health outcomes, longer holidays, and a lower chance of dying a violent death? We (and they) just don’t get it.

But two notes of caution for Europeans. First is that the US is not monolithic. I have already pointed out that many Americans do not share this anti-state vision – and the proportion of non-whites in the country is rising. That, perhaps, explains much of the violent polarisation in the country’s politics at present. Most Americans think that the Oregon protestors are crazies; that includes most people who live near Malheur. It’s always a good rule to avoid national generalisations; that is as true of Americans as it is of anybody else.

The second note of caution is that there is a positive side to this American idea of self-sufficiency, alongside its delusional aspect. It makes Americans more entrepreneurial and innovative. Americans can rightly point to their extraordinarily strong economic performance. And I think it helps to question what state agencies do and what they are for – though, I should add, I don’t think that US government agencies are any less inefficient than European ones.  Closer scrutiny does not necessarily lead to improved performance.

But personally, I am very comfortable in my European skin, much as I admire so much about America. And those Oregon protestors sum it up why quite nicely.


The Trade Union Bill – the unions are the authors of their own destruction

The House of Lords considered the Government’s Trade Union Bill yesterday. It briefly made the headlines because a report was released suggesting that the Labour Party would lose £6 million in annual funding as a result. Coverage was quickly buried by news of David Bowie’s death. At least we shouldn’t accuse the Conservatives of orchestrating that.

Because they didn’t need to. There has been little public interest in this legislation, which has been quietly making its way through the legislative process since last July. That is remarkable because it is politically tendentious, and could change the political balance profoundly. Instead of fighting this legislation tooth and nail, the Labour Party is focusing its energy on making up its mind about Britain’s nuclear deterrent. This is yet another example, if one was needed, of how Labour is now suffering from political insanity.

What does the Bill try to do? Those headlines were about changing how trade unions carry out political funding. At the moment the unions have political funds which its members can opt out of, but usually don’t. The government wants to change this to opting in, which it is thought that many fewer will do, given how few trade unionists actually vote Labour. The other main change is to make it harder for unions to take strike action by requiring a minimum turnout of 50% for a strike ballot, and the support of 40% of registered members in the public sector.

At first pass neither of these proposals looks unreasonable. The opt out rule on political funding creates a corporate influence by the unions on the Labour Party that undermines democracy. Labour gets the lion’s share of its funding this way, and the their influence on the party is growing – they gave decisive logistical and moral support to Jeremy Corbyn’s leadership campaign, for example. Unions play a vital role in our society in balancing the unhealthy inequality of power in employment relationships, not least in the public sector. But politically they are conservative. This is illustrated by their support for Britain’s nuclear deterrent. This not based on any arguments of high principle, but by the short term influence of any policy change on jobs. Just about any reform designed to make the economy or the public sector more efficient will be opposed by the union bosses for purely short-term reasons. The opt in principle would (probably) reduce the amount of money they deploy, as well as making union bosses more accountable for their political views. Politics should be about people, and not intermediated by corporate interests.

So what’s wrong? The reform is unbalanced. Trade unions are not the only malign corporate interest around – businesses also provide parties with funding, and especially the Conservatives. This is unhealthy too, though thankfully things are not as out of hand in Britain as they are in the United States. But it does help counter the malign political influence of the unions. This not just a question of allowing the Conservatives to oppose Labour. Labour itself was more politically balanced and electorally appealing when it took a higher proportion of corporate donations, under Tony Blair. Whacking union donations without some kind of equivalent reform of other corporate donations is simply a partisan attack on Labour that will probably do more harm than good. Labour certainly has a good case to make to the public on this.

There is something similar going on strike ballots.  It is not unreasonable to ask for a substantial mandate for such action, rather than let a minority of activists decide things. If the union case for strike action is a strong one, they will get the support, as has been shown repeatedly. The problem is that the government refuses to modernise the way strike ballots are carried out. This has to be by post, which is not only expensive, but it gets swamped by junk mail, leading to low response rates. Most organisations that cary out mass ballots now do so electronically, or at least supplement the post with online. There are risks, of course, but they are manageable.  Allowing unions to do this would be a completely reasonable quid-pro-quo; refusing to consider it is an attack on workers’ rights.

If I were a trade unionist, this shocking state of affairs would give me pause for thought. Because the unions themselves have helped bring this situation about. Firstly, their conservative influence on the Labour Party has helped make them less electable. In 2010 they were decisive in making sure that Ed Miliband got selected as leader. And their hysterical opposition to austerity prevented Labour from developing a coherent and electorally convincing economic policy. Secondly their tribal attack on the Liberal Democrats for having the temerity to form coalition with the Conservatives helped weaken a vital bulwark against Tory hegemony. If Labour voters had rallied to the Lib Dems in the South West, things might have turned out differently.

And the end result is that Labour, as it turns out, is more interested in other things than union rights. Meanwhile the unions have no other friends across the political spectrum. The SNP have shown more interest in the fate of English foxes than union rights. How hard should Lib Dems fight their corner when the unions done so little for them?

Of course no real trade union leader will come anywhere close to such reflections. They still think that the Tories are the spawn of Satan who must be excluded at all costs, and that austerity, understood to include any initiative to make the public sector efficient, is based on lies – and that the public will be convinced of both these things if only they were proclaimed loudly enough.

For liberals the attitude is clear – it is to welcome the government’s reforms, but to fight for others to curb the malign influence of big (and not so big) businesses on political funding, and to allow trade union democracy to be modernised. It is hard to shed tears for such political dinosaurs as Britain’s current union leaders.


Secular stagnation: the dark cloud hanging over the world economy

A dark mood is overtaking those who contemplate the world economy. Today Britain’s Chancellor George Osborne will join a growing chorus of worry. Weak outlook in emerging economies is undermining efforts to revive developed ones like Britain’s. So far the prognosis is stagnation rather than economic disaster – a mood caught by the FT’s Martin Wolf, who tells us not to be too pessimistic. But these are dark clouds and policymakers would do well to prepare for rough waters.

Mr Wolf bases his relative optimism on the fact that world economy has being growing steadily for some two centuries, and with particular steadiness since 1945. Until the potential for further growth is exhausted, which he doesn’t think is anywhere near the case, that growth will carry on. But macroeconomics has changed profoundly in the last ten to twenty years. And even orthodox economists are starting to appreciate this.

The leading piece of evidence is that in the developed world central bank interest rates are stuck at very low levels, even though the recession of 2008-2009 was over five years a go, and there has been steady recovery since. And inflation, as it relates to pay and consumer prices, remains low. What had once been seen as a special case and compounded by policy mistakes, Japan after 1989, has become general. The Economist’s Free Exchange column has run a couple of articles on this. Orthodox economists had simply assumed that the way out of economic doldrums was through conventional short-term policies, such as loose monetary or fiscal policy. Japan’s problem, a whole queue of people, such as Paul Krugman, said, was simply a matter of a “liquidity trap” – when interest rates become too low to reduce. By the time I was studying Economics at UCL in 2005-2008, this was literally in the textbooks. Mr Krugman suggested that the solution was to raise inflation expectations in what seemed to me, even then, as a case macroeconomics gone mad.

But even Mr Krugman now thinks something deeper is afoot. Larry Summers was the first orthodox economist to raise the alarm, and he gave the problem a name: “Secular Stagnation” – or rather he resurrected a theory of that name that had long been treated as a theoretical curiosity. The world economy is profoundly out of balance. This is because the amount people want to save is more than what people want to invest, causing aggregate demand to drain out of the system. This is an idea that Maynard Keynes made famous in the 1930s – but he assumed that such an imbalance was temporary, and specifically a feature of recessions. But what happens if the imbalance continues right through the cycle? We find that attempts to stimulate growth through monetary or fiscal policy run out of steam, and simply lead to asset price bubbles, as surplus money chases the same assets round in circles.

What is causing this imbalance? Unfortunately, notwithstanding the large number of brilliant minds devoted to economics, the massive computing firepower at their fingertips, and the size of what is at stake, there is practically no quantitative evidence. Indeed, macroeconomists actually know little about what is actually happening in the world behind the artificial creations of their aggregated statistics. Instead we have a series of speculations which people gravitate towards depending on political preferences. Here the main ones:

  1. Inequality – the popular explanation on the left, including Mr Krugman and Robert Reich. A greater share of income is going to a very wealthy minority, or is stuck in corporate balance sheets. This is saved rather than spent, contributing to a surplus of savings.
  2. Trade surpluses. China, Germany and (until recently) some oil states have been running up structural trade surpluses, which again creates surplus savings globally. This makes people like Mr Wolf hot under the collar.
  3. Excessive levels of private debt. This theory is favoured by heterodox economists like Steve Keen. Private borrowing as a ratio to income has been steadily rising and is at record levels. Bank balance sheets are clogged so they can’t lend to fund new investment. Meanwhile private individuals are spending too much on debt repayments and interest to spend on consumption.
  4. Modern businesses require less capital, reducing demand for investment. Microsoft and Google required no bank loans and little new capital to develop their businesses, unlike the industrial giants of old. This may be a function of technology, or simply “Baumol’s disease” – the fact that productivity improvements are tilted towards particular industries, whose weight diminishes as they become more efficient. Mr Summers seems to incline towards this explanation, while not dismissing the others.
  5. Demographics. The proportion of workers compared to retired people is diminishing in the developed world and some other countries, like China. This squeezes the supply side of the economy and hence investment.  It also undermines any benefits of productivity growth, the traditional engine of economic advance. This was clearly a factor in Japan, which led the trend.

Is this just a developed world problem? Surely, with so many countries still poor, there are opportunities to raise productivity, and hence global growth in poorer countries? The growth of developing East Asian economies, starting with Japan, and latterly dominated by China, has been an important component of recent world growth. And yet there are few signs than other developing economies can move much beyond exporting natural resources, while China is picking up some distinctly developed world issues. India may be an exception, but the jury is out there.

So what is the solution? That, of course depends on how important each of the above factors is. But there is a big question behind this. Most economists assume that economic growth is a natural state of being, and simply want to remove obstacles to future growth, by raising the level of investment, for example. Others feel that slowing growth is part of a bigger development cycle and something we had better get used to. I incline to this second view.

But the way forward surely does not lie in grand, sweeping policies based on a single, overarching theory. We have to tackle smaller problems as they arise, bearing in mind the overall sense of direction. With that in mind, I think these are the main areas to watch:

  • Private debt. You don’t have to subscribe to Mr Keen’s ideas to understand that growing levels of debt are part of the problem, whether symptom or cause.
  • Big business. These are accumulating too much power, and skewing the distribution of resources.
  • Asset values. In much of the world, excessive asset values, especially land values, are a sign of economic dysfunction. This is especially the case in Britain. This is not a simple matter of supply and demand – excessive debt is part of the problem.
  • Migration. This is one of the ways that economic pressures can be relieved. But as we know all too well, a host of problems follow in its wake.
  • Government debt. In the short to medium term, for most developed economies, high levels of government debt will be much easier to sustain than conventional wisdom suggests. And yet in the long term this could lead to economic breakdown, as is happening in some South American economies.  The left have a strong theoretical case in opposing austerity, but undermine it by opposing almost any reform designed to improve economic efficiency and promote sustainability.

It is also important to point out the dogs that won’t bark. These are things that economists bang on about which don’t matter so much in our “new normal”:

  • Free trade. Free trade is an important part of the current global system, and it won’t help to reverse it. But the rapid globalisation of supply chains which was such a feature of the last two decades, is going into reverse, as the East Asian economies mature. This is one reason why growth is slowing – but it is the reversal on a phenomenon that was always going to be temporary. Further liberalisation of trade poses challenging questions, as TTIP and TPP are demonstrating, and may simply benefit big business.
  • Inflation. It used to be thought that inflation was a matter of managing expectations by the central bank, and of paramount importance. This is still true in some less developed economies. But in those exposed to global trade this is an entirely unhelpful way of looking at things. More powerful forces are keeping prices stable and inflation is less and less an issue that central banks need to act on.
  • Interest rates. These are set to stay low for a long time yet. The betting is that the recent rise in the US will be just one of a long line of failed jail-breaks, started by the Bank of Japan in the 1990s.

We live in interesting times.





What will 2016 bring? Remain will win and the Tories will stay together

New year predictions are not something this blogger has indulged in before – but it seems to be a universal obligation for the first blog of the year. There is little to be said for it at face value: predictions are either banal continuations of current trends, or depend too heavily on events that are unpredictable. Still, they may reveal something interesting about the way the blogger sees the world- so here goes.

The most important event of 2016 in British politics (and that will be my main focus) will be a referendum on UK membership of the European Union. This is not certain for 2016, but nevertheless looks more than likely. I predict a comfortable majority (in the region 60-40) for the Remain campaign – I am not joining the crowd who suggest that it will be very close, or that Leave will win.

Unlike fellow Lib Dem blogger David Boyle, I don’t think the referendum campaign will be a repeat of Scotland’s independence campaign. Not because I think that the status quo supporters will be any more inspiring or less negative.  There are routine calls for Remain supporters not to repeat the “mistake” of Scotland’s No campaign, which failed to make a positive case for the Union. This rather overlooks the fact that No won in Scotland, in spite of a brilliant Yes campaign. There were signs of ineptitude on the No side – but that more applies to the minor tactics, which were dictated by a Scottish Labour Party whose lack of political skill was shown to all in this year’s General Election, when they were reduced to a single seat. I expect the Remain campaign will manage things better.

But the main reason why the EU referendum will not be like the Scottish one, is that their is no equivalent of the SNP-organised Yes campaign. They managed to motivate their supporters through a very positive, inclusive message, which appealed to young people. There are people in the Leave EU campaign that think that life outside the EU is a fantastic and positive opportunity for Britain, but they look very unlike the Scots Nationalists. For a start many of these are businessmen who think that leaving the EU means deregulation, so that they can screw their employees, customers and the environment even harder. They are fundamentally unconvincing when they suggest that this will make more than few people better off – there is no economic card equivalent to Scotland’s oil.

But a deeper problem for the Leave side is that most of their supporters are of the stop-the-world-I-want-to-get-off type. To them the EU represents the intrusion of the modern, globalising world, and leaving it will enable the country to put up stronger barriers to the world. Especially when it comes to the free movement of people. This is a striking contrast to the Scotland Yes campaign. The Leave campaign are (mostly) convinced that immigration is their trump card – and many Remain supporters agree, and are duly worried. Most people outside London are convinced that immigration is too high and one of the main problems that Britain faces. But I don’t think this will be as easy a card to play for Leave. First I doubt whether the public quite has the courage of its convictions on the issue – on the same principle that most voters talk about how much they distrust established politicians, but then keep electing them anyway. Second, the referendum will not change Britain’s political class, and the public doubts its will to deliver lower immigration, even outside the EU. Perhaps these two points two sides of the same coin.

So Remain will win. What will that do to British politics? The conventional wisdom, which I have supported, is that this will tear the Conservative Party apart. But I have changed my mind on this. Europe has been a defining issue for many Tory activists, and they will be upset that the referendum was lost. But we must remember two things about the Tories. First: their party is not “democratic”, by which I mean that its members don’t control things through electoral processes, as they do in the Lib Dems and Labour (sort of, in both cases). The controlling elite has huge power over party direction and can weather the odd storm. Second, the party has the prospect of political power before it. They are in power, and the opposition is weak; too many people, with too much money, will not want to throw away the opportunity to hang on to that power. The example of Ukip, now a chaotic, busted flush, is not encouraging to rebels. The main threat to the Tories comes from who they choose to succeed David Cameron as leader. But this is quite tightly controlled by the parliamentary party, who have an instinct for survival. No equivalent of Jeremy Corbyn is in the wings.

What other predictions? Jeremy Corbyn will remain leader of Labour, and consolidate his power. Labour’s Sadiq Khan will win London’s Mayoral election. Labour “moderates” will bide their time; setting up a rival party is unrealistic on so many levels. And the Lib Dems? They will achieve some local successes, which will be enough to convince insiders that they are making a comeback, but nobody else. The SNP dominance of Scotland will continue in the Scottish parliamentary elections, but I will be surprised if the Conservatives manage to overtake Labour.

And the economy? I think that trouble will strike before 2020; the economy looks too much like its old self in the days of Blair and Brown.  How will it come about? Britain is vulnerable to events elsewhere in the global economy. Perhaps foreigners will start pulling out of the London property market, causing developers to get into trouble, and then whoever is lending them money. This could spark off a long term decline on Britain’s property values, quite opposite to the conventional wisdom that prices are driven by excessive demand, rather than excessive finance. And yes, that process could start in 2016.

What about elsewhere in the world? Perhaps 2016 will produce an unexpected drama in the US elections, but I expect the winner to be a Democrat. Hillary Clinton looks a shoo-in, but could she be derailed by something in her back history?

And Syria? The civil war looks like a stalemate until Saudi Arabia and Iran decide that they need a rapprochement. Continued low oil prices could force that. A coup within Islamic State to produce a new regime that seeks alliances with other actors should not be ruled out. – and less sponsorship of outside terrorism. But terrorism will go on.

Of course the last three paragraphs have enough escape clauses to not count as serious predictions. But that will have to do for now!