Why healthcare may grow to 50% of GDP and still be affordable

I can’t over-emphasise how important the concepts in this article in last week’s Economist are: An incurable disease, and I would urge my readers to try and get to grips with it.  If you want to understand how our economy is changing, and the implications for public services, the idea it describes is critical.  It ranks alongside Ricardo’s law of comparative advantage (gains from trade) and Keynes’s multiplier (fiscal policy) as a counter-inituitive idea that explains so much.

What it describes is something usually referred to as “Baumol’s cost disease”, and reviews a book by the eponymous William Baumol, “The Cost Disease: Why Computers Get Cheaper and Health Care Doesn’t”.  It stems from the observation that productivity grows in some parts of the economy faster than in others.  The paradox is that the more productivity in a sector advances, the smaller its share in the the economy at large.  Thus agriculture used to dominate the economies of the current developed world – but as agriculture became more productive, it needed less people and so shrank to a negligible propertion of GDP – while generating ever larger larger quantities of agricultural produce.  The same effect is clearly visible in manufacturing industry – producing more goods than ever, but from a shrinking workforce.  The more these areas advance, the bigger less productive sectors bulk in the economy as a whole.  It is, misleadingly, referred to as a “disease” because these less productive sectors, within the service economy, then act as a drag on economic growth as a whole.  It is not in fact a disease, but a symptom of success.  The failure of economists to understand the difference between creating wealth and realising it (i.e. turning that wealth into something that actually benefits humankind) is one the biggest failures of the dismal science, and it is a shame that Mr Baumol perpetuates it in the title of his book.

The most important of these unproductive services are healthcare and education.  Personal contact go the very heart of what these services are: to succeed these services must accept that people are individuals, and that a solution which works for one person may well not work for her superficially similar neighbour.  But, while productivity grows only slowly, if at all, costs, i.e. rates of pay, must reflect the increased productivity of the economy as a whole.  So costs advance faster than productivity.  Sound familiar?  But this only happens because we can afford it.

The eye-catching claim in the book is that on current treads healthcare will take up 60% of the US economy in 100 years, and 50% of the UK one.  But this is all paid for by the fact that other parts of the economy have become more efficient – and in fact it only takes up such a large part of the economy because these parts of the economy have become more efficient.  Actually this projection is a bit silly.  I think the advance of conventionally measured productivity will slow, as technological change now affects quality rather than quantity.  Also other sectors of the economy will reverse productivity as people value personal content more (think of the return to craft food production).  But it is rather a good way to make the point.

Which means that the challenge with healthcare and education is not that growing costs are unaffordable, as various right-wing types claim, but something much more subtle.  There are three issues in particular:

  1. A lot of healthcare is indeed inefficient, both in the UK and the US, and political pressure must be brought ot bear to address this.  But don’t expect it to halt or reverse the share of health costs in the economy in the long run.  The NHS “Nicholson challenge” in the UK may therefore be a valid policy goal, but it will not solve the long-term funding needs of the health service.
  2. The larger the share of the economy healthcare takes up, the more difficult it will be to fund it entirely from tax.  In the UK this either means that a parallel private sector will flourish and undermine the NHS (as has already happened in dentistry), or that the NHS will need to be a lot less squeamish about co-payments.
  3. There is a temptation for the owners and workers in the highly productive parts of the economy to keep the rewards to themselves, creating inequality and undermining public the public sector.  And yet we still want productivity to advance so that we can all afford a higher standard of service.  Higher taxes are part of the solution, but only part.  Again this points to the fact that a higher proportion of healthcare (and education) services will have to be delivered and paid for privately – allowing the remainder of the public services to pay decent wage rates.

I hope that provides food for thought!

What is the core Liberal Democrat identity?

One thing that most people who take an interest in the Liberal Democrats agree on is that the party needs to develop a clearer identity and, to use the popular marketing speak, a clear “brand”.  This has characterised much of the coverage of the conference, such as this from the Economist, showing not a particularly good understanding of the party, and this from Michael Meadowcroft, who has an excellent understanding, but does less well in explaining what the party actually needs to do.  Unfortunately these articles are all too characteristic of the debate.  On the one side outsiders, including recently recruited party staffers, who simply assume the whole thing is about deciding on a politically convenient position and then moving the party to it, and on the other by insiders who fail to articulate exactly what they mean by the clear liberal (or Liberal) principles they want the party to espouse.  Let me try to pick a way through.

First: does the party really need to worry about this?  Just because all the pundits agree doesn’t make it true.  The answer is yes.  There are two problems with the party’s current standing, or lack of it.  The first is that it struggles with a “core vote” strategy.  This is particularly important for elections fought under proportional representation.  The ones we fought in London earlier this year were a disaster; party campaigning was directed to floating voters who had long since floated away, and bringing out the vote people who supported the party in other elections for largely tactical or local reasons, and who large did not vote for it on this mandate.  Contrast this with Greens, who for much less money and effort got out a similar vote based purely on setting out who they were and what they stood for.  This matters because a disaster beckons for the party in the 2014 Euro elections, fought under PR, unless this changes.

The second reason is that there is the perpetual danger of policy confusion.  This has been clearly on display in the debate on NHS policy.  Do we want to follow the Liberal idea of a service with strong accountability to local communities, but flexibility on who actually delivers it?  Or do we want a Social Democratic service which is pretty much the same throughout the country, provided by a single organisation?  With the help of Lib Dem ministers, the government started off with something that looked a bit like the former, only for activists to reject it for the latter.  This confusion matters when you are an aspiring party of government rather than one simply of protest and opposition, and a party of government is what the party aspires to be.

But a word of warning: you can overdo the clear identity.  Successful political parties are coalitions, combining both a sense of common identity and a high spectrum of disagreement.  The Conservatives, for example, identify with the rich and those who aspire to be rich: but this brings together social conservatives with those who just want to cut taxes.

It is instructive to consider the two attempts to rebrand political parties that have shaped British politics in the last couple of decades.  The first was Tony Blair’s New Labour project, and the second David Cameron’s attempt to de-toxify the Conservative brand.  Both involved challenging some deeply held beliefs, and have left a deep sense of betrayal in their parties.  In Mr Blair’s case the effort has not been unsuccessful.  The party won three elections and even in opposition is cohering much better that the Conservatives have in a similar position.  I think that is for two reasons, one intended by Mr Blair, and the other not.  The intentional part was the illiberal, strong government aspect, clamping down on civil liberties.  This has played well with the working class communities that are the core of the party’s identity – and has also helped forge bonds with paternalistic ethnic minority communities.  When Mr Blair assiduously wooed liberals in the 1990s, he never really meant it.  The unintentional part of Labour’s rebranding is its identification with public sector workers, expanding their numbers and protecting their interests.  A modern economy requires a large state, and appealing to these workers is a powerful political strategy – but one that Mr Blair tried to resist, unlike his successors Gordon Brown and Ed Miliband.

The Conservative rebranding, five years or so on, looks a lot less happy.  What quickens the pulse of most young Tory activists seems to be an entirely different agenda from Mr Cameron’s, reminiscent of US Republicans: lower taxes, smaller state, escape from the EU, climate change scepticism and an outmoded idea of “competitiveness”.  While some of this chimes with public sentiments at large, as a package it it is not a winner.  Combine that with an electoral system that is tilted against them, and the project is likely to be a failure.  The Coalition with the Lib Dems, as Mr Cameron clearly saw, was an opportunity to consolidate this rebranding, but the price stuck in the throat of his party and he was unable to follow through.  The lesson there is don’t try to take a party to a place that it will not stay.

So what of the Lib Dems?  Firstly the party needs a core identity which is able to withstand a large diversity of views.  This is both easy, and tricky.  The easy bit is that the party stands for openness, freedom for individuals to choose the life they want, all underpinned by a sense of social responsibility and compassion.  All Lib Dems, pretty much, will identify with this, and they will think that the other parties do not.  The first difficulty is that this identity is an anti-identity: an identity that rejects, or downplays, the usual identities of class, nationality and race.  That is a difficult trick to pull off.  The second difficulty is that each of the other main parties (and the Greens for that matter) will think that such nice and inoffensive people can be appropriated into their own coalitions with a few warm words.  And indeed, many people with these values work for these other parties.  It is not quite enough.

But it has two important advantages.  First is that it is a natural second choice: not the most liked position, but not the most hated either.  Second is that the forces of history are with it.  The old identities of social class, nationality and the rest are gradually being eroded – and to the extent that the other parties lean on them, it makes them unattractive.

This is enough for one post.  What will count is not this sort of abstract speculation, but the practical steps that follow from them to create a successful political movement.  That, I will return to.

The Liberal Democrat conference: life outside the bubble

The “Westminster bubble” is a useful expression.  It refers to an ecosystem of politicians, journalists, think tankers and numerous hangers on based Westminster who have there own version of reality.  The Liberal Democrat conference in Brighton, which ended yesterday was firmly outside that bubble.  Lib Dem conferences tend to inhabit their own bubble, of course.  But after two years of appalling local election results, the complacency that characterises that bubble world was largely absent.  Liberal Democrats are coming to terms pragmatically with a very uncomfortable reality.

Westminster bubble types expected the party to be obsessed, as they are, with the leadership, and mobilising to ditch Nick Clegg, whose personal ratings with the public at large are miserable.  But that was not so; the party maintained admirable cohesion on the matter.  It’s not that members don’t think that Mr Clegg’s standing is problem, but they recognise that there are no easy solutions and that public agitation would be unhelpful.  The whole issue has in effect been outsourced to the parliamentary party, who were making no attempt to stir things up.

For me that party’s mood is best caught by three debates.  On Tuesday on local pay in the public sector and the Justice and Security Bill, and yesterday on housing.  On local pay (sometimes wrongly referred to as regional pay, which would be a non-starter as we do not have recognisable regional economies) the party resisted attempts by the Chancellor, George Osborne, to abolish national pay agreements and let local bodies, including hospitals, schools and local governments, to set their own pay rates.  The interesting thing about this is that localism, delegating responsibility to local authority level, at least, is supposed to be a key part of the party’s ideology.  But the party’s politicians and activists are acutely aware of the fear felt by many in their communities that this would simply mean lower pay, which would not be compensated for by a private sector revival.  Local pay does not have to mean lower pay, and often doesn’t – but it is an understandable fear, since, after all, that is why Mr Osborne supports it.  For me though, principle trumped pragmatism and I was one of a small number of people who voted for the motion.  I hold the deeply unfashionable view that the purpose of national pay agreements is for the Treasury to hold public sector pay down, not keep it at artificially high levels, and that unions only go along with it because it gives their national leaders a raison d’etre.  And as for national pay being simpler, any idea of that has been shaken by the encyclopedic size and complexity of the national agreement on teachers’ pay that occasionally lands on my desk.  Still, the party’s mood was a reflection of the feelings in their communities, and not the theoretical arguments so characteristic of the Westminster bubble.  The concluding speech by John Pugh, Southport’s MP, was a ruthless and effective hatchet job, in which people like me were characterised as having a fetish for markets against all evidence and reason.  I am trying to work out how to get revenge.

Funnily enough, though, on the Justice and Security Bill it was the pragmatists that were drowned out.  At issue was the possibility of allowing secret evidence in cases of national security, where, for example, intelligence sources might be compromised.  No matter the impressive unity of parliamentarians to support this idea, the party emphatically rejected this attack on natural justice.  There were a number of stirring speeches including many from people like London’s MEP Sarah Ludford, who are usually rather disappointing public speakers.  On an issue that is not widely talked about on doorsteps, the party allowed itself the luxury of the moral high ground.

And then there was housing.  There is a clear feeling in the party that housing should be a top priority.  More homes should be built; developers resisting the supply of affordable homes, while sitting on “land banks” of property with planning permission, should be faced up to; private sector lettings should be regulated more strongly.  Once again the debate was characterised stories from the front line; this was one topic in which the principled and pragmatic converged – but the voice of local communities came through the loudest.   Simon Hughes, deputy leader of the parliamentary party, another speaker who usually disappoints, delivered a barnstormer in favour of the motion.

The strongest set-piece speech that I saw came from Sharon Bowles, an MEP who delivered a powerful attack on critics of the EU and business leaders who were keeping quiet instead of speaking out.  She got a standing ovation.  So did new minister Jo Swinson, though her speech was nothing very special – it was the person they were applauding (mind you she delivered an excellent speech in the conference rally on Saturday night).

I missed Mr Clegg’s speech – though I’m not really a fan of the leader’s speech since Paddy Ashdown.  From reports it sounded as if he struck more or less the right tone.  I don’t think his attempt to portray the party as a natural one of government was all that wise.  There is a tendency for Westminster bubble types to assume that things will carry on as they are – but it is most unlikely that the Lib Dems will be in government after the next general election.  It all gives the impression that he enjoys being in government too much.  Still, he is right that government is what the party should aspire to, rather than being a constant party of protest.  And if the party can survive the next few years, then a return to government is very much on the cards.

Plan B

One of the reasons why I suspect Labour will win the next general election here in the UK is that they are showing impressive discipline. This was on show yesterday at a fringe meeting at which both John Cruddas and Andrew Adonis spoke, alongside Jo Swinson and Menzies Campbell. Amid warm words there was a disciplined message about the urgent need for “Plan B” to rescue the economy. Neither is close to the centre of power in Labour, but both were impressively on message. How are Lib Dems responding?

The Labour narrative is this. The Coalition’s economic plan, if it was ever valid, has now clearly failed. It is time for something else, unless you are an evil Tory who simply wants to use the crisis to dismantle the state and don’t care at all for the less well off. It helps them that quite a few, even most, respectable economists support something like this point of view. This allows many to portray Nick Clegg in particular as economically illiterate. These feelings are quite widespread in the Lib Dems – hence the Labour pressure. How are the Lib Dem leadership responding? With equally impressive discipline at this week’s conference.

At several points, and from several different members of the parliamentary party we got a consistent message, but one that had clearly been crafted for the occasion. The economic plan, they said, was always flexible, and it is responding to the changed economic circumstances by putting off the target date for eliminating the deficit by two years. This sounds to be an ingenious way to make a virtue out of necessity. I don’t remember anybody touting flexibility last year – except, to be fair, for Chris Huhne, the former energy secretary who does not appear to be here in Brighton. And so far that discipline is holding. The party overwhelming backed a supportive motion on the economy this morning, rejecting a wrecking amendment from Plan B supporters. The message was helped by lots of warm words and promises about investment in housing and infrastructure.

As readers of this blog will know, I don’t think that the government’s economic policy has failed, but that expectations of how quickly growth would return were too high. And I don’t think that Mr Clegg is economically illiterate, though I have some doubts about George Osborne, the Conservative Chancellor. Far too many economists are basing their views on aggregate statistics, without asking deeper questions about how the economy has been evolving, in a sort of imperial arrogance worthy of Russian Tsars. More on that another time.

The Lib Dems struggle with education policy

Saturday was education day at the Lib Dem conference. Education is dear to the hearts of most Lib Dems, but the party struggles to come up with a clear party line beyond the important policy of Pupil Premium, where state funding of schools is uplifted for those with poorer pupils. This drift was on show yesterday.

There were two motions, one on early years and the other on schools. Both came over as  worthy but wishy washy wish lists, with a rather nanny state tendency on show. The most contentious point on the early years motion was support for increasing professionalisation of nursery and childminding provision. This all feels a bit New Labour and not particularly liberal. The idea that this might be a source of jobs for non graduates doesn’t seem to have taken hold, which is a pity. It would be nice to think that more jobs would be available to single mothers who have had a disadvantaged start in life. But the focus seems be on pushing graduates into those roles.

There was more contention around the schools motion. There is a body of activists who are upset by the way the party has been handling education policy in government, with very little consultation of the party at large, and seemingly tagging along to a Tory agenda. This boiled over a bit with the recently proposed reform to the GCSE exams, which was presented to the world as the result of negotiations between the Lib Dems and Conservatives. But work done by activists on the subject was ignored. The motion was not about this issue, but there was an attempt to spatula it in, rejected by the Conference Committee, which caused tempers to fray.

The motion itself was the usual worthy fare. An amendment on governance was passed which sought to ensure that no interest group had a majority on state school boards…something which would be an issue for faith schools and sponsored academies. It also had some nanny state stuff about training governors. Interestingly the conference also passed an amendment rejecting the proposal to abolish mandatory external tests at the end of children’s primary school careers – SATS. This clearly took the motion’s movers quite by surprise, and showed that the conference was taking bit of trouble over the policies it was passing. I supported this amendment, as a school governor I find these tests invaluable as a means of holding the school to account.

But it would be nice if the party could develop something more radical and interesting, to contrast with the emerging Tory/Labour consensus. This will require some strong leadership. David Laws, the new education minister, is the man who should provide it. But though he is widely respected, he does not seem to be good with the gruelling process of consultation and bringing the activists on side. We shall see.

What do they really mean? Conference euphemisms

I love the Lib Dem conference, which starts next Saturday in Brighton.  But sometimes I tire of the antics of those getting up to make speeches in the conference hall.  There are several sources of my irritation.  One is speakers who take part only to talk about some hobbyhorse issue, taking no other interest in the issue at hand.  Another is speakers who seem to genuinely think they are radical, challenging politicians, but who in fact oppose anything controversial.  And then there are the self-congratulatory, who simply can’t see how the party and its deliberations look from the outside.

So to get these irritations out of my ststem, I have produced the following table of pet hates from the conference floor:

The Olympics and Hillsborough: two faces of the public sector

Brendan Barber, the outgoing General Secretary of Britian’s Trade Union Congress, called for “an Olympic approach to the economy“.  He was, of course, only one of many politicians and others trying to use the example of London’s success in putting on the 2012 Games to try and make a wider point.   He said that it showed that “the market does not always deliver”.  In this I think he was referring to both the fact that the games were a government sponsored grand project, and the spectacular failure of one of the private contractors, G4S, to deliver security staff.

Well I did not hear his speech, or even read it – relying on radio and press reports.  What comes over is a mixture of the coherent and nonsense.  The coherent part was the idea that an economy lacking in aggregate demand could do with some grand infrastructure projects to keep people employed and deliver future benefits.  Many people across the political spectrum agree with that, although personally I am on the sceptical side.  The nonsense bit was the idealisation of the public sector and suspicion of anything that smacks of private initiative and enterprise.  He precise words may well not have done this: “the market does not always deliver” is not the same as saying that “the public sector always delivers and market never does.”  But that is no doubt what his TUC audience heard, judging by what some people were saying.  The ideas of many trade unionists are not so much inspired by Maynard Keynes as Leonid Brezhnev.  Unlike in America, though, the public are more sympathetic to such notions than they ought to be.

To see why we have the terrible example of the Hillsborough football disaster in 1989.  Today a report has been released vindicating criticisms of the authorities long made by families of the victims; the Prime Minister was forced to make an apology.  The authorities, mainly the Police, not only made misjudgements that caused the disaster, but their handling of things made it worse by delaying medical help.  And to cap it all they systematically covered up the truth and put about mis-information to try and divert the blame.  It has take 23 years to get this far.

What is my point?  It isn’t that the public sector is any more likely than the private sector to perpetrate the sort of mistakes that led to and exacerbated this tragedy.  Far from it.  It is that it is so much harder to hold the public sector to account.  They are integrated into the system that is meant to secure justice; they can pull strings, call in political favours, and work the system so that the truth does not come out.  For every Hillsborough that eventually does come to light, think of the hundreds of lesser tragedies where the authorities manage to thwart the victims.

Compare that to the private sector.  At the Olympics retribution was swift and brutal for G4S, publicly humiliated in days (while their public commissioners who seemed asleep on the job just kept their heads down).  Or to take something a bit more comparable: BP’s Mexican Gulf disaster last year.  BP faced the full weight of the US political and judicial system, forcing a rapid response and compensation payments.

Hillsborough was a long time ago.  I would like to think that standards of public accountability have improved since then.  But we still get procurement disasters in the Ministry of Defence, bad hospitals getting away sub-standard services, state schools in many parts of the country not trying hard enough to raise standards among less well-off communities.  And even the Olympics – compare the cost to original budget!  Not to mention their reliance on armies of unpaid volunteers.

Scepticism of the private sector and open markets is understandable – but we need to get things into perspective.  We have too easily forgotten what happened to the Communist systems in Europe.  All those expressions of goodwill and the promotion of the public good soon get buried in a culture of passing the buck.

The curious case of Heathrow’s third runway

Why did senior Tory MP Tim Yeo make such a conspicuous bid to support Heathrow’s third runway?  The idea is ruled out in the Coalition Agreement, and it is politically impossible for the government to take forward.  Such a bid can only weaken the government and David Cameron, the Tory Prime Minister.   Rather than indulge in conspiracy theories, I prefer to think it is because most MPs, who are elected in safe seats, and the business lobby advisers, don’t understand how elections are won and lost.

Mr Yeo made his bid in an article in the Telegragh.  After going through the familar arguments put forward by lobbyists, he appealled to Mr Cameron to change the government’s stance, by asking himself “whether he is a man or a mouse”.  The change could be a turning point for the government, he said, giving it a sense of mission amidst a lacklustre economy.

Heathrow’s operator, BAA, and principal user, British Airways, have been campaigning for Heathrrow’s expansion for many years, trench by trench.  It seemed that they had lost this latest bid when the Coalition was formed in 2010.  But they didn’t give up, and have kept their lobby efforts going.  The results are quite impressive.  Grudgingly, general public opinion seems to be coming their way, amid a deluge of supportive newspaper stories.  It has become a totem issue for the political right, desperate for ideas that will both expand the economy and keep public expenditure down.  Mr Yeo is one of a series of Tory MPs that have publically come out in favour.

But scepticism runs very deep here in west and southwest London, where we endure continuous intrusion from air traffic.  Each victory won by BAA (to date mainly over new terminal buildings) has been bitterly contested.  We have seen the smooth reassurances offered in one bid quietly buried in the next.  There is no trust left in BAA and BA.  And amid the swathe of hotly contested marginal constituencies in the airport’s shadow, the importance of the issue has only risen.  This is what forced the Conservatives to oppose the new runway before the 2010 election.  The area is also a stronghold for the Liberal Democrats, who have picked up on local opposition to Heathrow expansion from the start.

It is this last that is the political key for the government.  Liberal Democrats are a beleaguered species since they joined the Coalition.  Hopes that being in government would add to the party’s credibility are fading fast, as local election results show a grim picture.  A very difficult election is coming up.  Here the party’s objectives will be to hang on to what they have as best they can.  Those local lection results show that the party can still benefit from an incumbency effect.  South west London is one of the key battlegrounds, with four Lib Dem seats to defend, and a fifth Tory seat, Richmond Park, a marginal that the Lib Dems could win back.  The party simply cannot afford to support Heathrow expansion.  What’s more, the evident Tory backsliding on the issue is one of the very few shafts of light for Lib Dem campaigners locally.  If the Tories drop their opposition to it in their next manifesto they will be bring out the champagne in Lib Dem HQ.

Which makes the fact that Mr Yeo and others are upping the ante very curious.  This is an existential issue for the Lib Dems, so they will veto any change of government policy – never mind that the Tory Transport Secretary Justine Greening also has a seat under the Heathrow flightpath and has campaigned vigorously locally against expansion.  Politics is supposed to be about the art of the possible.

What might the explanation be?  One popular theory is that it is about Mr Cameron’s leadership of the Tory party.  The Tory right are fed up with him, and would like him to be replaced.  But to do it like this is surely suicidal – we only have to see what happened to John Major, the last Tory Prime Minister, who also had to deal with backbench discontent.  The result was 13 years of uninterrupted Labour rule.

It may simply be a long term plan to ensure that Heathrow expansion goes ahead.  This is surely what BAA and their advisers have in mind.  If they can get the Tory party to change its mind at the top, and the Tories win the election without a few of those London seats, then bingo!  They had already persuaded the last Labour government to press ahead.  But this is a herding cats strategy.  If they persuade the Tories to change their mind, the chances are that Labour will come out against, so that they can win back a few of those marginals in south and west London.  The result of the that election could be very tight, so you don’t just wish away a few seats here and there for the sake of a project like this.

Personally I think it is naivity.  Some on the Tory benches have spotted that if the Conservative backbenchers are behind a government policy, and you add in the Lib Dem payroll vote, who are bound to support any Coalition compromise, then it is enough for legislation to pass, even if all the Lib Dem backbenchers rebel.  So all you have to do is ram a policy past the top Coalition policy process, and you’ve won.  This strategy worked for George Osborne when he wanted to reduce the top rate of income tax – which he did in this year’s Budget in exchange for a series of policy concessions, now long since forgotten.  He had similarly been told this was politically impossible.  This is reinforced by the belief that the Lib Dems will not bring the show down because they are afraid of an election.

But that ended badly.  Mr Osborne’s Budget, including reducing the top rate of tax, is now seen as a politcal distaster.  It did nothing to boost investment and growth, as the Tory rhetoric and “Business” claimed it would.  And as the next election looms Lib Dems are increasingly focusing on how to hold onto their parliamentary seats.  It’s one reason why they jumped at the chance that Tory backsliding on Lords reform gave them to ditch the new constituency boundaries  – which they had come to realise would make things very difficult for them.  Heathrow is a similar existential issue, worth leaving the government for.  No less than two Lib Dem cabinet members have seats near the airport.

But Mr Yeo, like most Tory and Labour MPs, represents a safe seat.  He seems to have little comprehension on how elections in marginal seats work.  The same seems to be true of BAA and their advisers, who probably like to look at national opinion polls and the big picture.  Surprisingly few of the community of advisers, lobbyists and polical professionals that inhabit Westminster have a good understanding of the graft needed to win real elections; even less have any comprehension of how Lib Dem MPs win and hold their seats.  So they make silly mistakes like this.

And what of the the case for expanding Heathrow?  This deserves a blog in its own right.  The case is stronger that my instinctive distrust of BAA, BA and anything calling itself a “business case”, or any group purporting to represent “Business”, would normally allow.  But that is irrelevant in the rough and tumble of winning marginal votes.

Capitalism in crisis. A smaller state and lower taxes will make things worse, not better.

The advanced capitalist economies are in trouble.  Economic growth is anaemic or negative; government debt mounting; banking systems are on life support.  There are big differences between the individual economies, but some combination of these three, or at least two of them, afflicts more or less all major economies – Australia and some Scandinavian economies excepted perhaps.  The crisis may not be as severe as the one in the 1970s (it is if you measure GDP statistics but not by any other measure), but there is a pervasive sense of hopelessness.  Nobody seems to have a convincing solution.

Broadly two narratives are offered.  On the left the crisis is attributed to greedy bankers and corporate bad behaviour – and the answer is to ratchet up state spending to provide a Keynesian stimulus together with some very vague ideas on improving regulation of big business.  On the right the crisis is attributed to an excessive state, and the answer is to roll it back to get out of the way of free enterprise.  Neither is very convincing.  For a much more convincing narrative, go to the eminent American economist and Nobel Laureate Joseph Stiglitz.  He recently published a book on the topic:  The Price of Inequality: How Today’s Divided Society Endangers our Future.  I haven’t read it, alas, but it is reviewed by the Economist here, and Professor Stiglitz wrote an article for the FT here.  A weakness is that his comments are focused especially on the US – but they have a global resonance.

This crisis has been evolving since the 1980s, while two important trends have been evident: the advance of technology and globalisation.  These have rendered much of the earlier economic infrastructure obsolete and forced a major restructuring of the world economy, with big impacts in both the developed and devoping worlds – many of them very positive.  Running alongside this has been a major shift in the balance of economic power from labour to capital.  This is evidenced by a declining proportion of GDP attributed to wages and salaries and an increasing proportion to business profits.  This in turn has led, especially in the US, to a dramatic rise in the inequality of wealth and income distribution.  I have not been able to lay my hands on a clear set of statistics to demonstrate this – and not being a student any more I do not have access to the OECD or other statistical databanks – or not in a form I can work with.  But this is widely attested to.  Incidentally income inequality is not the only aspect of this problem, the amassing of corporate power that we can see in Japan and Germany, for example, is another dimension of the same problem.

This is where it gets interesting.  One of the characteristics of the very wealthy (including big corporations) is that they do not spend as much of their income as poorer folk.  They like to amass wealth, to exercise power, to pass on to later generations, or simply because they are too busy creating it to spend it.  This creates a problem made famous by Maynard Keynes, and explored by all Economics undergraduates: if there is a surplus of saving over  investment opportunities then the economy as a whole starts to shrink: people are producing more than is being consumed.  That, in essence is what the crisis is about.  Changes to the world economy have skewed the distribution of income in such a way that it is slowly suffocating the economy as a whole.  This is not unprecedented: something like this happened in the early days of capitalism in the mid 19th century, but was resolved when the balance of power shifted back to labour.  I have read a claim that there was a similar crisis in the 1920s and 1930s – but I am less convinced that skewed income played such an important role in then.

Now there are broadly four ways that sinking domestic demand from excess savings can be countered.  First, an economy can run an export surplus which transfers the excess supply to other economies; this might be called the German solution.  Second investment levels can be stoked up to absorb the surplus savings: this is roughly what happened in America in the 1990s with madness of the high-tech boom.  Third consumption can be ramped up amongst the less well off by encouraging private debt, usually aided and abetted by a property bubble – the US and UK economies did in the 2000s.  Finally government spending can take up the slack, either financed by taxes or, more usually, by borrowing.

Each of these four solutions has been tried by the major world economies, and all have given rise to problems.  Export surpluses simply transfer the problem elsewhere – and are only globally sustainable where the counterpart deficits are being used to finance worthwhile investment.  But the developing world, where most such investment is taking place, has often been running trade surpluses.  Otherwise surpluses build up into assets that have to be unwound painfully.  Investment looks like a good idea, but to work these investments have to pay back, otherwise you simply postpone trouble.  This has proved much more challenging than many have allowed – I did not use the word “madness” in connection with the high tech boom of the 1990s for nothing.  Private debt amongst the less well off might work if their incomes are rising – but the problem arises because they are not.  And finally excess state funding carries its own problems.  It is economically inefficient, and, financed by debt it simply builds a future financial crisis.

So what to do?  It is worth noting that the left’s narrative on the crisis is closer to mark than the right’s.  Cutting taxes and the power of the state will not unleash a flood of new investment, as the right claims – it will make matters worse by choking demand further.  The left is right (as it were) to see that a large state is part of the solution, rather than the problem.  Where they are wrong is to think that a bit of fiscal stimulus will restore the economy back to health – because it fails to deal with the root causes of the problem.  Taxes have to rise, and especially on capital and the rich.  And there is rather a tough consequence.  This may help break the cycle of the rich not spending enough – but at a cost to the overall efficiency of the economy.  We have to lower our expectations of what an economy can deliver.

And what of the megatrends that caused the problem in the first place?  As I have argued on this blog before, I think globalisation is running its course and will not be the force it once was.  There will be less pressure on developed societies from developing world competition.  As for technology, let us hope that it starts to fulfil its promise of empowering the individual.  Only this will ultimately restore the balance of power between businesses and their employees in a way that does not suffocate enterprise.

Competitive sports: making it compulsory is futile

We’re having a lot of fun in Britian with the 2012 Olympics, and especially here in London.  That’s rather wonderful in its own right – but as usual people are using the occasion to push forward their political agendas.  And the obvious agenda to push is funding for sports, and the promotion of sport in schools.  Any number of half-baked ideas are being floated, including by our Prime Minister, David Cameron.  In particular Mr Cameron thinks that the focus that his school (Eton) had on team sports would be a good idea for everybody. Compulsory competive school sports would be just thing, apparently.  But my scepticism comes from the fact that I endured a private education system almost as privileged as Mr Cameron’s – and I don’t think its emphasis on compulsory sport did me any good at all.

One of the many problems with competitive sports is that they are almost by definition elitist.  Prestige comes from winning.  Winning only goes to those with certain mental and physical aptitudes.  If you don’t fit, and almost by definition most don’t, the whole thing is painful.  You just become fodder for other people to show off against.  This was pretty much how things were for me at my prep school in Ealing.  I used to hate “Games”.  I still have an affection for pouring rain since this meant that Games would be cancelled, and I would be spared the humiliation and risk of getting hurt.

It is at this point my story takes an unusual turn.  In 1969 my father was seconded to Jamaica for a couple of years, and I went to school in Kingston.  This was another privileged institution (The Priory School – I think it’s still going strong), with a very strong American slant.  There was no compulsory sport, and I was very happy about that.  I joined in the odd game of football on a voluntary basis, though not very successfully.  But my parents enrolled me in a swimming club, not linked to tschool at all – one that trained me to a competitive standard, including (very unsuccessful) participation in the Jamaican junior swimming championships.  As something outside the hateful apparatus of compulsory school sport, and with a supportive and encouraging coach (how unlike school sports!), I was happy to go along with this.  Returning home and back to one last year in my prep school, I continued to keep up swimming, at Ealing Swimming Club.  This made me very fit.  I astonished my school teachers by picking up the gold medal for the 440 yards race at the school sports day, along with another gold for the relay team (taking the final leg) and a mere bronze in the 100 yards.  It was less of a surprise when I picked up the Victor Ludorum at the school’s swimming competition.

I then moved on to my secondary school, the “public” school of St Paul’s.  I did not find Games any more agreeable here, with its major emphasis on rugby.  Meanwhile at the swimming club I worked my way up the various grades until I hit the stream where people at the top were in Commonwealth Games contention.  And I was firmly stuck at the bottom, in spite of quite mind-numbing and exhausting swimming sessions.  I felt I had better things to do with my time (like assembling Airfix kits) and gave up.  There was to be no more sporting glory for me!

This has left me deeply suspicious of compulsory school sports.  Coaching resources are limited.  It is natural that they should concentrate on the most promising cases.  If you are not judged (rightly or wrongly) to be in that category you are going to have a miserable time, and won’t get anything out of it more than a fear and distaste for participating in sport.  And most of the people who succeeded in sports at school won’t have much idea what I’m talking about.

If the alleged health benefits of sport are to be realised, then it needs to be voluntary and enjoyable.  There’s nothing wrong with competive sports – and anybody that wants to take part, or even try it out, should have the opportunity.  I would back funding for that – though let’s recognise that this doesn’t have to be schools, and is often better outside.  But making it compusory is a blind alley.

And there’s something else.  If sport is voluntary then those running it have some incentive to make sure that people are enjoying it – instead often being nasty bullies.  Things may be better nowadays, but when I was at school bullying in team sports was rife at schools – and this carried through to the professional game.  We don’t want to go back to those days.