Politics UK – Page 49 – thinking liberal

The G4S fiasco poisons attitudes to the private sector

The British contractor G4S has specacularly failed to find anything like enough staff to support its contract to provide security staff for the London Olympics…which start in less than two weeks. The details aren’t clear yet, but this one has all the makings of a fiasco that will be examined in deph in MBA courses for a long time. A bigger question is the effect it will have on public attitudes to the private sector here in Britain.

For now the politicians and journalists are having some fun. “Is this a humiliating shambles for G4S? Yes or No?” (or similar words) one MP asked Nick Buckles, the hapless G4S Managing Director, this morning, showing the sort of skills of forensic questioning that make people wonder how useful parliamentary select committees really are. Mr Buckles had to agree. It wasn’t just the size of the recrutiment gap, it is that nobody at the top seemed to have any idea that there was trouble until a couple of weeks ago.

Another revealing encounter was on Radio 4’s Today programme this morning. John Humphreys was interviewing the senior police officer coordinating Olympics security. The latter referred to G4S as a “partner”. They’re not a partner, retoted Mr Humphreys, they just a private company only interested in profit. And that seems to summarise a widespread attitude here. Private companies are greedy and heedless of ethical standards. Meanwhile the good old public services, like the police, the armed services or the NHS are selfless public servants working for the good of us all.

What a difference 30 years makes! Back in the 1980s public services were supposed to be crassly managed, unable to control their unions and unable to deliver anything on time or efficiently. The private sector on the other hand, the odd (state supported) car manufacturer apart, was all enterprise, innovation and efficiency. It says a lot for the process of public sector reform that has happened since that public services command such respect now. The private sector, on the other hand, has not come out of the banking crisis well, as the parallel case of Barclays seems to demonstrate.

This matters because further public sector reform, especially in the NHS, implies greater use of private businesses. This was already a hard sell politically. It’s not getting any easier. Should it?

Well, management screwups are by no means the unique preserve of the private sector. Last week a coroner reported on a case of a patient dying at our local hospital, St George’s. This looks like a case too many people being involved, not aware of the complete picture, and nobody taking the initiative to sort problems out. The hospital said that it had changed its procedures to prevent future incidents like it. You can almost guarantee that this means an extra check or process spatulaed on top the ones already there – theoretically dealing with the problem, but actually making the process more complex and difficult to manage. Reengineering of operations to deal with risks like this seems to infinitely more difficult in public sector organisations than in private sector ones, perhaps because it means trampling over well established demarkation lines. Cases of bad management abound. The quality of police management was shown in very bad light by last year’s riots, especially in London, where they were caught flat footed by youngsters with Blackberrys. And as for the armed forces, whose public stock is currently very high, the amount of money they have wasted in equipment procurement programmes is absolutely eyewatering.

And as for the G4S scandal, the wider story is not necessarily against the private sector. The company is clearly accountable, and is picking up the extra costs instead of the taxpayer. And surely the procurement process is a much to blame as the contractor? G4S may have been suffering from “winner’s curse” – required to cut costs to win the contract, and then finding that it had been unrealistic, or taking too many risks. Realistic or cautious bidders simply get eliminated. But this is a well known procurement problem – and surely the commissioners should have seen fit to take precautions? Some rather obvious questions are being asked about how such a large and important contract was being supervised.

And it’s interesting to reflect a little further on the currently popular subject of “culture” in organisations, that, for example, was supposed to be so bad in Barclays. Well senior managers not knowing about problems building up within their organisation is often a sign of bad culture. Mr Buckles said he was a “no excuses” manager; so were staff afraid to pass up bad news? The twist on this is that this sort, tough, no excuses style of management is beloved of politicians and the public (provided they aren’t actually working in the organisations concerned). I’m not sure that most politicians would recognise healthy corporate culture if they saw it. And that is bad news for the public sector.

So it would be a pity if this episode slowed down the process of involving private companies in public service reform. But it would be as well to learn the lessons for public sector procurement and contract management.

Betty Boothroyd makes the case for Lords reform

This morning’s Radio 4 coverage of the oncoming debate on Lords reform made little attempt at balance. They gave prominent coverage to opponent Betty Boothroyd. A supporter may have been given airtime while I wasn’t listening – but if so they did not get a mention on the website. But at least Baroness Boothroyd’s bluster gives supporters of reform plenty of ammunition.

Baroness Boothroyd, a former Labour MP and the House of Commons’s first (and only) female Speaker is treated as a bit of a national treasure – understandable given her remarkable life story, and the determination with which she climbed the greasy pole to celebrity. She is deeply conservative, and loves all that fake tradition and flummery that the British Parliament wallows in. But beyond this emotional attachment, she seems unable to give good reasons in their defence.

Her main point was that electing members of the upper house (whatever it would be called) would give it more power, and elevate its status to beyond that of a mere revising chamber that is not meant to get in the way of the Government and its whipped majority in the House of Commons. She suggested that the reform would lead to the upper house challenging financial legislation, something which it is currently unable to do. She also accused the reform’s proponents of not having thought things through, and insisted that it should be debated at length in parliament.

But this is mostly complete nonsense. The reform bill does not propose to change the current powers of the upper house – which means that it would not have the ability to challenge financial legislation. The primacy of the Commons is categorically included in the draft bill. Debate on the floor of parliament is not grand dialectical process by which laws get improved through earnest challenge and debate – it’s a theatre for the pompous to spout off pre-conceived opinions without listening to anybody else’s. The challenge and debate comes in the consultation process that surrounds the debate. This has been extensive, both in this parliament and in various predecessors. The arguments have been rehearsed many times, and solutions to the many problems devised. Having hammered out a workable compromise it is now time to decide, subject to a bit more wheeling and dealing, perhaps.

But what Baroness Boothroyd showed was that she herself could not be bothered to find out about what the proposals actually were. So what value does she contribute to the revising chamber that she defends, beyond a few deeply held prejudices? The trouble with the House of Lords is that it is full of people like her – and not the valuable experts that its supporters claim. What on earth is the point of it? Why not just abolish it all together?

The is much to criticise in the Government’s reform proposals. But they do deal with the two main weaknesses of the current house. First it shrinks it to a sensible size, including the use of limited terms of office (rather staying until you drop dead, as now) . Second it replaces patronage systems of appointment with an electoral process. These two steps will help to professionalise it, and then make it rather more effective in its job of challenging and improving lower house legislation. It may not succeed. 15 year non-renewable terms may mean that those elected just soak up the status and grandstand rather than doing any real work. And Baroness Boothroyd’s fear that it may just get in the way of government without adding value is not itself complete nonsense, unlike the bluster with which supported it. Being elected might give its members licence to be simply obstructive.

But it’s worth a try. If it doesn’t work we can change it. Or abolish it altogether.

Behind the theatrics on Barclays, what needs to be done?

Predictably enough the Barclays Libor scandal is generating rampant theatrics amongst both journalists and politicians. It is not easy to keep grip on what actually matters. And yet this is vital when it comes to deciding what the next steps should be.

One piece of theatre is a sort of whodunnit, amongst Barclays senior managers, and government and regulatory officials. How much did they know? What did they authorise? One line of attack concentrates on Bob Diamond, the former Barclays Chief Executive, whose evasions at a parliamentary select committee yesterday created predictable anger. The real point behind this is the question of how far up the chain of command should responsibility for unethical behaviour go? Should bank chief executives be like Royal Navy captains, as John Kay suggested yesterday in the FT, and take full responsibility for everything that happens on their ship?

A further twist comes from the thought that there may have been an element of government connivance in the second phase of manipulation, as the financial crisis was in full swing. The hope amongst government politicians is that something can be pinned on Labour figures such as Shadow Chancellor Ed Balls. That looks a long shot. Experienced political operators like Mr Balls don’t leave fingerprints, and there were legitimate reasons at the time for an interest in the behaviour of Libor. But the Labour’s case wasn’t helped by a radio interview with Baroness Vadera, Gordon Brown’s economic adviser, yesterday lunchtime. She was evasive, confusing the two very different phases of the scandal (i.e. the first phase of manipulation for to make trading profits, and the second of official manipulation for wider politcal purposes). It gave the impression there was something to hide. Other key Labour figures, such as Mr Balls and Lord Myners, the former City minister, are giving much more confident performances, though.

Centre stage for the theatrics today is the argument as to whether any enquiry should be a full judicial one, like the Leveson Inquiry into the press, which Labour are asking for, or the government’s preferred option of a quicker parliamentary one. Both options have merit. A judicial enquiry gives the whole thing an air of importance, and legal interrogators are much more effective than grandstanding politicians; it would keep the City types on the ropes for longer. But lawyers are unlikely to contribute much of value to designing a solution. A parliamentary enquiry would be a quicker way to actually change the law, as well as creating less complications for any parallel criminal investigations. What is actually needed is an expert commission – but we’ve already had one of those, the Vickers Commission – which indeed pointed towards some of the solutions.

But what actually needs to be done? In principle this isn’t difficult. Investment banking activities do play a useful role in the modern economic system, and aggressive trading culture can help the process of what economists call “price discovery” – spotting and correcting where the prices of financial instruments don’t reflect the world’s realities. Short-selling the shares of badly performing companies looks ugly, for example, but it does improve accountability. But the usefulness of investment banking is distorted by two problems:

Using other people’s money. Where traders use borrowed money to trade with, which is the bulk of what they do, then they are not taking full responsibility for the rsiks they are taking, and the whole balance of incentives gets skewed. Trading soon escalates to levels beyond the socially useful. The volume of borrowed money used has risen massively over the last couple of decades, and many traders probably don’t even understand the idea of using their own capital to bet with.
Trading culture struggles to recognise ethical boundaries. A disagreement over price is one thing, but manipulating systems designed help people is another. Fiddling Libor (especially in the first phase of this scandal) was one such transgression, as are various scams to exploit the way mutual funds are priced. The UK regulatory authorities can be too soft on this.

So in essence what needs to happen is this:

Isolate banks’ trading and derivative activities from ordinary economic deposit-taking and commercial lending, and attach separate regulatory regimes to each.
Clamp down hard on unethical behaviour – with chief executives and directors taking full responsibility for what happens in their organisations. Ignorance should not be a defence – and if that means some organisations become impossible to manage, then they should be broken up. Sanctions should hurt, and include the criminal law (though remember that its higher burden of proof can get in the way).
The money supply to investment banking operations needs to be choked off, so that only those that fully understand the risks are supplying it. Isolation will help here, but may not be enough.

The principles are easy, but the details are all important. The problems are global but it will be very hard for us in Britain. The City is so important for our overall economy that we are easily scared away from being too tough. But if the attraction of the City is that it is easier to do unethical business, then this is not a recipe for long-term success. We can still have a thriving financial services industry with niche operations based on genuine knowledge and expertise of the real world, and the provision of solid, well designed infrastructure and systems.

Next steps? I think an enquiry is a bit of a distraction, so the government’s option is probably better. the government perhaps using this enquiry as cover, must go back to the Vickers proposals and implement them in full. Going beyond Vickers to enforce the full separation of investment and commercial banking should be considered. And as for culture change, that needs to happen at the regulators, including the Bank of England, as much as the banks themselves. A change of senior personnel would help here.

Barclays scandal: culture isn’t the problem, it’s the money

City traders live in a world of their own. After the news of Barclays Bank’s fine for falsifying LIBOR returns, its share price rose slightly. The scandal had been rumbling on for months, and they were relieved that it had been resolved. They had no idea about the approaching firestorm – which took a big toll on its price later that day. Later an investor was reported by the BBC (who may have been quoting a newspaper) that all this mob rule had to end. But as the hue and cry continues (this morning the Barclays chairman resigned), politicians and media commentators seem to be equally out of touch with what lies behind the scandal. Unfortunately that may mean that nothing useful comes out of it.

The LIBOR issue itself is being blown out of all proportion. That is understandable. So much of the unethical practice in the industry go unpunished that when somebody gets caught a disproportionate response is quite rational. That is the point that City insiders probably missed in their sanguine early reaction. But most of the comment has focused on the idea that the industry culture is thoroughly cynical and corrupt, and it is this culture that is the main problem needs to change. Criminal penalties are spoken of for unethical behaviour, and the familiar idea that the payment of big bonuses should be limited. The Business Secretary Vince Cable has called for banks’ investors to rein the managements in.

That’s all very well as far as it goes. The culture is awful. We shouldn’t be too romantic about how things used to be, though. In the old City it may have been the case that “my word is my bond”, but ripping off clients and living off fat commissions was rife. One point frequently made is that traditional upright commercial banking culture, such as displayed by Barclays’s Quaker founders, has been corrupted as investment bankers have taken over. This is also true, but that fusty, conservative, self-absorbed commercial banking culture had to change. I well remember having lunch once at Barclays HQ in the 1980s: what a gloomy experience, for all the uprightness of those involved – there was no hope of us doing business with them because they would never be ready! We must look deeper.

The problem is that it is far too easy for big banks to make lots of money without too much effort. That is absolutely corrupting. Bankers naturally think that this money is added value for the highly skilled work they do to ensure that money flows to and from the right parts of the real economy. The rest of us are entitled to be sceptical. The profits which happen most years are wiped out in the bad years, when shareholders and taxpayers pick up the tab. The investment bankers have found a number of ways to make bets with other people’s money, take the benefits for themselves, and make sure somebody else picks up the tab if things go wrong.

But that’s not the only problem, here in the UK at least. There is also lack of meaningful competition. It is impossibly difficult to set up a new bank to compete with the existing oligopoly. The remaining banks have been allowed to consolidate into a small number of behemoths. The regulatory authorities, including the Treasury and the Bank of England, as well as the FSA, have been complicit in this. They prefer a cosy club of large organisations with big compliance departments than the rough and tumble of competition that, for example, the Americans or Germans experience.

The aim of public policy should be to make banking less profitable, so that the banks can’t pay massive salaries and bonuses, and more competitive, so that customers benefit from real innovation. This needs the British authorities to do three things in particular:

Make it much more difficult and expensive for investment banking and financial trading operations to secure finance. Separating investment banking from commercial banking, as recommended by the Vickers Commission, is a good first step, though may not go far enough. Increased capital requirements, as now being imposed globally, is another. Regulators need to be particularly hard on bigger institutions, and not let the idea that larger operations are more efficient take hold.
It must be much easier to set up new banks, both in commercial banking and investment banking. The issue isn’t the amount of regulatory capital required, but a host of other obstacles placed in the path of new banks.
While regulation needs to lighten up on the creation of new banks, it needs to be tightened on the regulation of lending operations. We should not allow runaway growth of credit, especially that linked to the purchase of purely financial investments, and, it has to be said, to real estate.

All easily said. But the trouble is that it is quite painful. Attacking bank profits will look like an attack on one of a limited number of industries where British based operations are internationally competitive. Easing up on creating new banks means tolerating more banking failures and creating a more challenging environment for regulators. Restricting credit means curtailing the British love affair with property ownership.

It is easier to bang on about culture and lock a few people up. The one good thing about the crisis is that it helps keep the pressure up on the Vickers reforms. But when the dust settles the usual City types will be having a quiet word with their counterparts in the Treasury, Bank of England and the Prime Minister’s office about not throwing the baby out with the bathwater. The reforms will be quietly defanged. Bankers will continue to lord up. Taxpayers will continue to be exposed. And the British public will continue to be let down by bankers and politicians alike.

Let’s hope that this does not come to pass. Critics of the banking industry will need to keep the pressure up.

Why Paul Krugman is wrong

In today’s FT the economists Paul Krugman and Richard Layard (of the LSE, famous for his work on the economics of happiness) publish an article A manifesto for economic sense calling for looser fiscal policy around the world. Being in the FT it’s behind a paywall (though I have shared the article on Facebook). But the simplicity and clarity of their argument make it a particularly good pace to discuss the difficult issues of economic policy as the economic crisis rumbles on.

Back in 2005 I was contemplating taking an Economics degree, with little formal background in the subject. I asked a tutor at the university (UCL) on their advice for background reading and he said “Anything by Paul Krugman”. The Professor at Princeton, who subsequently won the Nobel Prize, was famous for the clarity of his writing on economics. I also discovered, as I devoured anything by him I could find, that he was not a shrinking violet on the subject of US politics – passionately attacking the Republican regime of George Bush. Now he is a crusader against “austerity” – the focus of governments on healthy finances even as recession stalks the world. He recently visited London, and appeared on Newsnight. I didn’t see him, but I am told he made mincemeat of his opponents – and I’m not surprised.

As I took my degree at UCL I read more of Professor Krugman’s work, now in academic papers and discussions, rather than the more accessible stuff I read read before. The clarity remained – but he came over as a bit wild. I remember in particular one discussion where he became obsessed with the idea that Japan needed to stoke up inflation to get its economy out of the doldrums. His wild suggestions for doing so seemed to leave his fellow economists quite exasperated. Ever since I have viewed his opinions as entertaining, but liable to be impractical, and in the end very unhelpful. So it is this time.

The article (not very long) starts its main line of argument by talking about the causes of the crisis:

The causes. Many policy makers insist that the crisis was caused by irresponsible public borrowing. With very few exceptions – such as Greece – this is false. Instead, the conditions for the crisis were created by excessive private sector borrowing and lending, including by over-leveraged banks. The bursting of this bubble led to large falls in output and thus in tax revenue. Today’s government deficits are a consequence of the crisis, not a cause.

I think it is highly significant that the authors throw this in so early. It implies, without actually saying so, that pre-crisis government expenditure in most developed economies was perfectly sustainable, if that pesky crisis hadn’t caused a dip in tax revenues. It is perfectly true that government debt was not a major problem before the crisis, which was caused by excessive private sector debt. The trouble is that the boom years gave us false expectations as to what the sustainable levels of tax revenues were. A large part of the dip is permanent, not temporary. So substantial cuts will have to be made at some point to bring government debt under control. It isn’t just a question of waiting for the economy to bounce back (in the UK, US and southern Europe, anyway).

The authors then point out that the crisis is caused by a collapse in private demand – and that it makes sense to make up the shortfall in demand by extra government expenditure until private sector confidence returns. A failure to act means that unemployment becomes endemic and difficult to put right later. They point out that monetary policy cannot take up the strain. They say that there must be a medium term plan to bring government deficits under control – but that it must not be front-loaded. I have no disagreement with any of this. Quite a few people think that looser monetary policy would help – but I agree with the authors on this (which I will say more on in a future post).

Where I differ is that I think what they suggest is exactly what governments are now doing, in the UK and US anyway. In nominal terms government expenditure has not been cut. The private sector is slowly taking up the slack. Governments may be talking austerity, to prepare the ground for the real cuts that are absolutely necessary in the medium term, but they are not practising what they preach.

The article concludes by trying to debunk two typical counterarguments to further stimulus. First is that financial markets would lose confidence and refuse to keep funding government debt. They point out that there is no sign of this in the UK or the US, where government bonds are at record low yields. They also say that there is no actual evidence that budget cuts can generate growth. On the contrary, they suggest (though don’t quite spell out) that looser fiscal policy will help restore confidence and get the private sector moving again, which would allow the deficits to be brought under control. The trouble, of course, with using past evidence to prove a point is that the current situation is unprecedented. And the global financial markets are quite unstable; who is to say that UK and US bond markets aren’t in their very own bubble that could burst very suddenly. The absolute levels of deficit, and, increasingly, overall debt are becoming so alarming that anything is possible. And what if the private sector remained sceptical in face of government stimulus?

Finally they tackle the argument that stimulus cannot work because there are structural constraints. In other words, the pre crisis economy was so unbalanced that there is in fact little spare capacity – so that a stimulus would run into trouble very quickly, leading to inflation or a currency crisis. If this were so, they say, we would see more parts of the economy at full strength. Here there may be a difference between the UK and the US. In the UK there are indeed a few signs of trouble. Inflation has been much more persistent than predicted, though admittedly not through wage rises. Export businesses complain of a lack of suitably skilled staff.

Straws in the wind perhaps. But the pre-crisis economy clearly was unbalanced, especially in the UK. Public service employment was clearly too high, and cannot be afforded at its current strength on any realistic level of taxation. Also too much of the economy is spent taking care of ultra-rich bankers and foreign exiles – whose numbers and wealth we cannot or should not expect to grow. And we still need to adapt to a lower energy economy. I can’t prove that the authors are wrong – but there is enough reason for caution.

The authors make much of not repeating the mistakes of the 1930s. But that was a very different world for two important, and related, reasons. First there was a ready solution at hand: the expansion of manufacturing industry with an abundance of good low skilled jobs. It took the war to unlock this, with the manufacture of armaments and transport, but war production could be converted to civilian use with surprising ease – as there was massive untapped demand for cars, fridges and other manufactured goods. Second we were much poorer then. Starvation was a real problem for the unemployed and poor, and the destruction of wellbeing flowing from depression was horrific. Now we define poverty as lack of access to television and mobile phones. The hardship is much less – and there is less untapped demand. Technology has put paid to the number and quality of unskilled jobs.

That bespeaks caution – something that the manifesto economic sense disregards. There is a case for some sensible investment projects – including the right sort of housing in the UK. But temporary tax cuts would be reckless, and stopping public sector cuts irresponsible.

Class warfare: changing the primary school curriculum

Yesterday the Government announced proposals to change the national curriculum for primary schools in England. No doubt there was the same sharp intake of breath in liberal circles that accompanies anything that comes forth from the Secretary of State, Michael Gove, with his appeal to traditional, conservative values. But liberals have often failed to convince on education.

Mr Gove is a remarkable political phenomenon. He is instinctively disliked by those of a liberal disposition, and the vast majority of people who work in the education sector, or councillors who are responsible for it. And yet, unlike his health colleague Andrew Lansley, or Theresa May at the Home Office, the vitriolic criticism of the professionals, and lampooning by comedians, seems to make little impression on the public at large. The government is being hurt by a lot of things at the moment, but education reform is not among them. For once the public seem to trust the politicians more than the professionals.

So what to make of these proposals? They amount to a much more prescriptive programme for English, Maths and Science – with proposals on modern languages on the way. They go further than the current curriculum, and have a traditional, prep-school feel about them – English has a heavy emphasis on spelling, punctuation and reciting poetry, for example. This is easy to dress up in old fashioned, conservative language – which Mr Gove duly does.

The first criticism to make is that the Government had promised teachers that they would get out of their way, and give them more discretion. All the pressure in recent years has been to take things out of the National Curriculum, and not add more things in. The more flexibility schools have, the more room for creativity there is, and the more diversity and choice there will be – something the government had seemed keen on promoting. But evidently there are some things that Mr Gove feels are too important to be left to parental choice and diversity. And the changes are focused on the very core subjects – not the peripheral things that politicians had proviously like to pitch in.

Behind all this lurks a topic that vexes many: class. Now class is something that widely is misunderstood in Britain. Class here used to be about what you were born into, and the idea that everybody should stay in their place, with all the privileges and duties that this implied. Mobility was frowned on, but allowed to creep in gradually. A lot of this mobility took the form of pretending that your family was better bred than it was. I am doing a project on my family’s history at the moment. One of the more amusing aspects is how much effort my middle class Victorian (and some later) forbears put into trying to prove the family had noble connections.

But two world wars and a relentless industrial transformation have swept away that understanding of class. And yet to the disappointment of many, elitism and social stratification remains very much with us – and indeed many of the institutions that supported the old system are in very good health supporting the new – “public” schools, elite universities, and so on. And although the idea of birthright might have gone, it is very much expected that you support your peer group – and do the best you can to give your children every advantage. Social mobility, after leaping forward in the middle of the last century seems to be slowing down. What happens here now is not the lingering of the old system, but something similar to what happens in other modern developed societies which did not have our feudal legacy – like the USA and Australia, who also have “class” problems.

Schools lie at the heart of concerns about class – and here liberals are on the defensive. Liberals have dominated the state educational system for generations, seeing through major reforms to both structure (for example pushing selective elite grammar schools into comprehensive schools) and the way schools are run – towards what might be called “softer” values. It hasn’t worked very well – though why remains hotly debated.

Enter Mr Gove. His solution is to make state schools look and feel much more like their elite,private sector counterparts – and these curriculum proposals are an example. His critics simply think this is to give middle class parents a private, elitist education at taxpayers expense, without having much impact on the rest of society. But that is to misunderstand the thinking. Mr Gove, and many conservative thinkers, think that social mobility is about turning working class people into middle class ones. And that isn’t just about imparting knowledge and skills, it’s about talking and writing like middle class people too – or at least becoming “bilingual” in class ways. The old grammar schools did this very successfully – and their abolition has not helped social mobility.

This is all very interesting. It is easy to see difficulties. State schools, apart from the surviving grammars, are still quite unlike their private school counterparts in that they cannot select their intake. Will this approach exacerbate class tensions by teaching pupils to sneer at the less fortunate (as no doubt the old grammars did)? But liberal policies of inclusiveness have not proved enough by themselves.

I’m giving Mr Gove the benefit of the doubt this time. Too often we liberals forget the working class ideal of “bettering yourself”; celebrating diversity is good; celebrating mediocrity isn’t.

The Queen understands the nature of privilege

The weather may not be cooperating, but the Jubilee weekend ploughs on. So far I have attended a Jubilee parade at the local primary school where I am Chair of Governors, and a barbecue hosted by a north London friend. We are on our way to a damp riverside party in Docklands, where we may see some ships passing by on their way to and from the Thames pageant. The are street parties in neighbouring streets, and the Tube lines are full. There is a party mood about.

I have stood up to the National Anthem and toasted the Queen. But amongst my fellow party-goers almost everybody is sceptical about the monarchy as a system, though respectful of the Queen herself. We are definitely not a representative group, though to call us part of the “elite”, as many do of anybody who shares our liberal outlook, is a stretch. None of us runs anything bigger than a primary school.

Meanwhile, much nonsense id being pumped out in the newspapers and on the radio (I’m avoiding the television, as usual). The Queen has not let us down, claimed an article in the Evening Standard, unlike all those prime ministers – something that says everything about our expectations of the respective roles, and nothing about the competence and intent of those holding them. The Queen is a human presence amongst all the stiffness and pomp that surrounds her says Matthew Parris. Like Napoleon wearing a plain hat and coat amongst the splendour of his aides. One of the worst features of the monarchy is pompousness and obsequiousness that it attracts.

The truth is that the Queen is something of a blank canvass, upon which we project our prejudices. Right now these prejudices are all positive, but it has not always been so (remember Diana?). We know very little about her – which is something of an achievement on her part, it has to be said.

What do I project onto this blank canvass? To me the Queen represents the meaning of privilege, in all its good and some of its bad senses. In modern usage, privilege has come to mean exclusive rights acquired purely through your status, and, implicitly, undeserved. This one-sided meaning has taken hold in post-class society (and people who say that class is as rampant in current British society as ever have no idea what class is). It may have originated from classless America, where Harry Truman railed against the “Republican gluttons of privilege” – which would have been back in the 1940s.

My late mother (who was the same age as the Queen to within a month) always hated this usage of the word. She was by no means aristocratic, voted Labour at the first opportunity in 1945 and hated Toryism. But her upbringing, as the daughter of a senior churchman and professor, and being brought up on a cathedral close, was certainly privileged. To her privilege was a two-sided thing. It implied responsibilities. You would hesitate to accept it. We have caught a sugar-coated version of this on the popular TV series Downton Abbey. And I don’t think I am stretching my imagination too far to suggest that the Queen embodies this understanding of privilege. She puts duty first. She maintains a busy schedule of state commitments (somewhat in contrast to her one diamond predecessor, Victoria), and is never undiplomatic. People I know who have glimpsed the royals in the flesh are struck with the, well, professionalism, with which they carry out their role. And if the Queen despises some of the lesser of her subjects (which I doubt), she never, ever lets it show. That would not be within the meaning of privilege.

The Monarchy, at least in England, will survive a long, long time provided that its incumbents remember that this is what privilege means.

It’s official: the Budget was a disaster

When George Osborne launched his 2012 Budget, I was one of a minority of people to praise it. I admired the boldness of his move on the top rate of income tax, even if I did not approve of it. And often Budgets look better (or indeed worse) in hindsight that they do at the time. But that happy fate will not await this Budget. Today the third successive retreat was announced from its proposals, this time on tax relief for charities – following VAT on hot food, and the taxation of caravans.

I haven’t followed the issues on hot food and caravans in any detail. The former, at least, looked quite reasonable – and extending the base of VAT is quite sensible policy. The regressive impact of such an extension (i.e. the idea that they affect poorer people proportionately more that the rich) is generally overdone by lobbyists and mischief making politicians. The charity issue (limiting the amount of tax relief on charitable donations) was an idea that looked more sensible the more I thought about it.

What went wrong was the politics. The measures came out of the blue and sowed panic. As I blogged at the time, the charity lobby has shown formidable political skill. The sort of skill that this government seems to lack.

This does not bode well for the stormy European waters ahead. Downing Street needs an Alistair Campbell – a no nonsense head of communications with a feel for the tabloids – who once again have shown their ability to set the political agenda. And his 0r her brief must be to make the Coalition as a whole look good. It doesn’t help that both Tories and Lib Dems are spending so much time trying to show differentiation from each other, however understandable that might be.

Murchoch and BSkyB: Hunt isn’t the issue. It’s Cameron

The Culture Secretary is in a tight political spot. He showed overt political support for Rupert Murdoch’s News International media empire, and especially its attempt to consolidate its hold in the highly successful British satellite broadcasting business BSkyB. Today was supposed to be his moment of truth, in front of the Leveson inquiry. There is much speculation that he will be forced to resign. That may be so, but based on today’s evidence I don’t think he’s the main culprit in a shabby episode.

The story so far. Back in 2010 Murdoch launched his bid on BSkyB, which his empire controlled but did not fully own. Because of its wider implications this was referred to the government, which was required to act in a quasi-judicial capacity – that it acts with the same impartiality and fairness of process as a court of law. The minister given responsibility for this was the Lib Dem Business Secretary Vince Cable. But Dr Cable (as he likes to be known) made some rather rash comments about the Murdoch empire to undercover reporters working for the Daily Telegraph (which ironically opposed the bid). As soon as these became public, Murdoch objected that he did not have the necessary degree of impartiality for a quasi-judicial role. Within hours the job was given to Mr Hunt instead.

But Mr Hunt, it now turns out, was the subject of intense lobbying by the Murdochs (mostly via their respective minions), and had been lobbying the Prime Minister, David Cameron, in their support. The awkward issue is that if Dr Cable was unfit for the job because he was biased one way, then Mr Hunt was equally unfit because he was unbiased the other way. As the closeness of the relationship between Mr Hunt and the Murdoch empire became clear, there were calls on him to resign. These were strong enough for his special adviser, Adam Smith, to fall on his sword.

The logic of this is that Mr Hunt should have refused the job. But the nature of his relationship with the Murdochs, and his views of the bid, were certainly known to Mr Cameron. Surely the bigger problem was the Mr Cameron appointed him to do the job in the first place. The communications between Mr Hunt and Downing Street (actually with George Osborne rather than the PM directly) seem to show this.

Mr Hunt’s defence is that once he got the job, he created a robust decision-making process that transcended his prior inclinations – and that the decisions he did make showed no bias (before the bid was overwhelmed by the phone hacking scandal that engulfed the Murdoch empire). The trouble is that exactly the same defence is available to Dr Cable, who was much more scrupulous about showing distance. Indeed I suspect that Dr Cable would have been driven to approve the bid since the main objections to bid did not form a substantial barrier legally. To Dr Cable passing this particular baton over was a silver lining to the very dark cloud that this embarrassing affair comprised.

It was Mr Cameron that acted inappropriately. If he accepts Mr Hunt’s defence, he should not have stripped Dr Cable of the job, and made the same defence of him. If he was worried about open bias, he should have found somebody other than Mr Hunt to replace him – and that is what he should have done.

That won’t help Mr Hunt. Just as Adam Smith’s resignation was meant to protect his master, Mr Hunt may need to take the rap for his boss. The whole Murdoch episode is toxic to Mr Cameron. He badly needs to make it go away.

The Guardian’s bubble – the view from my bubble

It’s nearly a cliché, but it still resonates with me. People accuse each other of living in “bubbles” – and when they do so, the accusation usually has bight. But the people who make the accusation are merely living in different bubbles. We all are; and it helps us if we realise it.

A bubble is a small, self-contained world which contains its own atmosphere, protected by a nearly invisible wall, which lets those inside see the wider world outside, and maybe pretend that they are fully part of it. And every so often the bubble hits an obstacle in the outside world, and bursts. Suddenly those inside are subject to a catastrophic shock.

As a metaphor it describes a describes an intellectual process. We sustain ideas by protecting them from the vicissitudes of what is going on in the real world around us, discounting facts that challenge them, seizing on ones that support them – and a similar process goes on with those that we consort with – we prefer people who support our view and avoid those who don’t. As this bubble existence continues our strength of conviction is increased by this process. Until one day, maybe, the idea can’t be sustained and it’s all over. Actually the bubble rarely bursts so dramatically in real life – though we always fancy that other people’s bubbles will.

What bought on this reflection? Reading Saturday’s Guardian I reached the “Comment & Debate” section, and there were two articles on the same page which seemed to sum up what I think of as the Guardian’s bubble – one that persists in believing that austerity economic policies are a fraud and a failure. One was by Robert Skidelsky – U-turn for the better – a direct attack government policy, while welcoming the apparent softening of it in favour of more infrastructure investment. The other was from Jonathan Freedland – Balls has the rare political right to say: I told you so – praising Ed Balls, and especially that he was amongst the first to criticise austerity. I didn’t read either article, but just harrumphed and moved on.

Still, this is a blog, not a Twitter feed, and I owe it to my readers to actually read the articles before passing comment, and I did so today. Mr Freedland’s doesn’t fit my bubble pattern. He clearly inhabits the bubble, agreeing with Mr Balls’s analysis of the economy, but this only affects one non-critical sentence in the piece. The article makes perfect sense politically, even if you don’t happen to agree with the economics; it’s a good article, in fact. Mr Balls has been written off, but he’s winning.

But Professor Skidelsky produces pure bubble fare. He does report the government logic more fairly than some, merely to dismiss it with this: “This is discreditable nonsense. But it has an air of plausibility.” Actually precisely what I think of the professor’s article. To me the give-away was this sentence: “If the [infrastructure] spending had not been cut, the deficit would now be smaller, because the economy would be larger.” This is either a suspension of the laws of arithmetic, or shows an astonishing faith in in the multiplier effect of this type of spending – for each 1% of extra deficit spending you need to add 12% or more GDP as a whole to sustain this argument. By substituting “debt” for “deficit” it may be somewhat more sensible (you need less than 2% growth for each 1% spend -at the most optimistic) – but it still heavily depends on the multiplier idea. This is an area of ongoing debate amongst economists – and yet Professor Skidelsky presents it as an accepted fact. And without it the rest of his argument starts to fall apart.

Professor Skidelsky is not a fully trained economist (though neither am I), and I think it shows in his writing; his main claim to credibility is that he wrote an authoritative biography of Maynard Keynes. But plenty of fully fledged economists agree with him – but that does not make this argument less contentious.

Or less wrong. From my bubble. Because I clearly inhabit my own bubble. One in which the Government’s economic policies are making the best of a bad situation, and, separately that the Liberal Democrats will not be annihilated for a generation. A more neutral observer would not share either conviction.

Why do we live in such bubbles? It’s just very hard to stay on the fence the whole time, or to change your mind every few days with the next piece of passing news. The only way to do it is by not really caring. But really it helps to have some self-awareness about this – and this is the only way to appeal to those outside your bubble.

The Guardian is a better newspaper than many. But what is the point of giving such prominence to purely polemical articles like Robert Skidelsky’s? They need more serious comment, like that produced by Jonathan Freedland, which do not insult their readers’ intelligence just to give the members of their particular bubble something to cheer at.