Friday, 30 March 2012

Throwing fuel on the fire

The petrol panic is a useful experiment in how markets work. I don't suppose it was intended as an experiment, and I'm sceptical about claims that it was deliberately engineered for ulterior motives, from distracting attention on the budget fallout to accelerating spending at the pumps to avoid the 1st quarter falling into recession. The affair smacks less of Machiavelli and more of Charlie Cairoli.

A market is conceptually defined as a mechanism for allocating scare resources. The price represents the balance between supply and demand. By their intervention, the Tories have compromised the market by creating a temporary scarcity. In theory, this should result in an increase in price, which would "clear the market" and restore equilibrium, though in the event the price has remained "sticky", presumably because suppliers don't expect the panic to last much longer. The government could have bypassed the suppliers and simply mandated a 24-hour doubling in fuel duty to quell the panic-buying, though this might have led to riots as it would penalise those with genuine need (an empty tank) rather than those whose atypical demand caused the shortage (a half-full tank).

Rationing was never on the cards, though that would be a logical consideration for a "strategic resource" such as petrol. However, the whiff of it has been enough to ignite many old tropes, such as the claim that during WW2 people would join queues without knowing what was at the end of them. Presumably they couldn't see the shop-front and were unfamiliar with the area; and presumably they were so reserved and diffident they couldn't bring themselves the ask the person ahead of them in the queue; and they were also so time-rich (despite the constant queueing) that they thought nothing of joining a queue purely on spec.

The panic highlights the problem with homo economicus and rational choice theory, which broadly holds that when everyone pursues their self-interest the aggregate result is optimal. Clearly an action that appears to be in the interest of an individual can, if extended to a large number of people, become sub-optimal for all. This is the premise at the core of the paradox of thrift, which is the key argument against the policy of austerity, namely that if we all cut our expenditure at the same time, the economy suffers a collapse in demand.

In reality, even the individual has failed to achieve a net gain considered in objective terms. At the additional cost of time wasted queueing, he has merely advanced a purchase that he would have made in the future. One could even argue that he is a financial loser because of the time value of money. The situation is even bleaker for the motorist who had a near empty tank, and thus a real need to visit the petrol station, as she has suffered the inconvenience of queueing for no additional gain. I'm assuming she didn't happen to have a jerry can with her and didn't take the opportunity to fill up on hot pasties.

What's of more strategic interest is the willingness of the Tories to interfere with the workings of the market. This should really be anathema to them, if you assume they really do believe in free markets. Perhaps this is further evidence of the death throes of neoliberalism following the 2008 crash.

Alternatively, this could be seen as evidence of the fundamental tension within the Tories between authoritarians and libertarians. It is ironic that it is Labour who are adopting the most "liberal" stance in regard to the tanker drivers' dispute, refusing to demand that Unite don't strike and backing the use of ACAS, i.e. treating this as a matter of negotiation between employers and workers. It is the Tories (and Lib Dems) who insist on poking their noses in and taking sides, with predictably negative results.

Wednesday, 28 March 2012

Bin-men and the law of unintended consequences

The news that public sector wages are on average 8% higher than private sector wages has predictably been taken as evidence that the public sector is guilty of feather-bedding. This in turn is seen as further justification for the Tories' plan to introduce regional pay and generally cut public service costs.

Making comparisons at a sectoral level is pretty stupid, as the scope and mix of roles is not the same. Comparing the UK public sector with the French public sector is meaningful, as is comparing an accountant in the public sector with one in the private sector. Even the CBI spotted that comparisons at an aggregate level are not particularly revealing, though they nonetheless interpreted the headline as a justification for "putting pay decisions into the hands of individual employers at the local level".

The TUC point out that differences in skill levels and age (both higher in the public sector) skew the comparison, and that technicalities such as the omission of some private sector bonuses make the data incomplete. It should also be pointed out that the private sector data covers employee wages and thus excludes the self-employed and personal services companies. It should also be noted that gender differentials (i.e. women getting paid less than men) tend to be smaller in the public sector.

Clearly we're dealing with apples and oranges here, however the report from the Office of National Statistics that prompted all this does produce something of real value. This notes that the gap between headline pay rates has grown over the last decade in large part due to outsourcing: "The public sector is made up of a higher proportion of higher skilled jobs – widening over the last decade as lower skilled jobs have been outsourced from the public to the private sector". This is backed up by a separate IDS analysis from 2011.

What this means is that you can expect the trend of an ever widening gap between the public and private sectors to continue, despite the best efforts of government. The paradox of public service privatisation is that it increases the average sector wage as the rump of public servants are increasingly clustered at the top of the scale. You outsource bin-men and dinner ladies first and senior officers last. Come the day that local council employees are reduced to a chief executive and her PA, their average wage will be comparable with the banking sector.

Keynes and cognitive dissonance

The financial crisis of 2008 did not lead to wholesale change. The banks have not been reformed in any substantive way; the rebalancing of the UK economy from financial services to manufacturing is a vague intent rather than a plan; and organised stimulus to maintain aggregate demand has lost out to punishing austerity. The last of these is seen as the failure of the Keynesian insurgency in 2009.

A recent paper on "The Rise and Fall of Keynesianism During the Economic Crisis" attributes a key role in this failure, and the ensuing commitment to austerity, to Germany. The authors note that Keynesianism has rarely been in favour there as it advocated a more interventionist state than the post-war orthodoxy of "ordoliberalism" (i.e. the social market economy) would allow. Much of what we think of as distinct about the German economy reflects a diffusion of power, such as the independence of the central bank, employer and union cooperation, strong regional policy, and the fostering of the broad mittelstand of companies.

What is particularly notable is the deliberately circumscribed role of government. This was a direct reaction to Nazi (and arguably Willhelmine) Germany, where centralised government got out of hand. In the UK, the success of planning during WW2 did much to normalise Keynesianism as a feature of policy until the 1970s. The success of stimulus under FDR also set the tone for US economic policy into the same decade, though in their case state management of demand was largely smuggled in through defence spending (and Obama's limited stimulus has involved a fair bit of smuggling too).

A second feature of Germany's response over the last 4 years has been their intolerance of large deficits by EU members, culminating in the Greek sovereign debt crisis. This has been seen variously as Germany flexing its muscles (and putting the French in their place), an act of hypocrisy (as all that debt in the South fuelled a German export boom), and as a Lutheran obsession with fiscal rectitude. Whatever the cause, the effect was to rule Keynesian stimulus out of bounds as far as concerted EU action was concerned and herald in the new age of austerity.

What seems to have been ignored here is that modern Germany is temperamentally averse to an interventionist state and has merely translated that attitude to its dealings at an EU level. It's insistence on a strong and independent ECB is part of this. It's opposition to Eurobonds is less a cultural fear of hyper-inflation and more a belief that the central bank should stick to monetary policy and not be used by government for fiscal engineering. In the UK, this jars with our stereotype of a pro-EU, bureaucratic and technocratic Germany, with strong unions and extensive welfare. With that form, we assume they must be Keynesians at heart.

Angela Merkel's December 2008 address to the CDU annual convention, quoted in the above paper, is revealing. She claimed that any Swabian housewife could provide a common-sense explanation of the financial crisis: "we cannot live beyond our means ... we have too often put our trust in experts that were not really experts ... we are answerable to the taxpayer of today and the taxpayer of the future". The echo of Thatcher (you can almost hear the swish of the handbag), and the pre-echo of Cameron with his "maxed-out credit card" nonsense, are what will immediately strike British ears, but the real substance is the suspicion of self-appointed experts, the appeal to common sense, and the belief in a debt to the future. These have a particular resonance when you consider Germany's 20th century history and Merkel's own upbringing in the GDR.

I was struck by this difference of interpretation in Gavin Esler's interview with Merkel on Monday night's Newsnight. The short chat was prefaced by parallels being heavily drawn between Luther's defiance of Rome and Germany's current ambivalent attitude towards the profligate Catholic South, with much talk of how fiscal rectitude is a Lutheran virtue. This makes a nice parallel, but looks a bit silly when you consider the Greeks aren't Catholic while most of Bavaria and much of the Rhineland is.

This reminded me of the second part of How God Made The English, in which Diarmaid McCulloch claimed that Protestantism, of the Anglican variety, is what led the English to become so tolerant. Given the bloodletting of the 16th and 17th centuries, this might appear a hard one to pull off, so his case rested on the claim that the Catholics were a lot worse: cue modern Spaniards wearing scary KKK-style capirotes (the pointy dunce caps with masks).

Apparently, Catholics hated Jews because the ban on usury led the latter to become bankers (a modern flourish). This ignored the fact that usury was banned by Christianity, Judaism and Islam, but only among coreligionists - i.e. a Christian could lend money to a Jew and vice versa. It also ignored the fact that modern banking was invented by Catholics in Northern Italy (the Medicis et al), and that Jewish involvement in banking was driven by involvement in trade, which was the result of being banned from owning land in many countries and the side-effects of the diaspora and subsequent expulsions.

The English Civil War apparently happened because Charles I failed to put down a Catholic rebellion in Ireland, rather than anything to do with the competing interests of the gentry and the Court in England, but the Restoration led to an outbreak of peace and understanding (Quakers and Ranters get a mention, Diggers and Levellers don't). Why the Pilgrim Fathers didn't sail back home I don't know. In the 18th century the English became even more tolerant because of the need to rule Catholics in Ireland and Canada. No, seriously. Catholic and Jewish emancipation in the 19th century was the triumph of this growth in tolerance, though why it took 300 years is unclear.

There was a bit of this self-serving lunacy on show in Jeremy Paxman's recent series, Empire. Paxo doesn't really find economics congenial (despite Paul Mason's best endeavours) and is far more interested in the human or moral dimension, hence most of the programmes oscillated between nostalgia and an admission that beastly things had been done. The commercial basis of empire was touched on, but his heart wasn't really in it. What he wanted was to find someone who thought the empire might have produced something good, preferably cricket.

The last episode banged on about the Victorian evangelical movement and how this provided a sense that the British were doing God's work among the benighted heathen. It failed to note the multi-headed movement's roots in the bloody sectarianism of the 17th century and its initial focus on proselytising among the emerging industrial proletariat back home, most notably the Methodist revival.

What has been striking by its absence in both series, with the exception of a few throwaway remarks, is the vexed issue of Ireland. A subject people of the British Empire, but white. Paxo was suitably angry when highlighting Victorian racist pseudo-science (though for balance he reminded us of the abolition of slavery), but he didn't point out that a 19th century issue of Punch would contain more cartoons portraying the Irish as ape-like brutes than images of savage Africans or intrepid missionaries, or that the tactics of the Mau Mau owed much to Irish templates, from the swearing of oaths to boycotts and attacks on isolated settlers. Shaking hands with a Kenyan freedom fighter, who happily confesses to killing, is clearly easier than doing the same with a Provo.

What these coincidental treatments have in common is the inability to understand "the other" because we insist on preserving self-serving myths about ourselves. We fail to see how Germans can be simultaneously suspicious of the central state and yet in favour of a comprehensive state. We insist that "the Empire wasn't all bad" and are baffled when our former subjects smile politely and insist they'd slit out throats again if they had to. We claim moral exclusivity ("the Church of England") and a genius for toleration, without seeing any conflict between the two.

Monday, 26 March 2012

The secret of my success? Hairy full-backs

Watching Arsenal against Aston Villa at the Emirates on Saturday felt like a watershed moment. This might appear a strange observation, coming a few weeks after the pivotal 5-2 victory over Spurs, but there was a tangible sense that we had entered a different era. That might seem pretentious for a routine defeat of an ordinary and unambitious bottom-half side.

What was different about Saturday was the confidence of Arsenal and the almost palpable foreboding of Villa. Perhaps it was the sunshine and the pristine turf, evoking memories of Tony Adams belting the ball into the Everton net in 1992, but there was an authority to our play that has hitherto been lacking. This carries the risk of complacency and sloppiness creeping in (Szczesny's clearances can be a worry), though another clean sheet is evidence of continuing focus.

The variety of our attacking play and the increasing range of options in midfield were both on display, but it was the effectiveness of the defence that was most noticeable, not just in snuffing out the opposition's threat, but in launching (and completing) attacks. Most commentators are now sagely agreeing that no club could easily withstand losing four full-backs, but this wasn't a view that got much sympathy earlier in the season. It's an oddity that full-backs tend to be the cheapest outfield players, and are usually thought to have the most limited repertoire, but they are often game-changers.

This is reinforced by the fact that full-backs are leading the fantasy football stats among defenders at the moment. I don't know if that happens every season, as I've only bothered to look closely this time round. The reason for this was a bonus at registration, which meant I ended up with 5 teams instead of the usual 1. As I didn't fancy having to weed and maintain each team every week, I decided to put together some thematic selections and largely leave them to their own devices.

Left Foot Forward is a team wholly made up of left-footed players. Bizarrely, they are now nestling in fourth position in a league of 40 teams. This may have a lot to do with Robin van Persie, but the stats show it's just as much down to Leighton Baines. Monosyllabic Grunts is a team whose players all have short surnames. Demba Ba has been my find of the season. The team has achieved mid-table respectability.

Slaphead City is entirely composed of bald players. I've had to allow a fairly broad interpretation of baldness, including players who disguise their receding hairlines by shaving the lot off, and those that try the opposite approach in the form of a synthetic weave. Despite having Wayne Rooney in attack, and Pepe Reina in goal, they are languishing just above the relegation zone in 35th position.

My conclusion is that Arsenal's improvement is almost entirely down to Bacary Sagna, who combines excellent full-backedness with plenty of hair. But, and it's an important but, his hair is under control. Benoit Assou-Ekotto has done well over the course of the season stats-wise, but I can't have been the only one to notice that his lack of hair discipline reflects Spurs underlying fragility.

Friday, 23 March 2012

Come on you reds

One of the blessings of a budget is that, like a Sumo wrestler in a phone box, it's sheer bulk limits room for anything else in the media. A little less lifestyle product placement and celebrity blather is no bad thing. You might have thought that the coverage of haute couture would also have suffered, but coincidentally this week has seen the unveiling of the Olympic kit, which has allowed fashion to get its mug back in the picture with group shots of athletes looking like a superhero lineup.

The kit design has resulted in criticism, notably that it's too blue, and therefore a bit too Scottish (a subliminal suggestion of perennial loserdom, perhaps). Apparently nothing short of being wrapped in the Union Jack will do, though that rather negates the point of using a designer.

Stella McCartney, for it is she, "has designed the Olympic and Paralympic athletes' clothing for competition time, training, medal ceremonies and relaxation time - known as 'Village wear'". (I don't know about you, but the latter phrase immediately made me think of leather-clad bikers, red indians and construction workers). McCartney went on to say: "I spoke to Sir Chris Hoy and said, 'what can I do to help in any way?' And he said, 'I just want to look cool'." The man is obviously past caring about mere medals.

This insouciance flies in the face of research showing that wearing red enhances performance. "Obviously she has designed these from a fashion point of view and was not taking into account the possible effects that might have on performance" said the study's author. Well quite. She's a fashion designer, not a sports psychologist, and any fashionista knows that blue shifts more units than anything else, hence its use in second strips by football teams that usually wear red.

This is worrying news for Man City and (with any luck) Spurs and Chelsea, given that the chromatic correlation seems particularly pronounced in the history of the English league, though it doesn't seem to apply in Scotland or Spain, while Italy and Germany offer mixed evidence.

The real point of all this nonsense is the degree to which fashion has become pervasive. In the UK, it has been elevated to the status of a "creative industry", though the actual industry is now mainly in the Far East. English haute couture is by definition a signifier of class, mixing the traditional and the eccentric (those charming aristos), terrified of prole drift (Burberry), and appropriating and defanging street style (floral print DMs).

Fashion is given disproportionate levels of media coverage, even in outlets that are otherwise unsympathetic to objectification or the indulgences of the rich, though this may reflect metropolitan bias as much as anything. On any given day, about 10% of the "news" in The Guardian appears to be fashion-related. This might be delivered ironically, but it still leads to the impression that catwalks are a central feature of our lives.

What is faintly disturbing is the extent to which fashion is now leeching onto sport, that other great distraction of our age. What is faintly heartening is that athletes come in all shapes and sizes, so for once the catwalk is populated by real (albeit exceptional) people rather than preposterous super-models. Ben Grimm would feel right at home.

Wednesday, 21 March 2012

Signalling problems

Given that the budget was always likely to be fiscally neutral, i.e. making no large scale changes to existing revenue or expenditure plans, and given that we're approaching the half-way mark of this parliament, its significance was always going to be largely political. In other words, what signals would the government send about its longer-term aspirations by rearranging the deckchairs.

The budget is pro-big business, rather than pro-business. Corporation tax is being cut further (down from 28% to 22% over the life of the coalition), but not the small profits rate. Small businesses gain simplified paperwork and promises of credit easing, rather than the more concrete help with business rates or fuel duty that they asked for. The clampdown on corporate tax avoidance will probably be no different to previous attempts at this, i.e. ineffective, indeed it looks like the pass has already been sold in respect of offshore taxes. The signal is that Britain is "open for business" for global corporates, though more specifically corporates that treat London as a tax haven gateway.

The cut in the top rate of tax from 50% to 45% will be offset by the increase in stamp duty (plus various cunning ruses that will hit pensioners), however stamp duty receipts on properties over £2m will be heavily dependent on the health of the top-end market in London. Given the extent to which the richer parts of the capital are divorced from the health of the national economy, that may prove to be reasonable, but it sends a clear signal about expectations in terms of regional rebalancing (and implicitly industrial rebalancing) - i.e. it isn't going to happen any time soon. This is consistent with the plans for regional public sector pay levels.

The increase in the personal income tax allowance has been hailed as a Lib Dem victory, a "Robin Hood" tax cut, but without much taking from the rich. Nick Clegg says: "We are very proud that we are taking over 2 million people out of paying income tax altogether". The essentially regressive nature of this change has been identified by the IFS, looking at the target of a £10,000 personal allowance and how it impacts on families.

It's the better off that gain most, mainly because personal allowances are doubled in dual-income families. Poorer families either don't earn enough to get the full cash gain or they have their gains clawed back by proportionate reductions in benefits. Pensioners get no benefit at all. So, not much giving to the poor.

Increasing personal allowances has long been attractive across the political spectrum because it "lifts millions out of tax altogether", as if they were pulled to safety from the Grimpen Mire. In fact, those earning below the allowance level still pay VAT and other taxes, which can mean they still pay a higher effective rate than a millionaire.

However, there is another reason why we should be cautious about tax-free allowances and the signals they send. There is a fundamental link between taxation and representation in a democracy, given that elected governments determine the tax rules and what the revenue will be spent on. The implicit contract assumes responsibility and consequentiality for all voters. This gives rise to the idea that the vote should be limited to income taxpayers, as these citizens have "skin in the game".

While the "no representation without taxation" meme is still restricted to the Tory right (and currently provocation rather than serious policy), it will spread the more we shrink the tax-paying segment of the population. This is because it is not a response to a problem of consequentiality (unless you think the poor voted Tory at the last election in the hope of increased benefits), but because it is an ideological prejudice: the poor are irresponsible and cannot be trusted with the public purse. The more taxpayers see themselves as an "embattled majority", the more resentment they will feel towards "tax free riders".

For this reason, I would be quite happy to see the personal tax-free allowance abolished. In its place we could have a much more progressively graded tax regime, perhaps 5% up to £10k, then 10%, 20% etc. The extra 5% cost to the poor could be offset (and more) by a reduction in VAT. This approach would ensure that everyone had some skin in the (income tax) game, and might even encourage more people to vote. A signal in support of democratic legitimacy and engagement.

Tuesday, 20 March 2012

We're on a road to nowhere

The news on privately maintained (and possibly built) roads is not really news. The "innovative approaches" look very much like the old approach of PFI. Private capital provides the investment (so no need for public debt), in return for a guaranteed profit, while the government underwrites the risk. It's also worth noting that much the same navvies will be out in their high-vis jackets doing their Tarmac magic. The Highways Agency routinely subcontracts to private companies.

David Cameron asked a bizarre question as part of his announcement: "Why is it that other infrastructure – for example water – is funded by private-sector capital through privately owned, independently regulated utilities, but roads in Britain call on the public finances for funding?" The answer is: because the water companies get to send each household a bill, generating revenue which covers the cost of capital. The water analogy only makes sense if the government anticipate tolls as the rule, rather than the exception, which I doubt they do.

Some of the early debate has focused on whether private business can deliver more effectively and efficiently than public provision (the opportunity argument), while there have also been concerns about the risks of a privatised monopoly (the risk argument). What has occasioned much less debate is whether roads are a sensible place for anyone to put their capital.

We know from the history of railways in this country that a fully freed market creates over-capacity. This ultimately led to the famous Beeching Axe of the early 1960s, the rail network having been nationalised in 1948 due to it inefficiency and under-investment. The earliest line closures had occurred only a little after the railway boom in the middle of the 19th century. They gathered pace in the 1920s and 30s as goods transport started to move to the roads with the coming of the lorry,  eroding the railways' profit. It was this shift that convinced many of the need for an integrated transport strategy, which was another driver for nationalisation.

Infrastructure is deemed to be a money-spinner because there is so much of it, and everyone needs it. I remember the over-pricing of Cisco (data network manufacturers) in the late 1990s was largely based on the meme that they were the modern equivalent of the firms that sold picks and shovels to the California gold-rush miners. Their shares reached just shy of $80 in early 2000 and are at $20 today. This over-valuation was not a failure to judge the merits of Cisco, as they remain a major player in an expanding sector, but an over-estimation of the ROI from infrastructure as a class, amplified by the prevailing dot com madness.

The problem with infrastructure projects is that they are capital-intensive. This means that constant capital (plant, machinery, materials etc) makes up a much larger share of the total cost, relative to variable capital (labour), than the norm. Constant capital components produce little profit themselves. This is because adding a fat mark-up makes the work uncompetitive relative to other bidders who add a smaller mark-up. Assuming you have a free market, the margin on constant capital will be minimised. You can gain an edge by having better quality constant capital, e.g. more efficient plant, but road builders acquire their plant from third parties - they don't invent and develop it themselves. The same applies to railway companies, water companies, cable companies (anything to do with Richard Branson, in fact).

To add value, you need labour to transform the constant capital (e.g. a more talented worker, putting the same components together, can produce a better quality product, which justifies a higher price because it is more valuable to the consumer). Larger profits are produced by projects that entail significant variable capital (i.e. labour) and thus have the potential for extracting greater surplus value (i.e. the difference between the value added by the labour and the cost paid for that labour).

This is true not just in terms of building new stuff, but can also be seen in respect of projects aimed at improving existing processes. Genuine productivity gains, e.g. doubling the output with the same input, are rare, if only because the necessary circumstance, where an increased supply to the market corresponds with a natural increase in demand, thus maintaining prices, is unusual. The same output with fewer inputs is much more common, as this doesn't depend on a volatile market nor does it disrupt a stable market. However, this improvement tends to peter out as the competition take similar steps and then underbid to gain market share. This drives down the profit margin across the sector to what it was before.

The most profitable process improvement projects are those that focus on quality/innovation. These leave the inputs and outputs unchanged but allow for an increase in product price (because of unique features), or the maintenance of a price premium in a commoditised market where unit prices are otherwise falling. As the cost of constant and variable capital does not change, an increase in price effectively increases the surplus value of the labour.

Apple is not the richest corporation in the world because it has invested large amounts of capital. It's recent decision to free up some of its massive cash pile as a dividend indicates it has not been working its available capital all that efficiently (the cash pile is roughly 20% of its market capitalisation). Much of its manufacturing R&D was outsourced after the mid-90s, after its soup-to-nuts style of operation in the 80s proved increasingly unprofitable, with the result that its corporate R&D (mainly architecture and OS) is now only a little more than 2% of revenue. Keeping design in-house does not require large constant capital.

Apple's real dynamic as a profit-generator is the combination of premium pricing and outsourced labour. By offshoring the bulk of its manufacturing to China, the profit on labour can be increased. Expensive goods with small capital costs can only generate large profits if labour does not soak up the majority of the non-capital price. As a former manager at their outsourced supplier Foxconn has said: "Apple never cared about anything other than increasing product quality and decreasing production cost".

The problem for investors is that the conditions that allow for Apple's profitability cannot be replicated in the case of UK roads, for the simple reason that we cannot physically offshore their building and maintenance. While it is feasible to imagine the wages of local road workers being squeezed further, there is no possibility of pushing them down far enough to generate very large profits. So why would anyone want to invest in our roads? The most credible answer is that the dearth of investment opportunities (of which Apple's cash pile is a symptom) means that even projects with a low yield are attractive if the alternative is cash sitting in the bank earning negligible interest.

The problem for us is that if road projects cannot deliver a significant profit margin, they will be more vulnerable to adverse shocks, such as a rise in the price of oil or other materials. This leaves the private supplier with two alternatives: either reduce costs to maintain the profit margin, or renegotiate the contract with government upwards. The first of these can have catastrophic consequences, as the sorry litany of rail disasters in the late 90s and early 00s shows. As a result, the second is the more likely.

Monday, 19 March 2012

Half a job is better than none

No, not another diatribe about unpaid work placements. Something much stranger ... I caught an interesting programme on early English church history at the weekend (these are possibly the most enervating words in the language).

Alright, by interesting I don't mean the topic, which is deathly dull in the main, or the treatment, which was the in the usual style of TV history, i.e. occasional gobbets of opinion, boiled down to the point of blandness, set in a raspberry jus of pretty pictures. What was interesting, as Sherlock Holmes noted, was that the dog didn't bark.

Despite his name, Diarmaid MacCulloch is an Anglican from, funnily enough, East Anglia. He is a conventional historian (recently knighted), specialising in the English Reformation. The programme, How God Made The English: A Chosen People?, proposed that the English sense of superiority can be traced to a belief that they are the chosen people of God. There are two things that struck me as odd.

First, MacCulloch mentioned only two instances of people considering themselves to be chosen, the Jews of the Old Testament and the English, but this ignores the fact that there have been many others who made this claim, and many who have used biblical parallels in support of it: the Christian Spanish during the Reconquista of Andalusia; the Boers in South Africa; and the white settlers of North America (with their notion of manifest destiny). There are others, but these three are enough to show that this idea of a divine mission is neither unusual nor limited to ancient times.

These examples have some common features that are general across the entire class. A chosen people is normally chosen in respect of a specific area of land. In other words, the land is chosen for the people and vice versa. We're all familiar with the biblical idea of the promised land, and its modern embodiment in the state of Israel, but what is the chosen land of the English?

This brings me to the second striking feature of the programme, and the one where the dog is most mute. The title makes it clear that this is a study of the English, but how is it possible to talk of their history without considering the other inhabitants of these islands? MacCullogh made no mention of the Irish or the Welsh, and his one reference to the Scots came in the context of the union of 1707, when this sense of superiority was promoted from the realm of England to that of Great Britain.

His overview of early church history starts with Bede and looks back to the mission of St. Augustine in 597. There is no mention of the pre-existing christian tradition in England, dating from Roman times, or the spread of Christianity to Ireland and Scotland during the 5th century, a good 150 years before the arrival of Augustine in Canterbury. There is no mention of the divide between the Roman and Celtic clergy in Northern England, which in turn reflected dynastic struggles in a Northumbria surrounded by Celts and Picts, and which was resolved (in Canterbury's favour) at the Synod of Whitby in 664.

From Bede, writing in the early 8th century, we jump forward to King Alfred and the formation of the earliest viable state that can be called England in the late 9th century. From there we jump to Henry VIII and the establishment of the Church of England, which led to a fashion for biblical symbolism denoting God's favour for their endeavour. The circle is closed by the Henrician fancy for the legend of Joseph of Arimathea, planting his flowering staff at Glastonbury, which sought to prove a direct descent of English Christianity from Jesus. Cue the strains of Jerusalem. There is no mention of the far more popular myth-making around King Arthur under Henry (a scion of the Welsh Tudors, after all).

What MacCulloch seems reluctant to admit is that England wasn't a depopulated territory when the Saxons turned up, and that Christianity didn't arrive with Augustine. The ideological theme of the chosen people assumes that the promised land is rich - the land of milk and honey. But such a land is sure to be already populated as a consequence. The residents are now, by definition, squatters, who must be removed at the behest of God.

The Anglo-Saxons were more effective than the Boers, but less effective than the Spanish Reconquista and the establishment of the USA. Geographic apartheid was the best they could achieve with the Welsh and Cornish, pushing them back into to their marginal homelands, while Scotland remained independent. Basically, the English failed to conquer Britain. It's not much of a foundation myth, is it? "We did half a job".

Saturday, 17 March 2012

The weight of expectations

When I got my first suit-job in London in the mid-80s, I was impressed that my pay packet included London weighting and Luncheon Vouchers. This was the big league. The LVs were worth £2 a day, which was enough for boiled beef and carrots, plus plum duff and custard, in a caff down Marylebone Lane. I eventually twigged that you could also use them at Safeway (as ASDA then was) for a big shop, though this made you unpopular with the rest of the checkout queue because they each had to be endorsed by hand.

These were also the days when every office desk had a glass ashtray, and there were special smoking carriages on the Tube - a bit like a nicotine sauna, inhabited by fully clothed grey-faced wraiths. I mastered the commuter's art of platform positioning at interchanges (Notting Hill, in my case) just to avoid having a smoking carriage open up in front of me when a platform crush meant you had to board the nearest. Just as smoking gradually disappeared from the workplace and transport, so the LV was eventually phased out as the associated tax break evaporated.

The weighting was because the oil company I'd joined had an office in Aberdeen as well. The irony was that the Granite City was in the midst of a boom, which meant local prices had risen to more than most London boroughs, but they did not enjoy the capital's bonus. I was reminded of this by the news that the government wants to introduce regional pay levels for civil servants. This does not mean increasing London-based salaries, but freezing and gradually reducing the salaries of civil servants elsewhere.

A key justification for this is to provide a boost to the private sector in the North and West, on the grounds that employers in these areas cannot afford to recruit staff owing to the relatively high public sector wages. In other words, the private sector is being "crowded out" by the public sector in the hiring market. 

The ongoing public sector cuts mean that many of these highly-prized employees are being made redundant. In other words, the "crowding out" theory assumes a high number of private sector vacancies at the same time that suitable workers with the right skills are becoming available. This should result in equilibrium, candidates filling vacancies, assuming enough workers are prepared to take a pay cut.

Reducing the pay of the remaining civil servants is unlikely to make many of them consider jumping ship to the private sector, at least not in the short term, as they will know that any vacancies will now be attracting their former colleagues.

If the private sector cannot attract employees with their current pay levels, given the already high rate of unemployment in the regions and the relatively common skill level of most public sector jobs (i.e. we're not talking about rare professional or high-tech skills, but mainly transferable clerical and admin skills), then that would imply that the offered rates are lower than the existing market will bear.

In other words, crowding out does not make sense. Either the private sector is failing to offer adequate wages, in which case employers should listen to the market and up their offer, or there is a sufficiently high level of employment among clerical workers that the latter can be choosy, avoiding the private sector in favour of the public sector, despite the latter not currently hiring.

Even members of the coalition government are being cautious, with Vince Cable wondering how this would impact on career progression at a national level - i.e. why would anyone based in London accept a sideways move (or even a promotion) to Newcastle if that meant a pay cut? The recent strategic intent of moving more civil servants from London to the regions will probably run out of steam, if it hasn't already.

Cable, as a Lib Dem, has tried to square this by playing the localism card: flexible pay means "more genuine decision making at a local level". I'm not sure why he felt the need to add the adjective "genuine". According to the Guardian, the Treasury "is not trying to introduce just regional pay, but local or zonal pay that might take account of, for instance, living costs in suburban Manchester as opposed to inner-city Manchester". If these words accurately capture the spirit, then what is significant is the focus on "living" rather than "working" - i.e. the employee's pay level may be geared to where they live as much as where they work.

On the face of it, this is absurd. But pay in line with expectations is what happens if geographical weighting is applied at such a granular level. People will tend to live near where they work, partly because it reduces the cost of transport and partly because they're more likely to seek a job nearby in the first place. If a government office in affluent Cheadle has a higher weighting than one in less affluent Ancoats, this means Cheadle residents will be paid more for doing the same job as residents of Ancoats. The good people of Cheadle will expect this, and they will come to see it as entirely appropriate. Talk about a postcode lottery.

Friday, 16 March 2012

Collars and Cornettos

The recommendations of the Winsor report into the police service have predictably been framed as a story about fat coppers. This serves to distract from the real meat of the review by offering an amuse bouche of lese majeste with a soupcon of fatty-taunting (French is the language of cuisine, you know). It's like supersize foie gras.

The real meat in the bun, you might be thinking, is the plan to cut pay and conditions, or you might even have spied the intent to upgrade the role by attracting and fast-tracking graduates, though that hardly marks a change in policy. The piece by Alan Travis in the Guardian just linked to explains some of the thinking behind the move: "[Theresa May's] wider changes emphasise that fully qualified and expensive warranted officers should be concentrated on the core tasks for which their skills are needed."

In other words, the introduction of community support officers and the plans to outsource non-core activities to private providers are part of a wider long-term strategy. In essence, the desired model looks like a highly professionalised core service with much of the traditional "low value" activities handled by commercial third parties.

Winsor talks about ending the "blue collar" mindset, as the skills and attitudes now required by the police "are distinctly above those of factory workers". He goes on to outline his vision: "We want the brightest and best to think of a police career on a par with the professions of the law and medicine." This has been welcomed by the likes of Geoffrey Dear, former Chief Constable of the West Midlands, who talks about "a chorus of support in Middle England ... for new recruits with business backgrounds to join senior ranks directly".

Clearly, what we are witnessing is the embourgeoisement (more French) of the police. In plain English, the job will move from blue collar to white collar. This is a metaphor, but it's interesting to note that in the post-war decades most UK police forces wore light blue shirts, with the exception of the Met which wore white. Since the 1980s, most forces have adopted white shirts. I don't think this was meant as a homage to IBM. In the US the shirt colour remains a clear indication of grade.

The irony of all this social engineering is that the police officers of the future are now more likely to spend their days sitting on their lard-arses behind desks, rather than pounding the beat or dealing directly with criminals. These latter chores (the "dirty work") will be left to the blue collar periphery of community support officers and private security firms.

There is a strong whiff of managerialism about all this, which you can guarantee will lead to more police incompetence due to their increasing distance from, and lack of empathy for, the wider policed community. Coincidentally, you get a flavour of the class-based contempt that senior police have always had for the lower orders en masse in this week's leak concerning Hillsborough.

Looking at this in a wider social and economic context, the move to a more professionalised police force will probably reduce the number of warrant officers, but it will simultaneously increase the number of well-paid middle-class jobs. In aggregate, the numbers involved in security will probably stay constant (allowing for demographic change), but this will be down to increased low-wage jobs in the periphery. You can also expect the overall cost to increase (despite the promise of savings by Winsor and others), due to the added overheads involved in a multi-tier, multi-provider organisation. Cornettos all round.

Thursday, 15 March 2012

Doomwatch, episode 2

A coda to yesterday's blog about Newsnight's dodgy doomwatch. Tonight, Allegra Stratton, reacting to tomorrow's Guardian story that George Osborne wants to announce the abolition of the 50p top rate of income tax, claimed that the Lib Dems preferred quid pro quo qould be an increase in the personal allowance rather than any sort of "tycoon tax".

This is a quid pro quo in political terms, but not in fiscal terms, as both measures will reduce tax revenues. Given her recent claim that we're heading to hell in a handcart due to rising public expenditure and falling receipts, her failure to point out the stupidity of this "deal" speaks volumes.

My money is on her getting Andy Coulson's old job (the last one) inside 18 months.

Wednesday, 14 March 2012

We're doomed

I watched the first ever episode of Dad's Army recently. This opens with an "I'm Backing Britain" dinner, attended by the platoon in contemporary 1968, at which the keynote speaker is Alderman Mainwaring. He harks back to their finest hour, at which point we are transported to the defiant reality of 1940. Arthur Lowe's character was a dead ringer for his northern alderman in the film, O Lucky Man, a few years later. From prawn cocktail to chocolate sandwich.

The dinner also featured some characters who appeared to have hardly aged, such as Godfrey and Fraser, an inevitable problem when actors in their 60s were playing characters in the 1940s, who now had to appear as if they were still around in the late 1960s. The addition of an NHS hearing aid to Fraser seemed to be the solution. There was poignancy in the presence of Walker, as the actor James Beck died after 5 series of the comedy.

As Dad's Army was getting into its stride in the early 70s, the BBC produced Doomwatch, a sci-fi series in which a shadowy government science agency battled threats to humanity. I still remember the first episode, The Plastic Eaters, in which a plane crashes after the plastic controls melt. While Dad's Army played it for laughs, "we're all doomed, doomed I tell ye", Doomwatch was a more sober affair that combined Doctor Who-style entertainment and thought-provoking "what ifs" about ecological and technological trends.

On last night's Newsnight, they introduced a Doomwatch-style debate on "the bigger black hole" of future welfare spending. The wilful misuse of a scientific metaphor bore the hallmark of Allegra Stratton, Newsnight's current political editor and formerly of the Guardian. She has previous in the political abuse of science. In a piece last December she airbrushed McKinsey's lobbying for private sector access to NHS scientific data (asset stripping a public good) as a bona fide of the Tories earnest commitment to science. This led her to misinterpret Karl Popper’s theory of falsifiability as “ideas only remain true until they are falsified”. As we all know, there is a Nazi base on the dark side of the Moon.

The black hole of the title was defined by Stratton as "a void that sucks stuff in". As any fule kno, a black hole is an object whose mass is so great that nothing, even light, can escape its gravitational pull. It's metaphorical role is generally as a malign influence, irresistibly sucking us beyond the event horizon to our doom. This negative register can be heard in her explanation of the substantive issue: future welfare costs go "way up", while our "means to pay shrink". In reality, both costs and revenue are adjustable: there is no event horizon. We also have the advantage that welfare spending is well understood. A black hole by definition is mysterious, as no information can get out.

The basis for the doom was the OBR's Fiscal Sustainability Report, from July last year, which projected public expenditure and GDP for the next 50 years. This showed spending on health increasing from 7.4% of GDP to 9.8%, pensions from 5.5% to 7.9%, and social care from 1.2% to 2%. This will produce year-on-year deficits, leading to public sector net debt growing from 60% of GDP in 2011 to 107% by 2060. This is deemed to be unsustainable, though debt was over 230% at the end of WW2 and didn't fall below 100% until 1962. The difference now is we're on an upward trend, not a downward one.

The central assumption is "that spending on different public services is held constant as a share of GDP for people of particular ages" (FSR, pg 55). In other words, as older people use more services than younger ones (i.e. health, care and pensions), an ageing population will result in public sector demand increasing faster than general population growth, and thus tax revenues, all other things being equal. According to the OBR, in 2011 17% of the population were over 65. By 2061, that cohort will be 26%.

The other side of the OBR equation is weak revenue growth, only up from 38.4% to 39.3% of GDP over the next 50 years. To reinforce the scariness, Andrew Haldenby of the centre-right Reform think-tank talks of "the biggest challenge we have ever faced, which is our deficit". Methinks Alderman Manwairing might have something to say about that.

The OBR's assumptions about tax highlight a number of areas where technological and social change will reduce revenue, such as fuel efficiency and lower levels of smoking, but exclude the possibility of new revenue streams, i.e. tax on goods and activities that haven't been touched or invented yet (though they do note the need for government to find these). Their brief includes extrapolating current tax policies, but does not include opining on tax composition. For example, a point they make in passing is that one of the biggest areas of revenue growth over the period will be inheritance tax, because there will be many more old people with capital. They do not comment on additional taxes such as a mansion tax or a land value tax. This is unbalanced and highlights the key problem with the analysis, which is a variation on the classic Malthusian fallacy.

Thomas Malthus, writing in the early nineteenth century, believed that any rise in prosperity would lead to more children and thus more mouths to feed. This would then cancel out the rise in prosperity and lead to famine, which would in turn correct over-population. This is an example of a univariate model, in which one variable changes but all others are assumed to be constant. In the event, advances in agricultural productivity increased the carrying capacity, while the industrial revolution increased the demand for labour. What is important is not merely that other variables may have a positive and thus countervailing influence, but that the negative variable may trigger those other positive variables. Thus a growth in population was one of the drivers for the industrial revolution, as it created more customers as well as more labour.

A specific example of this fallacy was Allegra Stratton noting mournfully that "we'll all be drinking and smoking less", which means lower tax receipts. She failed to point out that this would also mean healthier lives (unless we all start sniffing glue instead), which would have a positive impact on health. The OBR's central scenario makes two key assumptions about health costs.

First, it assumes that health sector wage growth stays in line with productivity growth, which it estimates at 2% per annum. However, the report also includes a "worse case" scenario in which health sector wages increase by 3% per annum in real terms. This pushes the share of GDP spent on health up to 15% and causes the debt to GDP ratio to pass 200% by 2060. It is this "worse case" scenario that was presented by Newsnight.

Second, the OBR assumes the single biggest factor in the growth of health service demand is increased longevity. The report "assumes that projected increases in life expectancy will be spent in poor health – an expansion of morbidity" (op cit, pgs 77-78). The OBR includes a more optimistic scenario, assuming healthier lives and thus lower demand, that would see the debt to GDP ratio grow to only 90% by 2060.

The panel discussion that followed the "presentation" accepted most of the statements made at face value. In current BBC fashion, it sought balance (and unenlightening argument) by assuming the central debate was between Keynesian stimulus and Thatcherite privatisation. The antique nature of this was exemplified by their decision to wheel out Robert Skidelsky and Nigel Lawson. The fact that the BBC are only making a big deal about the report now, fully 7 months after publication, is no doubt due to their realisation that the Health and Social Care bill will now make it to statute. De facto NHS privatisation is now up for debate.

Paul Mason did slip in the point made by the OBR that if immigration were maintained at levels seen in recent years, that "would solve things for about a century", i.e. we'd see debt as a proportion of GDP stay around 60% (op cit, pg 76), but we'd have another demographic hump further down the road as today's immigrants join the elderly cohort. For some reason, this topic was not addressed by the panel.

In summing up, Mason noted that the future may be a conservatism that is either very small state or high tax, and a social democracy that promises only limited welfare. Stratton noted that modern Tories (her chums) and some Labour (curmudgeonly Charles Clarke to the fore) are unembarrassed about charging for services. The Tory choice is no choice at all, so the consensus across left and right will be less welfare, which means more charging and more private provision (both pseudo-state and independent of state). In other words, the same policy that we've had in weak and strong forms since the turn of the millennium.

I would draw three points from this.

First, the gloomy predictions are likely to be wrong, if only because almost all predictions beyond a couple of years are unreliable. Not only will shit happen (Nazis on the Moon), but there will be unexpected positive outcomes (we acquire their advanced technology). The OBR's brief means it cannot make any assumptions about anything that is not a direct extrapolation from current policy. This means its projections on future tax revenues are incomplete. A land value tax could radically alter the landscape at a stroke. It was noticeable that the only real discussion of new taxes in the programme centred on Andrew Haldenby advocating the imposition of VAT on food, a measure that would disproportionately hit the poor and undermine public health further. A tax on salt, like a minimum price for alcohol, would both raise revenue and lessen the burden on the NHS.

Second, the projected consequences of an ageing population are suspect. The reason why we are living longer is because we are becoming healthier. The OBR's decision to assume increased longevity and simultaneous increased morbidity looks plain weird. There is no reason to believe that we will each of us use more health services in the future, either proportionate to our lifespan or in absolute terms. You can only have one terminal illness. The improvement in diet, the reduction in air pollution, and the decline in smoking mean the yoof of today are already healthier than those born during the baby boom, let alone those born and raised in the hungry 20s and 30s (today's geriatrics).

An ageing population does require a change in the pension age (or an increase in pension saving rates), but it does not make state pensions "unaffordable" any more than it necessarily means the future old will spend more time in hospital or in care. We just have to adjust. A good start would be changing tax relief to encourage pension contributions by the less well off and abolishing relief altogether for the better off.

Third, the assumptions about health sector productivity are questionable. The belief that health sector wages will grow faster than productivity is based on the premise that the health sector is relatively labour-intensive. As most productivity gains come from capital investment, this means the sector tends to improve at a below average rate, while the pressure on wages seeks on-average increases. However, the past is not always a guide to the future. It is just as reasonable to anticipate future productivity gains coming through greater preventative care and more investment in technology, both of which could result in proportionately lower labour growth. It's worth noting that the one thing that will ensure excess headcount growth is privatisation, as that will add new managerial and commercial roles.

None of this is intended to imply that we don't face a challenge. Clearly we do, though this is just the nature of historical change. Every era must adjust. My concern is the way the debate is being framed along the lines of "we can't afford this", with the implication being that "this" is the NHS. The oleaginous Claire Perry prefaced her contribution on Newsnight with "I love the NHS", before she went on to claim that it was unsustainable. Presumably she's planning some tough love.

The Tories (and the well-off generally) have never really "got" the NHS because they fail to understand what non-Tories genuinely love about it. The value of the NHS at its introduction was not that it cured people, but that it gave them dignity in death. The poor could avoid a squalid death in the workhouse (or the council infirmaries in the inter-war years) and the lower middle class could avoid the penury that the doctor's bills brought when a family member died or a breadwinner was seriously ill.

It became hugely popular because of free dentures and glasses, and because of its maternity care during the baby boom. It was then appropriated by the middle classes, who have been a major factor in the demand for high quality "cures" and the resulting tension over expensive treatments. The modern love affair is more complicated, particularly as it has become a substitute for proper elderly care, but at heart there is the belief that the NHS removes worry. It's always there when you need it.

Captain Manwairing may have been pompous and his bolshy platoon borderline incompetent, but they were reliable and they got the job done. Those are very British values. As the great man says in his dinner speech, "the news was desperate, but our spirits were always high".

Monday, 12 March 2012

White light, white heat

A piece on the intemperate nature of sexual politics in the US in last Sunday's Observer wheeled out the cliche that hyper-conservative views on the subject can be traced back to the Pilgrim Fathers and the mores of the 17th century. This is absurd. A few thousand English sectarians in Virginia and Massachusetts 400 years ago have not determined modern views. The American attitude towards sex has been conditioned by much more recent developments.

In the southern states, the traditional underpinning was not Puritanism but the fear of miscegenation, which led to an obsessive focus on female sexuality (always at risk, always prone to betrayal), and an animalistic view of male sexuality. This in turn contributed to the wider belief in cultural swamping and the fear of social pollution. The danger of becoming infected, of turning into "the other", continued through the Red scare, the AIDS scare, and has now found its most recent home in zombie movies.

The Civil War clearly did not end in the 1860s but in the 1960s, with the ostensible triumph of the civil rights movement. Many southern conservatives remain unreconciled. The sight of libertarians justifying government interference in sex looks plain bonkers, until you realise that controlling your womenfolk is the last redoubt of "property in a person".

Most inhabitants of northern states are descended from immigrants who arrived after the Civil War and mainly settled in industrial cities in the North East and small towns in the Midwest. Usually from conservative rural cultures in Europe, they brought a Victorian evangelical Christianity and ultramontane Catholicism. This continued to be an important dimension of identity in the US melting pot up to the 60s. Many ideologues/activists today remain influenced by parents/grandparents conditioned in this era.

The growth of political Christianity in the 70s and 80s is often seen as a simple reaction to the 60s, but it may ultimately be more a generational retrenchment, drawing the waggons into a circle, as the original values began to dissipate through assimilation and societal change. Santorum et al may be a last flowering before decay. It is no coincidence that sexual permissiveness in the US was championed in an area outside both the South and the North East/Midwest, i.e. California.

America is a wilfully antique society. The foundation myth is that the US is essentially the creation of the 17th and 18th centuries, and that its ideal vision of itself remains the "shining city on a hill", even "the light of the world" in foreign affairs. This idea is widely propagated through politics (e.g. the focus on classical liberalism, the fear of over-mighty government, neo-conservative intervention etc), the festishisation of the constitution (the right to bear arms), and the belief that property can be conjured out of thin air (manifest destiny).

Current European foundation myths (i.e. in respect of modern society) date from much later: 19th/20th century class struggles, nationalism, anti-fascism and WW2 etc. Native Londoners will usually cite the Blitz as the prime example of the city's social spirit, not the crucial decision to back the Parliamentary side in the English Civil War.

The point of this is that foundation myths are not immutable. We regularly recreate and reform them to suit our present needs. This was exemplified in the first episode of White Heat on BBC2 last Thursday. As WW2 retreats into care home memory, and the baby boomers are well into the memoir stage, the 60s have become the crucible in which modern Britain was forged.

The fact that White Heat started moments after The Singing Detective finished its series re-run did it no favours. The quality of writing and acting was a no-contest, and I'm not even sure the modern work would edge it on costume and scenery. To an audience inundated with cheap TV, it bore the look of something both serious and expensive, but in truth it was just another instance of a tired format. Not reality gawping (exposure instead of a fee), or sponsored consumerism sold as lifestyle, but the hardy perennial of desperate schedulers, the list programme. With its exhaustive desire to tick off every cliche, White Heat was your top 100 sixties stereotypes.

Some of this was unintentionally funny. The female artist independently inventing Yves Klein's anthropometrie painting technique, though using menstrual red rather than International Klein Blue. It could take a while to unpack that one. I also noticed The Mighty Boosh's Julian Barrett moonlighting as the art teacher (predictably cued by another character as randy - I wonder where that might lead). Then there was the kindly gay Asian who failed to lock his bedroom door, during a party no less, resulting in his new Bogside Catholic girl confidante catching him about to give head. What a carry on.

It's early days, and some will say the need to introduce a large cast will limit the time for character nuance, however the shallow exposition ("I've just discovered my dad's been cheating on my mum, so I'm going on the pill") and instrumental manoeuvring ("we're all his guinea pigs") was too heavily reminiscent of Big Brother. The key difference seems to be in guessing which one of them has died, rather than who will be voted out first.

Future dramatic tension was served by the setting up of massive signposts: the MOR Geordie will presumably get a leg-up in politics by the dissolute landlord's MP dad (they're always handy); the quiet Jamaican lawyer will somehow save everyone's bacon after some Hamlet-like dithering; and there will be more tragedy for the Bogsider ("victim" is written all over her ample frame).

I may be proved wrong, but I think the irony of the title may yet be eluded. The phrase comes from Harold Wilson's 1963 speech, before the Labour victory of 1964 (his first term as PM), on how "the Britain that is going to be forged in the white heat of this [technological] revolution will be no place for restrictive practices or for outdated measures on either side of industry".

This was not just a plea for a meritocratic society to replace the class-bound stagnation of post-Suez Britain (Cool Britannia avant la lettre), but a clear pointer towards the significance of reforming industrial relations and boosting capital investment. So far, the programme has shown a greater interest in the politics of the personal, and the milieux of the arts, media, law and government.

The foundation myth of the 60s is built on personal liberation, success through talent, and a flowering of tolerance, which somehow produced the ugly child of the 70s and the triumph of Thatcherism. Don't hold your breath for a debate on industrial policy or the role of the City of London.

Saturday, 10 March 2012

Line and length, lad

Now that walking weather has returned, I ambled up to town for a couple of exhibitions recently. The first was the Eve Arnold photo show, All About Eve. This was held in the Artsensus gallery, which is housed on the second floor of an office block behind Westminster Cathedral that also houses Tom Ford. The stairwell was populated by beautiful, willowy young women having anguished conversations on their phones while clutching unlit cigarettes.

The photos were so-so, the iconic shots of Marilyn Monroe and Clark Gable on location for The Misfits being the main draw, though I was most taken by some of her photojournalism away from the stars, such as US Nazi George Lincoln Rockwell at a Nation of Islam meeting, or the itinerant Irish labourer in Manchester for whom a bed looked as distant a prospect as an Oscar.

The second show was the Hockney exhibition at the Royal Academy. This involved some middle class queueing, with various parties furtively casing the joint to see if they could sidle in without causing "a fuss". The crowd inside was rammed, in no small part due to hordes of visiting schoolkids. One of the middle-aged day-trippers was heard to opine that "they shouldn't let school children in during the day", which for stupidity was on a par with those complaining that Yorkshire roads aren't orange, nor ploughed fields purple.

The colour in Hockney is a massive distraction from his structural intent. Each work is a careful composition of lines and curves, washed in hedonic hues. Despite his clear signposting (the show is called A Bigger Picture), most critics seem to have missed the bleedin' obvious, namely his use of grid lines and fractures to simultaneously fragment and contain the picture.

This use of structural lines is apparent from his earliest work and becomes in-yer-face with his Californian compositions in the 60s, heavy on the rectilinear architecture and palm trees. Garden design has never been the same since. The use of Polaroid collages in the 80s takes it to another level, with the fracturing now being a function of the medium, rather than just a form imposed by the artist. Technique and technology are used to deliberately fragment and displace. It's apparent in his subsequent interest in camera lucida and fax, and the now dominant use of multiple panels.

His use of a grid of slightly askew cameras on a jeep-mounted rig, which allows him to film a hedgerow in a fractured single take, was treated as a mesmeric object of near-religious contemplation at the RA (a darkened room always helps). In contrast, most people seemed bemused by his use of the iPad, or even dismissive of it as shallow technophilia. The Polaroid SLR camera had been around a decade before he started using it in his art, so perhaps his latest obsession is seen as just a bit too keen, a bit too Stephen Fry-ish. The attraction of the iPad for Hockney, I think, is it's rectangular shape. A single device that can generate and store multiple "panels" in portrait or landscape orientation. Perfect for his purpose.

The real subject of the exhibition is our dear old friend, Death. This is not just because it is a retrospective, spanning early art school work up to his latest musings. The changing seasons, the retreating path, the tunnel of greenery with a light at the end. All these are classic tropes of mortality. The tree stump that features repeatedly has a feminine, almost Venus de Milo, shape to it, which inevitably triggers thoughts of his mother whose death brought him back to Bridlington.

The felled logs can also be interpreted as mortal, though I think (half mischievously) that they may also represent all the fags he's smoked, or perhaps all the cock he's had (do comedy Welsh accent at this point). And the hawthorn and other blossom, which some have likened to patisserie, look more like turds. Do not be misled by the colour.

Perhaps the most intriguing part of the show, though the least popular with the crowd and critics, is his series of variations on a Claude Lorrain landscape depicting the sermon on the mount. Claude's oeuvre, reflecting the fashion of his time, was highly allegorical. The mount, which looms large, contains what appears to be a small rock-cut tomb on one side. Hockney has faithfully replicated this small detail in each piece, while keeping it obscure. I think it is at this point that a bigger picture becomes the bigger picture.

Friday, 9 March 2012

Is that whip tax-deductible?

The news that Ken Livingstone has been using a personal services company for his media earnings, thereby avoiding some tax, has led to charges of hypocrisy, both from those on the left who consider it an own-goal and those on the right who usually champion tax 'optimisation'.

The blather-storm is purely political. Ken's "dodge" would not have occasioned much interest were it not for the upcoming mayoral elections. What has largely gone unremarked is the fact that PSCs are now seen as "normal", an incidental opinion ascribed to an ally of Ken in the New Statesman's piece. The ally is not wrong.

Last month's revelations that senior civil servants are using PSCs focused on the top end of the work pyramid. Jonathan Baume, of the First Division Association (the union for top rank civil servants), even claimed that these arrangements were necessary to attract talent from the private sector.

His conclusion was that transparency demanded higher salaries, which is just him doing his job. In fact, it's likely that these individuals would have used PSCs when working in the private sector as well. Baume was guilty of allowing the issue to be framed as a matter concerning a few score fattish cats in the public sector, which was music to the ears of anti-state ideologues.

PSCs allow tax to be reduced by disguising income as corporate profit and by reducing gross profit through offsetting expenses. Umbrella companies for contractors can also reduce tax, albeit by a smaller amount. Income "laundering" like this has a long history in the UK, though it was traditionally limited to partnerships in sectors such as banking, law and accountancy. Independent contractors have also been a long-standing feature, most famously GPs who wanted to stay at arms-length from the NHS.

From the 1980s onwards, the use of limited companies by contractors grew considerably. During the course of the 70s, just over half a million companies were formed (this includes "real" companies as well as PSCs). In the 80s, over a million were formed (see page 11 of this Tax Research UK report). Even allowing for the increased churn of the 80s recession, a large part of this doubling must be attributed to PSCs. There were four major reasons for this growth.
  1. The government's favouring of lower corporation and dividend tax rates made PSCs increasingly attractive because of the increased tax margin.
  2. The ideological encouragement of entrepreneurialism (including making company formation easier) led many to experiment with self-employment (when jobs decrease the self-employed tend to increase).
  3. The greater use of outsourcing, in both private and public sectors, diluted employee loyalty and made variable employment arrangements in the same workplace less unusual and less contentious.
  4. Advances in technology increased the premium for specialist staff, notably in areas such as IT, engineering, design, health and pharma, and oil and gas.
This final point will probably prove to be the most significant in the long run. "Skilled trades" have increasingly migrated to the middle class, swapping blue for white (and then open) collars along the way. The decimation of the "aristocracy of labour" was not just about the managed decline of coal and steel, it was about the co-option of technical roles into the ranks of the non-unionised. Whereas this was once largely limited to the "drawing office" in manufacturing and heavy industry, it has spread as most companies have grown their IT, finance and HR functions. Notions of solidarity have evaporated along the way. In the 1990s, 1.5 million companies were formed. In the last decade, 3.5 million were formed (op cit, pgs 15-19).

The spread of contracting is often presented as a positive lifestyle choice at the top end of the income scale, in contrast to the casualisation and precariousness at the bottom end. In effect, the tax dodge is the quid pro quo for middle class professionals accepting less secure terms of employment. In practice, many of them are no less secure than they ever were. The "Friday to Monday" conversion of permanent employees to contractors has been no less pernicious than the revolving door between civil service and government suppliers, or between the police and media organisations.

When considered alongside the trend of companies to divest themselves of pension schemes, the continuing primacy of shareholder value, and the toleration of rent-seeking by executives, the growth of PSCs is a key part of the wider transition to an economy in which companies have no social obligations.

There are about 29 million working people in the UK, of whom 12.4 million are in management, professional or technical roles. It is estimated that there are 1.9 million active companies. That's one company for every 15 workers. It is further estimated that businesses without employees (i.e. the workers are directors) account for 75% of the total. This implies that there may be around 1.5 million PSCs, which will overwhelmingly represent people in the higher skill group. In other words, about 12% of that group may be working through PSCs and thus enjoying a tax break.

As a member of the metropolitan middle class, with top notes of media, Ken really is quite typical of his ilk, as is his opponent, Boris Johnson. To that extent the charges of hypocrisy are unfair. As the New Statesmen's "source close to" implies, Ken didn't seem to clock that he was doing anything wrong. An unconscious hypocrite is an oxymoron.

The real scandal is not that Livingstone was engaged in a scam to minimise his tax, but that a significant proportion of the middle class is doing exactly the same. It has become normal, and therefore almost acceptable. Some of the very same people who do this will be among those up in arms about losing their child benefit. Now that would be hypocrisy.

Wednesday, 7 March 2012

I predict a goal riot

I am beginning to think I may have the gift after correctly predicting that we'd nick 3 points at Anfield and secure a good (if ultimately inadequate) win, with a clean sheet, against Milan at home yesterday. Actually, this talent for scrying is based on nothing more than a reasonable assessment of the facts, rather than a crystal ball, but it's useful none the less. Naturally, I won't ruin it all by putting my money where my mouth is.

My heart said that if we won 5-0 we'd go on to win the big-eared trophy. My head said that an exit now would boost our chances of finishing third in the league. Spurs and Chelsea have FA Cup distractions (the former's replay with Stevenage is a win-win in my book), and they meet next week. If we can beat Newcastle (and 6 days to recover is just what we need in preparation), and the Spuds and Chelski draw, then we'll be looking good.

The team put in a great effort in the first half last night, pressing hard and taking their chances, and were predictably knackered in the second, which allowed Milan to get off the ropes. Had RvP's sand wedge gone in, we might have got the fifth on adrenaline alone, though I suspect the Rossoneri would have also gone for broke to secure a decisive away goal. Looking at the season as a whole, the clean-sheet may well prove of greater psychological benefit than winning 5-1 and still going out.

The press are creaming themselves over The Ox, though his was a modest contribution compared to Tomas Rosicky who did so much to set the tempo and create space. It's idle speculation to wonder how Arsenal's fortunes would have panned out if the Czech and RvP had not been so blighted by injury over the last 6 seasons, though it is worth a minute of thought in respect of Wenger's transfer dealings. The "potless years" unquestionably owe a lot to the loss to injury of too many quality players at key times. Too little attention is paid to the fact that Wenger acquired those key players (including Fabregas and Nasri) in the first place.

Chamakh and Park's entrance late on triggered the usual gripe about a "poor summer" leading to inadequate options on the bench, but the fact Wenger's bulk-buy also brought in Oxlade-Chamberlain and the (missed) Arteta tends to be ignored.

The Ox aura seems to stem from a belief that he is "not Walcott", being more intelligent in his decision-making and reliable when he attempts a dribble. I suspect Theo will never get over the prejudice of many that all he has is pace. One of the joys of fandom is being able to criticise a professional player for his inability to do something that you can do, like trap a ball or pass it to feet. Of course, this myopia depends on ignoring the fact that the pro is doing it at high speed whereas you are walking.

Theo will need to become the new Giggs before he gets full credit from the press, though it was nice to see the crowd get behind him last night. The brace against Spurs mean he has credit in the bank for some time to come. If he (and various other midfielders) can stay fit, his pace could prove crucial as we approach the end of the season and some other teams drop their work-rate.

An average of over 3 goals in our last 3 games shows that the desire and effort is there. I don't need the gift, or a crystal ball, to say that should we keep this up, we'll walk third.

Monday, 5 March 2012

Why Erich Honecker would never have gotten a job at Google

Google's decision to combine the behavioural data of users of its different products has given rise to concerns about the encroachment of big business into the private lives of ordinary citizens. There are two complementary perspectives normally deployed when discussing these concerns.

The concern about privacy

Some of this is just cynical pandering to fashionable paranoia by lazy journalists, but there are sincere civil libertarians who regard Google's action as a worrying step towards an infrastructure of mass surveillance, if not The Matrix.

The first point to note is that many of the commentators who have articulated this view don't understand how the technology works. This does not invalidate their concerns, but it does explain why they tend to see the situation through the prism of traditional surveillance tropes.

The old East Germany became the leading example of surveillance following the opening of the Stasi's files in the 1990s. This reached its apotheosis in the film The Lives of Others in 2006, in which the agent of the state is inexorably drawn into the lives of his targets. This is a high quality (i.e. middle class liberal) model of surveillance, giving substance to the lives of both the snooper and the snoopee. It allows for small triumphs of humanity and free will, and acts of theatrical self-sacrifice.

The reality of the Stasi was institutional incompetence. In part, this was down to its genuinely totalitarian ambitions. It is estimated that files were kept on a third of the population and that as many as 10% were occasional informers. This meant that the Stasi was inundated with huge amounts of worthless noise. The act of gathering so much, and the co-option of so many, gave the impression of omniscience, which in turn produced self-repression. If you were an informer, even one who produced nothing but banal chaff, you would assume that you too were under surveillance and would keep your nose clean accordingly.

Google are running a business in order to make money, not trying to create a totalitarian state. It suits their purpose to imply omniscience, as that is what attracts the fee-paying advertisers, but the reality is not unlike the Stasi: humongous amounts of worthless data.

Making money is a numbers game, which means a business is generally discriminating about its customers. In particular it makes an effort to exclude those who are not profitable. This is the opposite of the totalitarian state, which tends to spend a disproportionate amount of its effort on the recalcitrant minority. It's a good example of the Pareto principle: business focuses on the 20% that provide 80% of the profit, and avoids the 20% who generate 80% of the costs; the totalitarian state focuses 80% of its public order effort on identifying and controlling the 20% who constitute a perceived threat. A totalitarian state does not offer an opt-out, even one buried in the small print.

The libertarian critique of Google and others usually fails to take into account that the business is simply not interested in those who are most concerned about privacy, as these self-selecting individuals are the ones that provide the least value to the business. The savvy user who limits their online trace is a much less substantial, and thus less monetisable, user than the average. They are probably also more discriminating in their consumption, and thus less open to the persuasion of advertisers, with the exception perhaps of those that appeal to their savviness or paranoia. The intelligentsia is a niche market, and a not particularly valuable one at that.

The concern about surplus labour

The economic perspective is often expressed in the maxim: "the product is you". Your online activity creates a commodity, your aggregate preferences, through explicit "likes" and behavioural inferences. This surplus value of your labour is taken by the likes of Google and Facebook and sold to advertisers. The capital of these companies has been built by millions of users creating an enormous, multi-dimensional dataset as a by-product of their online lives.

Most users understand the quid pro quo nature of free online services, namely the price you pay is advertising. This is familiar from the world of broadcast TV. The more tech-savvy also understand that this advertising aspires to narrowcasting, i.e. it is targeted to you and your assumed interests. This is sometimes justified as a better service for the user, in the sense that it presents ads that are more relevant, however the only real justification is that it is more valuable to advertisers, as relevance is assumed to lead to a better conversion rate (views to purchases).

At a macroeconomic level this is a wash. Increased relevance does not lead to increased aggregate expenditure. At a microeconomic level it is crucial, as it gives one medium (online) a potential USP over other media (TV, paper, billboards etc). It should be noted that this USP remains good even if only a minority of users provide sufficient preference data to support targeted adverts. Accurate and detailed data for 20% of users would be enough to allow online to dominate the ad budgets of most advertisers.

This last point highlights the problem of equating the traditional notion of surplus labour value with the expropriation of user value online. No one is obliged to go online so the real coercion that underpins economic life is not present. You will not be impoverished if you decline. Though it will become more and more difficult to avoid online altogether, as the medium becomes pervasive across many areas of social exchange, the extent to which you are exposed can be controlled by you. Most importantly, the amount of surplus labour value you produce, as a percentage of your online activity, can be minimised. In the traditional factory setting, this can usually only be done through sabotage.

Google's move provides an interesting counterpoint to Marx's theory of surplus labour value and the related tendency for the rate of profit to fall over time. Their investment in constant capital (their software products and server infrastructure) can only lead to a productivity gain if it increases the surplus value of the users' labour, as that is the product they sell to advertisers. However, they don't need to increase the surplus value of all labour, only some of it, i.e. those who don't object to their revised policy.

Meanwhile, the "saboteurs" who minimise their online data, and thus their surplus labour value, are largely ignored by Google. They are a vocal minority, but they constitute neither a significant threat (so long as Google remains law-abiding) nor an opportunity. They are actually more like factory inspectors than browbeaten proletarians.

Saturday, 3 March 2012

Am I right, or am I right?

Watching the re-run of The Singing Detective has been a reminder of a time when imaginative TV drama was a local speciality. Today, we're expected to get excited about derivative and preposterous US imports like Homeland or Scandinavian coppers. Meanwhile, British television has been reduced to honeyed heritage for the cardigan classes, cheap tat for da kidz and lifestyle bollocks for everyone. Most of the money spent on original drama appears to go on the wardrobe and set design.

Dennis Potter's masterpiece makes great use of contrast and incongruity, the fish out of water being the common feature of most of his work. One contrast that has acquired a new resonance is that between selfish desire and the social instinct, specifically financial greed and the NHS. The cupidity of Marlow's wife and her lover, trying to get Marlow to sign away his rights to a screenplay, are thrown into relief in the setting of a hospital ward where care is the hard currency. This is sometimes grudging, such as when the grumpy nurse insists on the patients saying "please", or the night nurse grumbles when disturbed from her snooze. The social exchange involves gratitude, officiousness and deference, but there is no suggestion that care is not an entitlement, or that it can be bought and sold.

The last couple of weeks has seen a shift in mood with regards to the Health and Social Care bill. Andrew Lansley may have seemed like a gonner when confronted by an angry old lady from central casting, but the fact that he is still in the job is evidence that the bill will be passed.  Erstwhile supporters are now admitting that most of the apple pie and motherhood elements (prioritising primary care and GP commissioning) can be achieved through existing mechanisms, which raises the question as to what exactly the bill is for and why so much political capital has been expended on it.

Lansley refutes the claim that the bill is a cover for privatisation, however the core area of contention that remains, as the noise over bureaucratic specifics recedes, is competition and the invitation to service commissioners to make greater use of the private sector. There is no doubt that creeping privatisation is the fear that fuels most opposition, and equally no doubt that the growing private sector anticipates taking a larger slice of the fiscal pie in the future.

All the evidence indicates that the NHS is effective and efficient, so there is no obvious utilitarian argument for radical reform, let alone privatisation. The success of the NHS has been down to two features: a national monopoly and rationing. The deficiencies look like conscious trade-offs, namely toleration of relatively long waiting times and limited patient empowerment, both of which probably keep costs down. (Bizarrely, the 'long, healthy productive lives' criterion in the linked analysis shows a correlation of ranking and the alphabet, though I wouldn't suggest moving to Albania any time soon).

So if the NHS is such good value for money, what motivates the private sector? Some critics have claimed that private providers will cherry-pick the profitable bits, like day surgery, leaving chronic (expensive) care to a rump public service. There is probably some tactical truth in this, inasmuch as a private provider will naturally gravitate to where the margins are greatest, but this doesn't look like the big strategy. Is the opportunity all about stripping or sweating assets? Given that the NHS has now had decades of efficiency improvement and capital investment, I doubt it constitutes an easy opportunity in the sense that an injection of private management could quickly produce major productivity gains, plus most of the asset stripping (selling off facilities etc) has already happened.

A more sobering explanation is that health and social care are seen as economic sectors with high growth potential. In other words, the rate of profit is less attractive than the growth in the quantum of profit. Many economists have noted a long-term dearth of investment by business since the mid-80s, which has been exacerbated by companies sitting on large cash balances since the credit crunch. Some of that will dissipate when confidence returns, but the underlying trend still looks worrying.

A couple of years ago the American right libertarian economist Tyler Cowen published an influential book called The Great Stagnation. This explained the negligible real growth in US middle incomes since the 70s as the result of three factors: the end of cheap land after the 19th century; the end of the historic growth in the number of college graduates in the 60s; and the slowing rate of major technological breakthroughs (we've picked all the low-hanging fruit).

The last of these is also held to explain the dearth of investment. There is less whizz-bang stuff to invest in, and the new opportunities that have arisen have produced relatively few jobs compared to earlier innovations. I'm dubious about the methodology of the study that underpins this, as it relies on subjective assessment (we're relatively blind to recent inventions - e.g. the Internet was a marginal concern before WWW) and the number of US patents issued per year (a measure of intellectual property, not innovation). This also harks back to an old-fashioned model of industry, with easily identifiable concentrations of labour and suppliers. The current model is much more diffuse due to outsourcing and globalisation.

A good critique of Cowen's book by Steve Waldman makes a wider point about the impact of technology on work:
In (non-terminal) democratic societies, technological change must always and everywhere be accompanied by the growth of institutions that engender economic transfers from the relatively few who remain attached to older productive enterprises to the many who require purchasing power not only to live as they did before, but also to employ one another in novel or more marginal activities that were not pursued before. Inevitably those institutions develop in state or quasi-state sectors (which include the state-guaranteed financial sector and labor unions whose “collective bargaining” rights are enforced by the power of the state).
In other words, we create pseudo-productive jobs to soak up enough of the workforce to maintain reasonable levels of consumption in the economy. Where I disagree with Waldman is his assumption that such growth inevitably occurs in state or quasi-state sectors. Much of the service economy is a form of economic rent, and the number of supernumerary management roles created in the private sector is far greater than the number in the public sector. The significance of the latter is simply that it is so much bigger an opportunity because it is (usually) a legislated monopoly.

Any part of the economy that is expected to grow naturally, as a result of factors such as an ageing population, will be attractive to investment as this will produce more jobs and therefore more turnover, which in turn means a growth in absolute profit, regardless of productivity gains. A public monopoly with guaranteed growth will be doubly attractive.

The pressure for the privatisation of the NHS, along with the apparent desire to now privatise much of the police service, can therefore be seen as the result of a lack of investment opportunities elsewhere. The bottom line is that we have too much cash on corporate balance sheets.

The fear is that if Lansley & co have their way, we will (ironically) be in danger of over-investing in health, creating a bubble that will eventually burst when future spending cuts threaten profit flows. This will probably lead to the "renationalisation" of a rump NHS (chronic care and paupers) and the full independence of a private health sector along US lines. In 2008, the UK spent 7.2% of GDP on public health and 1.5% on private health. The US, in comparison, spent 7.4% and 8.5% respectively (see slide 3).

The solution is not to open up the NHS as an exciting new investment opportunity, but to increase corporation tax and recycle the funds into more socially beneficial investment. Just think of all the wind turbines we could build.