Thursday, 24 July 2014

The real reason we are all so heavily in debt

I see the coalition is once again struggling to keep down the size of the deficit and is missing their targets for this year.  It is down, of course, from the worrying levels of 2010.

But my colleague James Meadway has written a very interesting blog for the New Economics Foundation which suggests that, although the government borrowing total is down, the rest of the economy is still absolutely constipated with debt.

The latest debt statistics show that the average household debt including mortgages is £54,700.  Outstanding consumer credit debt is up another £5 billion on last year.

James Meadway says that the total liabilities of the UK financial sector is now over 1,300 per cent of GDP.

Why have we created the kind of economy that seems to require money to be lent as much as it requires oil to be extracted form the ground?

Debt is a problem in the private sector because of the activities of the corporate raiders - if your balance sheet is free of debt, then you are a takeover target.  The struggling consumer sector, especially when it comes to electronic equipment - rather like the airline industry - can't survive without pumping vast amounts of debt, either into the consumers or into the airlines.

Was there a moment when everything went wrong?  A moment when we plucked the apple marked debt from the tree of economic knowledge?

Well, not really.  But I've always wondered at the possibly mythical moment when a young Nigel Lawson persuaded the debt-phobic Margaret Thatcher that a society of homeowners could only be created by encouraging people into debt.

It was true - for a time.  But that fatal conversation, which seems to have happened at the Conservative Party conference in October 1979, led to everything else.  See the full story in my book Broke.

But there is another reason.  Creating debt is the way that banks create most of our money in circulation.  It is controversial, archaic and definitely not fit for purpose.  In fact, 60 per cent of the money in circulation started life as mortgages.

It is a sobering thought that, without the house price boom, we would have so little money that life would grind slowly to a halt.

It is, in short, a ridiculous way for a modern economy to organise itself.  High time somebody put forward proposals for reform.  The next question is why we don't get any of these proposals...

Wednesday, 23 July 2014

The secret of conjuring local enterprise

I must admit that McKinsey is my least favourite management consultancy. I’ve got nothing against their very clever staff and consultants, but they seem to me to be let down by the culture and tradition of the place, which gets in the way of seeing the world as it really is.

On one hand they are always chasing after the latest fads and buzzwords (a failing of all management consultants). On the other hand they remain locked into an archaic framework for understanding the way organisations work, including the so-called McKinsey Fallacy (Everything can be measured and what can be measured can be managed: false, see my book The Human Element).

But I read their latest offering with great interest – because it is relevant to the question at the heart of the project I am now running through the New Weather Institute. It is about how cities can create an entrepreneurial culture of start-ups and small business.

There is a basic contradiction in their coverage. They say that Berlin is an example of a city which is doing it right without government intervention, but then devote the next article to an interview with the mayor to hear how he did it.

They then articulate a very interesting idea – the start-up delivery unit – run from a mayor's office and designed to work closely with entrepreneurs and to bust barriers for them. It is flexible, imaginative and fast-moving, everything that an organisation re-designed using the McKinsey Fallacy tends not to be. And it is one of the ideas behind Berlin's entrepreneurial success.

These units are usually linked to venture capital. We suggested something along similar lines in the last Lib Dem policy on sustainable jobs – a new kind of institution, linking local finance with local entrepreneurial support, mentoring and coaching. 

But that obscures the perennial problem with the McKinsey approach. It doesn't see any further than the trendy world of tech start-ups, important as they are.

In fact, this is an approach that needs to be tested out much more widely, certainly in regional cities rather than just capital cities – wherever there is entrepreneurial potential (everywhere) and wherever there are problems to be solved (everywhere).

The late, great Anita Roddick used to define entrepreneurs as people who could see the world differently. She was overwhelmingly right.  The difficulty is that these kind of people are not always very adept at starting businesses or social enterprises - and they need more personal support than the ubiquitous tick-box approach of Business Link favoured by the last Labour government.

As the McKinsey article suggests, these units need to be extremely small and very flexible.  Like the BizFizz enterprise coaching scheme, they need to be active in the poor areas as well as the tech hubs. 

Like Community Catalysts achieved in Nottinghamshire, it needs to be the right person in the right place to encourage new micro-enterprises to carry out social care contracts in a more humane way.

This is the new localism question: what kind of institutions do we need locally to encourage entrepreneurs at local level?

It isn't about the latest silicon roundabout, for goodness sake.  It is about how to inject new life into moribund economies and moribund outsourcing.

Tuesday, 22 July 2014

The lost art of making things happen

Leoopld Kohr was an economist who was an immigrant to this country (he died in Gloucester). He once shared offices with Ernest Hemingway, Andre Malreux and George Orwell. But it is for his influence on Fritz Schumacher that he is best known today, and for his little book The Breakdown of Nations.

He believed nations should be smaller and I agree with him. I have no doubt that, as Freddie Heineken used to say, Europe would be more civilised, more effective, more imaginative and more humane, if it was made up of 50 separate states than with its present handful of shoulder-pad jostling mega-nations.

That doesn’t make me a Scottish nationalist, or a nationalist of any kind – quite the reverse, in fact. It makes me a Liberal who is at least interested in the contradictory idea of Scottish independence, as if ‘independence’ was at all possible in this day and age.

It also meant that I read the proposal by the billionaire Tim Draper that California should be broken down into six different states with a great deal of sympathy..

I am one of those who cheered when the Liberals took control of Tower Hamlets in 1986, and after a wild meeting of the full council that lasted into the early hours of the morning – probably a mistake when it came to building alliances for the future – the council was split into seven self-governing neighbourhoods,

As a principle of administration, it makes sense. Smaller units are more able to tackle the issues that face them – you have to be General Montgomery to co-ordinate government the size it is these days, and most people are not (therefore nothing happens).. Smaller units are more humane, more difficult to defraud, easier to make a difference, more flexible for frontline staff, and less expensive to administer.

For all these reasons, smaller administrative units are more effective.  There may be exceptions - social services was the legal exception in Tower Hamlets - but small is generally speaking beautiful.

But none of this is really about national boundaries. If there are supranational bodies like the European Union, which allow borders to be porous - as they will always be for Liberals - then these painful divisions are easier to negotiate.

I'm not clear what difference Scottish independence would make now - it isn't as if the Scots play any role in managing the currency even now.  Either way, the objective has to be porous borders, communication, two-way travel and good business - and the fact that it is one nation, or one state, or one local authority, rather than another, is neither hear nor there.

There are issues of co-ordination when you devolve power, but they are easier to manage than the issues of fractured demarcation lines when you don't.

These issues are critical to the future, and they at the heart of the very modern debate about the most effective size institutions ought to be. The UK establishment, public and private, is still wedded to the idea of economies of scale.  For all sorts of reasons, mostly self-interested, they believe everything should be big – schools, hospitals, banks.

Most academic opinion suggests these days that this is wrong-headed.  It isn't that there are no economies of scale, but that they are very rapidly overtaken by the diseconomies of scale in most areas.

This is the stuff of the future. The development of IT changes these calculations enormously, but it hasn't yet filtered into mainstream political debate - so we still debate inspection rather than human-scale, or privatisation rather than human-scale, or competition rather than human-scale.  But we never talk about the real issue.

That's why, if I was governor of California - which, heaven forfend - then I'd be n Tim Draper's side.  To make things happen, we need smaller units - and these days, we badly need to rediscover the lost art of making things happen.

Monday, 21 July 2014

Big data and the emperor's new clothes

“London is too full of fogs and … serious people …Whether the fogs produce the serious people, or whether the serious people produce the fogs, I don’t know.”

That was one of Oscar Wilde's bon mots in Lady Windermere's Fan.  It could have been used, and perhaps should have been, in the Observer yesterday in a tremendously important article about big data and its threat to democracy.

Because the real question, as it was for Wilde, is what causes what?

The article was by Evgeny Morozov and I hope everyone reads it.  It isn't so much about the threat from surveillance, important as that is (we should all own our own data, it seems to me), but about the great utilitarian dream that goes along with big data - that somehow all the issues of government can simply be measured, without debate or awkward democracy.  This is what Morozov calls 'alogarithmic regulation'.

The trouble is that he doesn't really go far enough.  He assumes this is somehow a new phenomenon, whereas it actually dates a long way back.

As I wrote in my book The Tyranny of Numbers in 2001, and as Morozov says, all these screeds of data never take you back to causes.  They will never actually allow you to debate them, or to tackle them, just an obsession with symptoms.

It is a New Labour fantasy of handing government over to machines that measure data - but with no understanding of how inaccurate data will always be if it is chained to definitions, or if it leads to controls.

Why does data have such an appeal to modern governments? Partly because of the technocratic thrill of measuring the ebb and flow of symptoms as if government was a gigantic, though not particularly well-oiled machine. Yet cause and effect is the one thing it is quite impossible to measure - interpreting the burgeoning wealth of data to work out what causes what is always a matter of judgement, common sense and intuition.

That's the problem with data.  It won't interpret. It won't inspire and it won't tell you what causes what. Statistics have nothing to do with causation, the pioneering number-cruncher William Farr told Florence Nightingale in 1861: "You complain that your report would be dry. The dryer the better. Statistics should be the dryest of all reading." 

 But over-reliance on numbers sweeps away your intuition along with ideology. It leaves policy-makers staring at screeds of figures, completely flummoxed by them, unable to use their common sense to interpret the babble of competing causes and effects – unable to tell one from the other.

If men with long ring fingers are subject to depression - as they are for some reason - that might alert you to looking for a causal link. The same is true of other peculiar numerical links: high stress makes you much more likely to catch colds, accident rates among children double when their mothers are miserable. 

 These odd connections might surprise and inspire you to think about problems in new ways, but it won't tell you what causes what. You will have to use your intuition to work out where to look in a massively complex world of complex systems. "Scientists try to avoid emotions and intuition," says the biologist Stephan Harding, "but it is exactly those that give them ideas."

Too many numbers also drives out history – it gives us no sense of the different ways in which people measured in the past. It drives out creativity, locking away Keynes’ dark woolly monster of ideas. And it drives out morality too – leaving our poor beleaguered ethics committees desperately trying to measure themselves a coherent attitude to the frightening future of genetically-modified human beings, or whatever takes their place.  Where's your data, we will demand of them?  Where's your evidence?

And to get through the next few perilous decades, to look after each other, and solve the looming problems ahead, we're going to need all the judgement, intuition, history, creativity and morality we can possibly muster. So we have to make absolutely sure our tidal wave of data doesn't drive those things out.

My antidote to the tyranny of data is to ask the question the little boy asks in the Emperor's New Clothes.

Simple questions because they can devastate most political statistics. Yes, the carbon monoxide rate has reduced, but is the air cleaner? Yes, our local university professors have produced a record number of learned published papers, but is their teaching any good? Yes, the exam passes top the league tables, but what about the education? Are the children happy? Can they deal with life?

Data based on definitions is as vulnerable as the Emperor's New Clothes to the incisive, intuitive human question.  So is the utilitarian philosophy behind it.  Go ask...

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Thursday, 17 July 2014

In praise of Michael Gove

I know it is de rigeur in some circles to curse the name of Gove. Two of the teachers at my children’s school danced a little jig together when they had heard he had been given the push in the reshuffle from the Department of Education. But I don’t share their delight.

This was, of course, Michael Gove’s problem. Not since John Patten’s tenure at the department has a Secretary of State for Education found himself quite so disliked by the profession – and I tell the strange story of Patten and the start of league tables in my book Broke.

I didn’t think that Gove got the emphasis right on everything, by any means, and it is bizarre the way that the paradoxes of education policy have been pushed to the same kind of extreme as the West Lothian Question.

Why are the only schools to have their curriculum prescribed the local authority ones? Especially if the main objection to local authority schools is their inflexibility. Why have local authorities been given so little leaway to find new school places, especially in areas where population is rising fastest?

But let’s leave all that on one side. Because Gove has been one of those rare things: a thinking, thoughtful, radical politician, and – as radicals ought to be – in constant conflict with the establishment. He needed to have cultivated more allies, in retrospect, but I still wish there were more like him.

The irony is that the elements of Goveism that most irritated the teachers – the emphasis on testing, the puritanism, the punitive approach to parents, the dour utilitarianism – may have had his approval, but were no more than extensions of the prevailing policy of his department for many governments past.

It was a dour, utilitarian place under Labour and it remained a dour, utilitarian place, with half the staff, under the coalition, but despite Gove. It was his misfortune that the department managed to shift the blame for this onto their Secretary of State.

But Gove was absolutely right on three issues, and these were not utilitarian at all.

He was right to emphasise the importance of diversity in education, right to champion the involvement of parents in starting schools and right to turbo-charge free schools. He was wrong to centralise their control and quite wrong to take them out of the local authority co-ordinating umbrella, but the basics of the free schools was overwhelmingly correct and overwhelmingly Liberal in the best sense – it can still be about diversity, self-help and non-conformity.

He was absolutely right in his emphasis on chronology in history teaching, and right to rescue history from the boulderised backwater where pupils have to study Hitler over and over again. You might choose different dates, but chronology is important to get across a sense of history and Gove was the scourge of the utilitarians here too.

He stood up against the alliance between the educational establishment and the online billionaires who believe that somehow you can have education without content. You don’t want the dull recitation of facts, but equally you can’t make education work without something to teach – relying on children to look things up on the iPads which the Pupil Premium has delivered them in such unnecessary numbers.

There are educationalists who think that education is just about process.  They are wrong, and without radicals and thinkers like Gove, the fear is we will also have government without content, the besetting sin of the British establishment in all ages. 

It wasn’t just that Gove was colourful and more interesting than the bland ranks of Conservatives (though he is). It was that he believed something and believed that, by sheer willpower, he could make it happen.

But there is a third reason too. He was rightly enraged by the failure of the secondary system a generation ago to lift children out of poverty.

Say what you like about league tables, and I do, they did reveal for the first time how schools were failing children. What the tables showed when they appeared for the first time in 1992 was that the national average of five passes at GCSE stood at only 38 per cent. Southwark Borough Council was bottom of the league, with 15 per cent (before the Lib Dems took over).

The most revealing comment of all at the time came from the head teacher of a school in Leeds where only two pupils had managed to scrape together five GCSEs: ‘We have a dreadful problem with truancy and discipline,” he said. “We have intrusions like motorbikes being ridden into school during the day while lessons are being taught.’

The very honesty seemed to demonstrate the scale of the problem, especially as he added that they were the best rugby league school on the country. So that’s alright then. Find out more about this in Broke.

I wouldn’t be surprised if pupils of that period didn’t bring a class action against their local education authorities. They certainly ought to.

Those days have gone in most parts of the country, though the league tables have become a kind of tyranny of their own. Even so, Gove has been fierce in his determination to drive standards for the poorest. That is why he’s such a loss to the Conservatives.

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Wednesday, 16 July 2014

The real scandal behind the sausage cartel

It is strange that Adam Smith is quoted so widely, not to say obsessively in the American economics departments, but his great warning about monopoly seems to have been forgotten:

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."

This is, of course, a way of talking about the German sausage cartel, revealed today.  There was a discussion on the Today programme, full of the inevitable puns, which suggested that this was a blot on the reputation of German business (there have been cartels in other things recently).

I think rather the opposite.  The fact that these conspiracies against the public have been unmasked in Germany is a major positive.  If only we had competition authorities like that - but we don't: my only brush with the Competition Commission appeared to reveal an organisation staffed mainly by secondees from the European Commission, and with quite a different agenda.

Their interpretation of competition seemed to have little to do with breaking up cartels, and a great deal to do with building up European champions to take on the American semi-monopolies.

It was this confused body which conducted the recent flawed reviews of the UK groceries market.

I am coming to the conclusion that the blindness of the UK establishment about monopolies has a great deal to do with the failure of the Liberal Party to play a greater role in the second half of the twentieth century - and, when they did come to play a role, they seem to have forgotten their original economics.

Competition, competition, competition, plus diversity.  How could we forget?

So here's my take on the sausages.  It is bizarre, isn't it, that companies are not allowed to collude with each other about prices - yet they seem to be allowed to buy their competitors almost at will.

The UK's abject competition authorities allowed Waterstones's to buy Ottakars, almost their last high street competitor.  Fair enough, maybe that was the only way of preventing collapse - though I doubt it.  But then to let Amazon buy their only UK online competitor in the books market, the Book Depository.

So we are subject, over and over again, by conspiracies against the public by the back door.  And all because Liberals and liberals forgot the central economic lesson of Liberalism.

This is how Adam Smith continued the paragraph:

"It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty or justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary."


Tuesday, 15 July 2014

Time to double London's congestion charge

The American mapmaker Rand McNally launched their groundbreaking Places Rated Almanac in 1981 and it changed the whole argument about cities.

It coincided with research that showed the most attractive cities for investment were not, actually, the places with no regulations and tax breaks.  They were the places where the CEOs of companies wanted to live - and they wanted clean air, green space, theatres, good schools for their children and so on.

It marked the beginning of the Civics movement in the USA and it rescued cities like Pittsburgh, where - in the 1970s - the streetlights had to be kept on in daytime because of the polluted air.

The bottom line was this.  Cities which allowed themselves to get polluted because it was somehow a side-effect of thrusting economic success were completely deluded.  To succeed in the long-term, cities had to be good places to live.

So I find it pretty extraordinary that, three decades or more later, the neanderthals appear still to be in charge of London.

I'm not sure I believe the hype that the London air is the most polluted in the world - it would take a lot to beat some of the Far Eastern cities - but it is still pretty bad.

Especially in the last few weeks, when all my friends appear to have earned themselves sore throats and chest complaints for working in London.  As I wander around the centre of town, I am staggered that we have allowed almost permanent traffic jams to take up residence at key roads and junctions.

Why have London's bosses failed to learn the lessons?  It is partly a deeper malaise: the Department of Transport has shifted pro-rail, but they have failed to learn a more important lesson - that the key to cutting traffic is paradoxically to reduce, not increase, the space for cars.

Unlike many cities in the UK, London's transport users do have choices - most of them - and they will use them if that traffic becomes intolerable for them.  But that is a decision about time, not a decision about pollution.

But those choices mean that, unusually, there is a policy option that would help solve the problem and raise considerable sums of money.  It is time to double the Congestion Charge.

What are the arguments against?  That poorer people will be unable to drive in London.  They already can't - have you seen Westminster's parking charges?

That some people really need to drive across London.  Definitely, but give them discounts - and give them the road space to let them do it.

The future of London depends on it being green, clean, pleasant place to breathe.  Nobody will bring their children to live in a polluted hothouse.  Nor will the city thrive if its leaders suffer from British-Establishment-Disease (definition: the inability to make a difference; the habit of making occasional empty gestures towards problems).

But personally, I'm not waiting for a solution any longer.  I'm off.