Cuckoos and the economics of orchards

Years ago, I interviewed the former economics adviser to the Jersey government for the New Statesman, and he explained to me how the island's tax haven status had been like a cuckoo in the nest.

Financial services are so profitable (and I might add, so safe - you can get bailed out) that other forms of enterprise become economic.  First the agriculture runs down, then the tourism, then - with over 500 banks on the island - nobody else can afford a home.  It is the same process that is happening, much more slowly, in London.

But there was a story in the Evening Standard this week which made me realise that there are the other forces working in the same direction - monopolistic supermarkets making small farming uneconomic, competing with Chinese wages and Far Eastern-style employment standards.  The result is the bizarre story that de-regulating migrant Bulgarian and Romanian workers in the UK could lead to the end of British orchards.

This was what the Home Office Migration Advisory Committee told Home Secretary Theresa May.  The idea is that the migrant workers will be able to work elsewhere in the UK economy shortly, and will abandon fruit-picking.  Prices will rise, the supermarkets will reject UK fruit, and there go the apple orchards.

It is tempting to ask who picked the fruit before the Bulgarians came to do it a few years ago, but there is a deeper problem than this.  It means that supermarkets are using their semi-monopoly position to force fruit producers into lower than economic prices - just as they have done with milk.

But there is a bigger issue too.  What else can't we afford to do in the UK?  We can't afford to train many of the staff in the NHS, which is staffed by recruiting direct from training colleges in developing countries.  Now, apparently, we can't imagine how we might use our existing orchards to grow fruit - except by importing the poor and desperate to do it for us?

The cuckoo in the nest syndrome again.  It isn't what I would call the 'balanced economy' that the coalition promised in 2010.  Nor is it the kind of economy that spreads the benefits much further than financial services.

And what will become uneconomic for us next?  Growing wheat?  Making screws?  Making ships has pretty much disappeared already.

And all because monopoly power undermines realistic pricing.  That, and a fetishistic over-emphasis on the doctrine of comparative advantage, which suggests that - because we have banks and speculators - it isn't worth doing anything else.  If the British Disease used to be poor management and the closed shop, it is now the way our rulers cling to speculation and financial services as if it could feed us.

Well, I for one will continue to eat local fruit - and if the supermarkets can't stock it, I will be buying it elsewhere.  The fact there is now an elsewhere, in the burgeoning local food movement, is one of the hopes for the economy and the future.

Call centre menus: reach for your hatchet

During his research into the ruthless side of the modern economy, the journalist Simon Head discovered a fascinating paper, published in 1997, about a customer relationship management IT system in action. 

It was written by two researchers at Xerox’s Palo Alto Research Centre in Silicon Valley, and they describe a corporation called MMR, a thinly disguised version of Xerox, and their IT system called CasePoint, which was designed to automate the conversations between customers and agents. The idea was to cut the cost of sending technicians out to repair Xerox machines. It would all be done automatically by call centre staff over the phone.

CasePoint didn’t work. Call centre staff were supposed to take down exactly what the customers said and the system would feed it to the experts to come up with solutions. The call centre staff were only allowed to ask questions exactly as they were worded on the screen. 

The trouble was, when it came to the point, the customers used ‘unauthorised’ language of their own which the system couldn’t understand. By the end of the trial period, the researchers couldn’t find one example where CasePoint had done its job properly. That is what tends to happen when human beings are excluded from systems.

The trouble was that, when the managers and software designers were told this, they decided it was an irrelevant detail and that they should carry on with the system regardless. They wanted to see how far they would rely “exclusively on machine expertise as a substitute for agent knowledge”.  The answer was: not very far.

This is the dream of IT consultants: a machine that can have a conversation with a human being without them knowing they are talking to a computer. In fact, most people who have been phoned by a computer will tell you that, the more like a human being the machine is, the more unnerving the experience. 

Computers show little signs that they will ever be able to confront a human personality with their own. Maybe they will one day, but I doubt it: all they can do is to fake a personality, usually with some marketing or processing intent. Until they go beyond this into genuine artificial intelligence, their failure to do so can only be hugely expensive.

CasePoint is an extreme example of what happens when IT takes over functions it shouldn’t, where it deliberately excludes closer human contact.  More about this in my book The Human Element.

But it is also an example of the great unchallenged nonsense of a 'shared back office' service.  The key assumption is that customer-facing systems can be automated entirely - what the government calls 'digital by default'.  It also assumes that untrained system operators will just service requests, find a place for each query on the software, and hand it back to automated back office systems - or, failing that, experts.

There is very little evidence that this idea, embraced by government and consultants alike, saves money.  Of course automation often seems to save money, but consultants very rarely subtract - so they fail to see the diseconomies of scale until it is too late.  

Only when the costs mount, as the systems thinker John Seddon explains, does anyone wonder (and often they don't even then) whether the automation has made the system frustrating and inflexible, and therefore wasteful - because some people have to come back again and again (what Seddon calls 'failure demand').

And the most obvious times when we encounter this phenomenon is the 'Press button 2' syndrome.  Which is why the story of the retired IT manager timing each stage through different call centres is so fascinating - six minutes for each of the four levels at HM Revenue and Customs.

But what really amazed me about the story was what he said:

"In an ideal world, he said, companies should just offer different phone numbers for different services."Isn't that what we had only a few years ago?  There is a good reason why we don't - because people's queries often don't fit the boundaries set down (as we find so often pushing buttons).  

I even remember Simon Hughes' campaign for the London mayor proposed 'One Number for London' as its main policy demand - about the least exciting political demand I have ever come across.  If he had won, and the One Number was up and running - how many different options would people have to go through now?

No, it only works if there is a human being, sensible, flexible and empowered enough to make things happen, at the other end.  That requires IT support at their end, not push buttons at our end.

Because, after all, as C. S. Lewis put it, in the mouth of Mr Beaver: "Take my advice.  When you meet anything that's going to be human and isn't yet, or used to be human and isn't now, or ought to be human and isn't, you keep your eyes on it and feel for your hatchet."

Google: is there anybody in there?

The day the hapless Google head of northern Europe was battered by Margaret Hodge for their "devious and unethical" approach to paying tax in the UK - or not doing so, in this case - my Google blog (which you are now reading) ran into trouble.

Thousands of hits are being recorded by their counting machine from the Far East, routed via a porn site called 'topblogstories'.  The same thing is happening via a slimming website in the USA.  Much as I would like it to, my blog has never generated hits in the thousands per day bracket before, and - since these hits are not showing up under any of the posts - something has gone wrong.  It doesn't really affect the blog, but it is disturbing.

But how do you ask Google's advice, still less ask them to do something about it?

Needless to say, this particular problem does not appear on their rather short list of online problems.  No UK telephone number is shown.  There is no email address for customer service.  There is a website with a phone number in the USA, but there are voluminous messages of disgust from people underneath because the calls are never answered.

There is a UK office number, but if you don't have an extension number, there is nobody to speak to.  I tried dialling 0 and was just held on the line ringing out hopelessly and pointlessly for half an hour before I gave up.

There is a feedback button which allows you to send a message about problems, but the response says they don't guarantee to reply to everyone.  That's an understatement - I've sent ten messages so far and no response.

Now, I'm a good Google customer.  I use their email system and their blog system and I even earn a tiny amount of money from adverts on the site.  But Google apparently has such contempt for me that they fear any kind of contact.

I'm forced to ask the question - is there anybody there?  At the heart of this global beast, is there anything at all - any human being, any heartbeat, any interest at all in their customers?  Or is it just an empty echoing, soulless shell of conceit and arrogance?

The great Anita Roddick used to say that global corporations were like dinosaurs, unable to feel any emotion except greed and fear.  Is this Google now?

No doubt they would say that this is just the future of business, as their de-humanised machines strip us all of our information and sell it back to us.  This is the new virtual world.  Not a bit of it.  This is the result of monopoly.  It is because they have no competition, and the competition authorities on both sides of the Atlantic have been asleep on the job.

When the three American giants were first castigated over here for their tax avoidance schemes, the two monopolies ignored the fuss completely.  It was only Starbucks, which has competitors, which reacted.  The truth is that when competition authorities snooze and allow companies like Google to build up a monopoly position, then the customers are more than taken for granted - they are completely ignored.

So once I sort this out, I'm finding a better way of organising my blog and my emails.  It may take a bit of time - certainly longer than it would if there was a proper UK competitor for Google, even a small one - but I will do it.

And of course, I'm writing this diatribe on a blog hosted by Google, the great absentees.  Will they censor it?  Of course they won't - because there is nobody there to read it.

Government responds to the Boyle Review

This time last year, I was preparing to start work on the government's independent review into barriers to choice in public services.  My pencils were sharpened, my only suit pressed, my plans not quite formulated.

I eventually reported to the Cabinet Office and Treasury in January, and the result has become known - rather embarrassingly, but this is the way they do things in government - as the Boyle Review.  It received an unexpectedly enthusiastic response from the Cabinet Office ministers, and from Danny Alexander at the Treasury who had been so involved in commissioning me.  I went away relatively confident that the government broadly agreed with my approach and proposals.

Before I go on, let me just say what that approach was.  The core of the review was to get out there and talk to the users of services, and find out about their experience of 'choice' - and check what I heard with a major poll - and reach some conclusions:

• First, that the bureaucratic barriers to choice remain powerful if you are less confident or articulate; and if you want something slightly out of the mainstream then there is inequality present in the scope of choice available to everyday people across the UK.
• Second, people, especially the disadvantaged, need information and advice on what choices are available to them, yet often this proves problematic. Some people do not easily have access to the internet and this makes it even harder to find out what choices are available, and they also want face to face advice to make sense of it; 
• Finally, the kinds of choices people think they are getting are often not what they are being offered in reality, and there is a need for more flexibility in the way services are delivered.

The last one was really key to it.  Competition has a place in public services - there is no reason why people should put up with poor services - and so does online information.  But choice needs to be so much more than that, if it is going to provide people with the services they want - it needs to provide a series of levers that allow for service flexibility.  

I called that 'broad choice' to distinguish it from the narrow, formal choice that the system has been struggling to provide so far.

So I'm pleased that the government's 'initial response', published today, is so positive.  I'm glad they use words like 'enlightening'.  I'm pleased they have supported seven out of ten of my recommendations - though this slightly obscures the full truth, which is that some of these were happening anyway and some have been agreed by especially careful wording and are not really quite what I meant, as they must know.  Such is the world of government, and I understand that.

I am pleased that they agree with my proposal about publishing information comparing the performance of schools achieving the best outcomes for free school meal children.

 
I'm glad they have accepted the 'co-production' recommendations about social care assessments, which are now in the Care Bill - more on that another time.

I'm particularly glad that they have agreed that there will be an advisor to the Prime Minister who will "champion broad choice across public services and work across departments and services to tackle barriers to choice."  

I take this to mean that they accept my basic premise that choice needs to be broadened out if it is going to be (a) meaningful and (b) effective.  It rather depends on who they appoint, of course.  I know who I want them to appoint (and I'm not going to ruin their chances by naming them here).

Where I am disappointed, it is because the whole thrust of the review, and so many of the conversations I had with service users - not to mention the poll findings by Ipsos-MORI - suggest that, for a good third of people using services, online information simply isn't enough.  So, although online information is important, face to face contact is absolutely vital if everyone is to get the kind of choices they need.  

I proposed a way forward which evidence suggests would also save money: extending the growing role of peer support volunteers into giving signposting and choice advice.  This is what they say:

"We will explore how to take this recommendation forward including expanding existing programmes; improving awareness of peer support programmes and looking at how we work with mentors and volunteers."

That isn't a no, but it isn't quite a yes, yet.  I am assured that they are looking at the best model for taking this forward, so we shall see.  But this is a vital reform, merging the co-production and the choice agenda, which would do more than anything else to bring choice - broad or narrow - to the whole population.

I won't be the only one to detect a defensive note in the response.  This reveals, perhaps, how nervous some departments were when the review began.  But there is no need to be defensive.  The government was brave enough to commission me to see what was really happening on the ground - people's real experience of choice.

The difficulties I found won't be solved overnight, and everyone understands that.  But my impression is that the narrow choice agenda, which requires a huge infrastructure of watchdogs and competition institutions, may have got as far as it is going to for a while.

I believe in choice, and choice beyond simply encouraging competition - not just because it is good for service users, but because flexibility is good  for public services too.  Sclerosis is expensive.  

Whether my review will turn out to have found a way to revitalise the choice idea depends on what happens next.  Watch this space...

More on my review (please ignore terrible picture of me) in Civil Service World interview.  See also coverage back in January.

The great paradox: concentrating on cutting costs drives them up

Down in the forest, something stirs.  Shhh now, don't scare it away.  Something is emerging from Labour's policy review, at least according to John Harris in the Guardian.  It seems to include a combination of three approaches - or is it four, I can't quite grasp which.  And they are as follows:

1.  Balancing the budget over a decade, involving an approach to austerity that Harris quotes insiders as calling 'brutal'.

2.  Growth led by house-building.

3.  Re-thinking how the public sector fits together, with an emphasis on prevention - which is a success for my colleagues at the New Economics Foundation who are among those pedalling exactly this.

4.  Turbo-charged localism.

My first thought about this, apart from the fact that it will divide the Labour Party, is that it appears to be an attempt to borrow the coalition's rhetoric and make it work rather better.  Perhaps even along the lines the Lib Dems might attempt if they had a free hand.  Hence the controversy.

My second thought is that turbo-charged localism is not, never has been, and probably never will be, something the party of Beatrice and Sidney Webb will be able to carry out in practice.  But, hey, perhaps I will be surprised.

But what really interests me is how balancing the budget and reorganising the public sector might fit together - and could still be made to fit together by the coalition.  Because to genuinely reduce the cost of public services, you really need a big idea about how they might work differently - you need a diagnosis and a prescription.

The coalition has a diagnosis - they understood the disastrous effect of targets - but no prescription that really fits it.  New Labour had a prescription but a faulty diagnosis.

Without the diagnosis, public service reform just becomes public service cuts, and they often lock in costs elsewhere in the system.  I have written before about how historians covering these years will regard our main story as the looming crisis in public services, and the race against time by empowered service professionals to come up with the ideas they need to re-configure them.

But it is worse than that.  Without a big idea behind spending cuts, any government gets impaled on the horns of a dilemma described so powerfully by the systems thinker John Seddon:

"The truth is counterintuitive: focusing on costs drives costs up. It doesn't take a rocket scientist to work out that we'd be better off if we could design a service that meets people's needs, quickly, effectively and once."

There is the great paradox which has eluded successive governments.  If you focus on cutting costs, the costs will rise.  If you try and provide a more effective service - which might well not be digital by default - then costs will fall.

Seddon is an important figure in all this.  He is the presiding genius over a whole range of related ideas that, taken together, would completely transform the effectiveness of our services.  Before the election, I took him to see Vince Cable, hoping they would hit it off (they didn't really get the chance).  After the election, I organised a debate at the Royal Society of Arts with him under the title 'The New Efficiency'.

He remains a kind of king-over-the-water for the kind of service manager who is most frustrated by the direction of public service reform over the past decade. 

Seddon's frustration with Whitehall is expressed in a wonderful monthly e-newsletter which has become required reading in local government circles because it is so enjoyably rude.

He isn't right about absolutely everything - this isn't a hagiographical blog - but I have come to believe that he represents the wave that is about to break over public services.

Perhaps Labour will run with this approach, and the related approaches I describe.  Perhaps they won't.  Perhaps the coalition will realise, at this late stage, what needs to happen.  I don't know.  But the wave will eventually break, sweeping the whole caboodle of lesser ideas - Lean, digital by default, payment-by-results - into history.

To save Europe, the euro has to go

As a blogger, I would like to claim that I am immensely prescient.  The truth is usually otherwise, unfortunately.  But there is one exception, which I can't help mentioning.  This is what I said in my first Lib Dem conference speech in 2001 (actually, it was my second, but we draw a veil over the first):

"There is a fundamental problem at the heart of the euro that makes me fear for the future of Europe. And it’s this: single currencies tend to favour the rich and impoverish the poor.  

They do so because changing the value of your currency, and varying your interest rate, is the way that disadvantaged places are able to make their goods more affordable. When you prevent them from doing that, you trap whole cities and regions – the poorest people in the poorest places – without being able to trade their way out...

That’s the danger of the euro as presently arranged, and don’t underestimate it. It means success for the cities that are already successful. It means a real struggle for the great Lib Dem cities of Liverpool and Sheffield. It means a potent recruiting ground for the next generation of fascists in the regions that no longer count."

I can't say I convinced the hall or won the day, and there are obvious elements which date this - Lib Dem Liverpool, for example, and the fact that I was talking about Britain in the euro, which never happened, thank goodness.  But I was right, and the plight of Greece and other countries in southern Europe make it all too clear.

Apart from celebrating a rare moment when I called it correctly, my reason for writing about this now is that UKIP and an imploding Conservative Party are not the only reasons why the European Union is a key political issue.  The truth is that Europe is facing its own crisis, and that crisis stems largely, but not entirely ,from the euro.

It was, and is, a Napoleonic project, dangerously centralising, naive in its economics and potentially terrifying in its effects - as the rise of the Far Right and other weird peculiarities suggest.  It transforms the EU into a colonial project, demanding abject agreement from economies that cannot work with an interest rate set to suit the German economy.  It is bound to fail and, until it does, it threatens to bring down the European Union with it.

I have often wondered whether it was historically inevitable that the UK would eventually leave.  We always find ourselves resisting Napoleonic projects.  We always resist ultramontanist ones too and any other centralising directives from Rome - or Brussels, as we call it these days.  We follow the Reformation path and it may be inevitable that will repeat Henry VIII's secession.

I am not in favour of the European Union because I believe in the central control of the continent.  Or even because it is a de-regulated trading bloc - though it is this aspect of EU rules that the UKIP tendency usually objects to (and even leaving the EU wouldn't rid them of regulations governing electrical goods or the shape of vegetables).  

I am in favour of the Union because it has kept the peace of Europe for two unprecedented generations.  A European war is unthinkable now, but it wouldn't be unthinkable without European institutions that can settle disputes.

That is the moral case, the Liberal case, for Europe - and the celebrations in August 2014 are an opportunity for putting the case again.  

But we can't assume that the European Union can be a Liberal institution, because that is now in doubt.  These issues are tough ones for Liberals, because I don't believe the Union can survive as the policeman of a single currency.

The euro might survive, but not in its current form as the only currency for most of the continent.  We don't have to go back to national currencies, though regional ones would be useful - and may emerge by default from the struggling cities of southern Europe.

Either way, the sooner the great straitjacket can be loosened and the Napoleonic yoke lifted again, the better for all of us.  Then maybe the Union can survive.  But not otherwise, and - if it doesn't happen soon - the UK will have left it, and that would be tragic for both sides. 

How privatisation ran out of steam

The word ‘privatisation’ has a chequered history. It was actually coined as ‘reprivatisation’ by the Nazi Party in the 1930s, as a way of handing over government functions to loyal party officials. The phrase was then borrowed by the great management writer Peter Drucker in 1969, proposing that governments use the talent in other sectors to deliver some of their objectives. “Government is a poor manager …. It has no choice but to be bureaucratic,” he wrote.

That was the basic idea that was taken up by Conservative thinkers in the 1970s. Sir Keith Joseph’s Centre for Policy Studies produced a pamphlet in 1975 which set out the case: “There is now abundant evidence that state enterprises in the UK have not served well either their customers, or their employees, or the taxpayer, for when the state owns, nobody owns and when nobody owns, nobody cares.”

It was a powerful proposition.  But it wasn't until their second term that Margaret Thatcher's ministers grasped the sheer power of the privatisation idea. It was obvious to anyone who tried to use them that the nation’s telephone boxes were largely out of order, and so the privatisation of British Telecom in 1984 was a popular move. As many as 2.3m people brought shares. 

Three years later, the Treasury had earned £24 billion from privatisation, and the sale of British Gas provided four per cent of public spending for 1986/7. The idea of privatising state industries had spread to France and the USA and Canada. Even Cuba and China were testing it out. 

The merchant bank Rothschilds had set up a special unit to organise privatisations, under the future Conservative frontbencher John Redwood, and Conservative theorists were muttering darkly about selling off the Atomic Energy Authority and the BBC. In fact, selling nuclear power stations was the thin end of the wedge. No amount of spin could disguise the fact that they weren’t economic.

The original impetus to sell BT was partly to find private investment for telecoms and partly because of Drucker’s original idea that private companies were more efficient.  

Privatising public services would break those bureaucratic straitjackets, and get a new entrepreneurial energy about the place. They would focus on customers. Things would happen. There would be enterprise and imagination. The human element would weave its magic.

But it didn’t happen. The early privatisations led to dramatic increases in effectiveness but, after that, things slowed down. Private corporate giants turned out to be as inflexible and hopelessly unproductive (at least as far as the customers were concerned) as the public corporate giants: they just provided considerably fewer jobs. 

Often the costs remained much the same. Most privatised services are as sclerotic, inhuman and monstrous as their predecessors were.

By the time New Labour was privatising, and experimenting disastrously with PFI contracts that locked in costs for a generation, the supposedly efficient private utilities are largely in the grip of the same illusions about efficiency as the public sector, with phalanxes of call centres, targets and standards, and had become as inflexible as any nationalised industry. 

“We are committed to a market economy at the national level, and a non-market, centrally planned, hierarchically managed economy within most corporations,” wrote the Observer columnist Simon Caulkin at the time.

So Peter Drucker was wrong. As it turned out, big companies and big contracts tend to become bureaucratic too. The point wasn’t that private was better than public, it was that small was better than big, because small allowed for the human element.  Ownership wasn’t important, at least in its strict sense. 

Even so, it was Drucker who provided the clue. Anyone can be an entrepreneur if the organisation is structured to encourage them:

“The most entrepreneurial, innovative people behave like the worst time-serving bureaucrat or power-hungry politician six months after they have taken over the management of a public service institution.”

And so it proved.  

So if privatisation isn't the answer - and most sane people regard it as a recipe for sclerosis and corroding standards for the Post Office - what is?  How do you provide the kind of flexibility and human-scale imagination to make organisations work?  It certainly isn't the profit motive - nobody who phones a BT call centre these days could believe that.  It isn't public ownership either, at least not by itself.

I tried to answer the question in my book The Human Element.  Mutualism certainly provides a clue, but is probably not enough by itself either.

I got another clue from the chief executive of a major health social enterprise I met while I was carrying out the independent review for the Cabinet Office.  He told me he was delivering health and social care services across a wide population, but still on a small scale compared to working in the public sector.

He also told me he had felt he had to leave direct employment by the NHS in order to re-discover the values of the NHS.  Of course, he is still delivering NHS services and in a highly flexible and responsive way - but he has the room for manoeuvre to use his imagination and the imagination of his other staff, and of course the imagination of the people he is delivering services to.

This seems to me what Karl Popper meant when he talked about “setting free the critical powers of man”.  The very heart of modern Liberalism.

Will Post Office privatisation set free the critical powers of the people who work there?  Believe that and you will believe just about anything.