28 August 2008
by Eamonn Butler (August 28 2008)
You know the economy must be bad when even Gordon Brown decides to sell off some of the family silver to plug the hole in the Government's finances. As the Sunday Telegraph reported, he has hired Standard Life chairman Gerry Grimstone to help him sell a large number of his precious state assets.
It's a daunting job, but Grimstone, someone who has overseen perhaps 20 privatisation deals, is just the man to do it. In Mrs Thatcher's Treasury he was put in charge of privatisation policy, and in the private sector he carried on structuring more state sell-offs.
Fortunately, a lot of the work has already been done for him. Last April, in the Adam Smith Institute's Privatization: Reviving the Momentum, city analyst Nigel Hawkins identified a whole list of privatisation targets that should bring in a cool £20bn or so.
Grimstone might like to start with the Royal Mail, worth about £4bn in itself. Other countries' post offices are booming since being privatised, so we don't we liberate ours from the state too?
Then there's BBC Worldwide, a back catalogue of programming which would bring in another £2bn at least. He could throw in Channel 4 for another £1bn or so.
Among the utilities there is Scottish Water, £5bn, Glas Cymru £4bn, and Northern Ireland Water £1bn, British Energy and the atom company Urenco would net a useful £10bn. Then there's air traffic control, the trust ports, the Commonwealth Development Corporation, and the state betting shop, the Tote.
Published in Telegraph.co.uk here
27 August 2008
by Rory Watson in Brussels and Richard Ford (August, 27 2008)
Britain is set to become Europe’s most highly populated nation within two generations, driven by immigration.
Forecasts published by the European Commission suggest that Britain will overtake Germany within 50 years as the population rises from 60.9 million today to 77 million.
The projected 25 per cent increase triggered renewed calls for the Government to stem the flow of immigration, which has surged since Labour came to power 11 years ago. Increasing population, together with a rise in the number of elderly people, will heap further pressure on public services, particular the NHS.
Dominic Grieve, the Shadow Home Secretary, said that the report showed a coherent strategy was needed to deal with population growth. “This not only requires an annual limit on immigration, which takes into account its impact on the public service infrastructure and cohesion," he said, “it also requires us to tackle other issues like family breakdown which have a direct effect on resource use in our country, as well as to improve our skills base."
A Home Office spokesman said that the Government was introducing a points-based immigration system to ensure only those individuals that Britain needed could come here to work or study. “The points system is flexible, allowing us to raise or lower the bar according to the needs of business and the country as a whole," he said.
The latest figures suggest that the number of people over the age of 80 in Europe will almost triple from 22 million to 61 million within 50 years, when there will be two people of working age to support every pensioner. The current ratio is four to one.
While Britain’s population is set to rise by a quarter, the biggest increases will be in smaller countries. The population of Cyprus will rise by 60 per cent and those of Ireland and Luxembourg by more than 50 per cent, the Commission estimates.
The population of France, which has the highest birth rate in Europe, will increase to 72 million, while Spain will grow from 45 million to 52 million. Germany, by contrast, will shrink from more than 82 million inhabitants to about 70 million, because of a trend towards smaller families.
The populations of 14 of the EU’s 27 members are expected to be smaller in 50 years than now. The most significant changes will be in countries that have joined the EU only recently. The population of Bulgaria is forecast to fall by 28 per cent, Latvia by 26 per cent, Lithuania 24 per cent, Romania 21 per cent and Poland 18 per cent.
EU statisticians predict that within seven years deaths will outnumber births and that the only source of population growth will be migration as people on Europe’s eastern and southern flanks look to improve their lot by emigrating to the Union.
In the short-term, the number of citizens in the EU is expected to rise from 495 million today to 521 million by 2035. But from this peak, it will gradually decline to 506 million in 2060.
A European Commission spokeswoman said: “We are concerned with finding out whether our member states will be able to pay for the costs linked to ageing, and whether future generations will not be overburdened."
Tom Clougherty, the policy director at the Adam Smith Institute, said that the projected 25 per cent increase in Britain’s population would have a significant impact on infrastructure and public services. “The main implications will be for housing and transport, both of which are already in short supply," he said.
“In the former, we have a market that is restricted by planning regulations, preventing developers from meeting demand, while in the latter there has been a lack of government investment."
Public services would also come under strain. “In healthcare the rationing that we are seeing already is likely to get worse," he said.
However, John Salt, from the Migration Research Unit at University College London, said: “I do not think anybody is really in a position at the moment to plan for what is likely to be happening in 50 or 60 years time. There are too many variables. For instance, we do not know how long the present trend on net migration is going to continue."
Published in The Times here
26 August 2008
by Deepak Lal, Senior Fellow in Globalization (August 26, 2008)
Manmohan Singh is the sort of hero that Homer knew — a man of strength, courage and wisdom.
Observing the political scene two phenomena are notable. First, that academic political social science’s claims to be able to predict political outcomes through quantitative analysis are little more than statistical snake oil (see my April column). Second, that many political careers have the lineaments of Greek and Shakespearean tragedy. This column is about this politician’s tragedy.
Political scientists as well as many historians remain sceptical of the role of individuals in determining political outcomes, relying instead on deeper social and economic causes. For them the Greek tragic sense, also embodied in Shakespeare’s tragedies, is an archaic and irrelevant form of explanation. It is useful to see how this has come about. There is no better guide than the eminent literary critic George Steiner, whose 1961 book on The Death of Tragedy I have been rereading.
The Greek tragic sense of life asserts that “the forces which shape or destroy our lives lie outside the governance of reason or justice" (p. 4). The Fates govern human lives. Amongst them is Lachesis, chance, the element of luck that a man had a right to expect. But, he can suffer from hubris: through offending the moral law or overweening pride. Such imprudent mortals were pursued by Nemesis — the divine anger — and destroyed.
This Greek tragic sense, Steiner argues, is alien to the Judaeo-Christian sense of the world, which sees Jehovah as just, even in his fury. Not only are the ways of God just, they are also rational — a view strengthened by the Enlightenment, particularly Rousseau. “The misery and injustice of man’s fate were not … the consequence of some tragic, immutable flaw in human nature … The chains of man ... were man-forged. They could be broken by human hammers" (p. 125). Marxism inherited this Judaeo-Christian and Enlightenment insistence on justice and reason. Marx repudiated tragedy. “Necessity," he declared, “is blind only in so far as it is not understood." Tragic [Greek] drama arises out of precisely the contrary assertion: necessity is blind and man’s encounter with it shall rob him of his eyes, whether it be in Thebes or in Gaza" (p. 4-5). The end of this Greek sense of tragedy in the modern world was replaced by the “rationalist" pretensions of political science and sociology.
Now consider how the Greek sense of tragedy still imbues some recent political careers.
The first is the fall of Margaret Thatcher, and the consequent banishment of her party to the political wilderness for over a decade. Her hubristic moment came with the introduction of the Poll Tax. This gave the opportunity for her political assassination by her colleagues. But, as in Julius Caesar, their resolve, self-belief and hold on power were undermined, as was Brutus’ by Caesar’s ghost at Philippi. Only with the retirement of that whole generation of Conservative conspirators has the party finally escaped the stain of her assassination.
The second example of hubris followed by nemesis is the embattled Labour prime minister, Gordon Brown. He achieved his life time ambition last June — albeit by a coup against his elected predecessor — and glowed for a few months in public adulation, as he dealt with Biblical style afflictions: floods and terrorist attacks. His position seemed so unassailable that every one thought he would call a snap general election last October, which he would have won, legitimising his ascent to the top of the greasy pole. But then like Hamlet, he prevaricated. Since then, his and his party’s poll ratings have plummeted. Conspiracies to assassinate him politically are rife. Watching him lurching, bruised at PM’s Question Time in the weekly joust with David Cameron, who like the legendary Mohammad Ali seems to “float like a butterfly and sting like a bee", one forgets that as a young opposition politician he was a formidable debater. Though his claims to have abolished the trade cycle, and to being the greatest Chancellor since Gladstone, can be looked upon as tempting the Fates, he can hardly be blamed for Britain’s current economic woes. His current woes defy a rational explanation. It does seem like hubris followed by nemesis.
The third exhibit is Pervez Musharraf. Two years ago, his position seemed unassailable. He was triumphantly promoting his autobiography on the steps of the White House. He had deftly made himself indispensible in the US-led War on Terror, even as it now seems the ISI continued to be involved in promoting the Taliban’s resurgence in Afghanistan. His moves for a rapprochement with India on Kashmir, and attempts to counter Islamist influences at home, seemed to augur well for making Pakistan a “normal" secular Muslim country like Turkey. His well-chosen technocratic economic team engineered an economic boom, albeit on the basis of large inflows of foreign aid. Then, inexplicably, he decided to sack the Chief Justice of the Supreme Court, and the rest is history. No rational explanation seems to explain this change in his fortunes, except hubris followed by nemesis.
A final, but less politically weighty example is provided by Manmohan Singh’s coalition partners (in particular Comrade Karat), who have exercised power without responsibility. Having over-reached themselves on the US-India nuclear agreement, they find themselves on the way to being consigned to the dustbin of history. Hubris, bred of their sense of electoral indispensability, has led to nemesis: no more dining at top tables, or being wooed by the TV channels!
The Greeks, however, also believed in heroes. Homer saw the Greek hero as a man of strength and courage or one who was especially venerated for his wisdom. India today has such a hero — Dr Manmohan Singh. He has in his two terms of political office saved India from the economic, and (if the Indo-US nuclear deal is completed) the foreign policy morass in which India had been mired. Being an accidental politician he will, hopefully, not suffer from the politician’s tragedy.
Published in the Business Standard here
24 August 2008
Click here to see this item on the BBC website.
23 August 2008
(23 August 2008)
CATCH UP ON THE WEEK
THE UK faces recession in the next six to nine months, particularly if interest rates are not cut, the British Chambers of Commerce warned, referring to a "difficult and risky climate". UK growth will be slightly negative or zero in the next two or three quarters. It said a major recession is unlikely.
STERLING continued its dramatic fall against the dollar and slipped versus the euro after Bank of England policy maker Tim Besley, left, said inflation will fall by the end of next year, adding to the case for interest rate cuts. The currency extended its longest sequence of declines against the dollar in more than 37 years. Increases in food and energy prices are likely to slow.
BAA, the airports operator owned by Spain's Ferrovial, was told by the Competition Commission that it may have to sell either Edinburgh or Glasgow airport. It may also have to sell two of its three London airports – Heathrow, Gatwick or Stansted – to end its near monopoly. The ruling will be subject to a consultation process, but is likely to be rubber-stamped by the commission in a final report due early next year.
RETAIL sales increased by 0.8% last month, according to the latest figures from the Office for National Statistics. The unexpected jump went against analysts' predictions of a 0.3% drop and called the scale of the consumer slowdown into question.
OIL briefly rose above $121 a barrel on mounting tension between the US and Russia, boosting European energy stocks but hurting Government bonds as inflation worries resurfaced. The rise follows similar hikes in crude prices which have gained more than 6% amid tensions over Russia's military intervention in Georgia. There is speculation that Saudi Arabia may halt the increase in production, made after appeals from the US and Britain, to increase supplies.
Sir Martin Sorrell The chief executive of WPP, the world's second-largest advertising company, shrugged off the economic slowdown in the United States, the UK and Europe to report a 15% rise in first-half profits.
Colin Matthews The chief executive of BAA was left reeling after the Competition Commission announced plans to break up the airports operator.
WORDS ON THE WEB
"The latest economic growth statistics, which show that growth in the second quarter stood at a less-than-impressive 0%, deny Brown one of his proudest boasts, that the UK economy's enjoyed '63 quarters of successive growth'."
Peter Hoskin, www.spectator.co.uk/coffeehouse/
"Water, it seems, is the new frontier in environmental campaigning. The WWF has released a report entitled UK Water Footprint: the impact of the UK's food and fibre consumption on global water."
QUOTES OF THE WEEK
It's not getting any worse."
Mike Farley, group chief executive of Persimmon, the UK's biggest housebuilder, who said that after a collapse in sales in April volumes had stabilised.
"I've been celebrating all morning. This is the best decision in the history of aviation ever."
Michael O'Leary, chief executive, Ryanair on the Competition Commission's provisional report which suggests that BAA should sell three airports.
"I'm willing to sit down with them again, but I want to talk to them privately. I don't want to conduct it in the media."
Richard North, chairman of Woolworths, defending the decision to reject an offer from Iceland founder Malcolm Walker
Published in The Scotsman here.
20 August 2008
by Richard Reeves (20 August 2008)
It has been a difficult couple of weeks in thinktank land. First the Smith Institute was rapped over the knuckles by the Charity Commission for allowing itself "to become exposed to concerns it had supported government policy and was involved in party political activity inappropriate for a charity" – and lost both its chairman and director. Then Policy Exchange, described as "David Cameron's favourite thinktank", issued a report suggesting that the population of the north may be better off being shipped down to new towns in the south. Tim Leunig, the report's co-author admitted some of his ideas might seem "barmy": and in this, at least, he was right.
Both incidents point to a constant tension for all the thinktanks, which is how they position themselves politically. Under charity rules they are banned from engaging in party politics, but through their choice of personnel and subject matter it is usually clear where they stand. It would be madness to deny, for example, that the Institute for Public Policy Research is close to the Labour party when its alumni include David Miliband, Patricia Hewitt, Yvette Cooper, James Purnell and Dan Corry (current head of the No 10 Policy Unit). Likewise Policy Exchange and the Conservatives: two of its last three directors, Anthony Browne and Nick Boles, now work for Boris Johnson while the third, James O'Shaughnessy, is now policy director for David Cameron.
Thinktanks exist to bring fresh ideas to bear in policymaking and politics. They win their influence either through intimacy with their principal political "clients" or through independent technical expertise. They are listened to either in the way that you might listen to your spouse or your GP. The intimacy model guarantees media coverage because political journalists can easily make a story out of a report from a thinktank that represents a particular party or faction within a party. But this is a double-edged sword, as Policy Exchange discovered to their cost last week. In reality of course, thinktanks strike a balance between the two, and most aim to be critical friends of their political soulmates rather than getting into bed with them.
At the same time, it is inevitable that the shifting sands of politics will ensure that there is at least one "hot" thinktank, the one associated with the coming forces in politics and which finds it easiest to raise money – and raise a stink. Right now the thinktanks closest to Cameron are enjoying these mixed blessings; but IPPR, the Adam Smith Institute, the Centre for Policy Studies and Demos have all had their moments in the sun, too.
Looking forward, the erosion of the lines between the parties in many areas of policy and ideology suggests that a looser relationship to specific political groupings might be appropriate: Demos, for example, aims to be intensely political but not party-political. So long as a thinktank is clear about its intellectual centre of gravity, it ought to be able to engage with politicians from across the spectrum.
Some are now wondering whether the whole thinktank model is bust. The Labour minister Jim Knight suggests on his Facebook page that thinktanks, "ultimately very elitist top-down institutions populated with very bright people who politicians sometimes seem to sub-contract their thinking to", are out of date in an era of online networking, blogs and wikipedia. "Network-enabled policymaking" may replace boring old thinktank reports, he says.
The transmission, testing and collision of ideas in an environment with the immediacy of the web is certainly a huge challenge for thinktanks: but surely an opportunity too. So long as think-tanks can demonstrate real expertise – be "elitist" in the best sense of the term – they should welcome the heat of online debate.
And right now the political environment is an attractive one. Labour is trying to renew itself in office, a difficult task akin to fixing a car while driving it. The Liberal Democrats are anxious to build a distinctive political identity. And the Conservatives are searching for new ideas and intellectual frameworks to help them win and use power. So long as politicians are hungry for ideas, thinktanks have a bright future.
Published in The Guardian here.
18 August 2008
By Eamonn Butler (August 18 2008)
We pay for the particular clothes we choose to wear, the particular home we live in, and the particular foods we eat. So why should we pay for roads any differently?
At present, those of us who choose to drive on busy city streets in the morning and afternoon peaks, contributing to congestion, pay just the same 50p a litre as Sunday-afternoon drivers on wide-open rural roads. It gives people no incentive to use roads like the scarce resource they are.
That's why I'm in favour of road pricing. It would alert people to the real value of roads. Users would be more aware of the congestion, noise, accidents, and stop-start pollution that their peak-time road use impose on everyone else. And it would make road planners more precisely aware of where motorists were actually prepared to pay for new and better roads.
Yes, there would be winners (mostly in rural areas) and losers (those in cities whose travel times were inflexible). But user charging, for roads or anything else, is a more rational funding mechanism than indiscriminate taxation.
However, the fact that over a million people signed a petition against road pricing shows that the public just don't trust politicians to make road pricing fair. They think it will be an additional tax, not a substitute for car and fuel taxes.
They don't believe that the authorities will give them alternatives to the car, like better public transport or better cycle paths and walkways. They don't believe that politicians can be trusted with the knowledge or where and when they use the car.
And yet, we need the many benefits that road pricing can produce. So how the system be made trustworthy?
Easy. Get politicians out of it. Put the roads into the hands of an independent roads trust, answerable to road users rather than politicians and officials. Something like was proposed, in fact, when the "road fund" motoring tax came in.
Ensure it provides alternatives to those who want to stop using their cars on the high-priced, peak-time, congested roads. Let it spend the revenues on road improvements where drivers demonstrate that they are prepared to pay, rather than where politicians think a new bridge might win votes.
That - and the prospect of traffic flowing freely once more - might just restore confidence in the idea.
Published by telegraph.co.uk here
24 July 2008
by Deepak Lal, Senior Fellow in Globalization (July 24, 2008)
India can take the path Anglo-American capitalism took over the last 200 years.
In my last column I had examined the travails of Anglo-American managerial capitalism, arguing that it was the success of incumbent managers (the insiders) in using the political process to limit hostile takeovers (by outsiders) which has led to excessive executive compensation at the expense of the shareholder owners of corporations. In the process income distribution also worsened. An important feature of this form of capitalism, providing economic opportunities even for those without their own resources, and enabling outsiders to challenge insiders to impart the dynamism of creative destruction which is involved in the most efficient deployment of an economy's resources, was also attenuated. The US search funds which allow those without collateral or connections to finance their new ideas, is emblematic of the Anglo-American capitalist model.
But since the late 19th century it has faced competition from the corporatist "stakeholder" model pioneered by Germany after its unification in 1871, and adopted by the reformers of the Meiji revolution in Japan. The major differences with the Anglo-American variety were, first, the toleration of cartels, as (following Fredric List) the nation rather than individuals was considered the basic economic unit, with industry required to serve the national weal. Second, there were incestuous relations between the industrial corporations and commercial banks. Third, German corporations had a two-level system of corporate control: a management board for day-to-day management and a supervisory board consisting of various stakeholders: shareholders, banks, cartel members, local politicians and trade unions. Fourth, companies had to provide social insurance to their employees as well as "co-determination", by giving them a formal voice on company boards.
The Japanese chose a variant of this stakeholder capitalism through the zaibatsu. These were conglomerates, which included banks and insurance companies, at whose centre was a family-owned holding company, with other associated firms linked by cross-shareholdings and interlocking directorships.
After the war, the US tried to introduce more features of Anglo-American capitalism in the two countries. But both reverted to their older corporatist forms. The German "social market" recreated Bismarckian corporatism, while Japan saw the zaibatsu reborn as the keiretsu. This model was exported to other Asian countries, most notably South Korea, whose chaebol was another form of corporatist capitalism. This is the so-called Asian model of capitalism.
It was successful as the countries adopting it were latecomers to industrialisation, catching up with the industrial leaders in the UK and the US. Late developers with abundant labour can easily discern the initial industrial structure in line with their comparative advantage. It will consist of small-scale labour intensive industries, which can be financed through the extended family or small partnerships, run by owner-managers. With growth and the shift of comparative advantage to progressively more capital-intensive industries, families would not have the large amounts of capital required to establish such businesses and retain control, avoiding the "agency" problems of managerial capitalism, discussed in my last column. This problem can be overcome by creating large concentrations of wealth or finding ways for some concentrated wealth holders — like rich families — to indirectly control enterprises run by managers. The Indian managing agency system is an example of the latter path. It has resurfaced in a slightly altered from since the 1991 economic reforms.
In the countries of stakeholder capitalism, the financial institutions of the family-owned conglomerates channelled the savings of the general public to their enterprises. This process was directed by the State as a major stakeholder, creating immense moral hazard. Neither the controlling family members, whose financial stake was diluted over time, nor the managers or bankers found it necessary to undertake prudent investments. After the easy "catch-up" stage of capitalist development, many bad investments were made leading to financial crises.
Thus in Japan, Aldo Ando ("On the Japanese Economy and the Japanese National Accounts" NBER wp. 8033, 2000) has calculated that, from 1970 to 1990, because of these bad investments the Japanese corporate sector incurred capital losses of $405 trillion, with non- financial corporations earning a rate of return of about 2.5 per cent and financial ones 1.6 per cent. Japanese households, having cumulatively saved $1,250 trillion (at 1990 prices), found they had suffered a real capital loss of $389 trillion. Thus an ageing population found that its stakeholder capitalism lost 31 per cent of its lifetime savings over 30 years. No wonder the aged Mrs Watanabe continues to save rather than spend to see her through an uncertain old age. A generation which propelled the Japanese miracle, after war-time destruction, finds its hopes along its savings turning to ashes.
What then explains the undoubted economic success of the countries adopting corporatist, stakeholder capitalism? A neglected study of the comparative growth experience of OECD countries by Maurice Scott (A New View of Growth, Oxford, 1989) shows that the Japanese growth rate of 9 per cent between 1960 and 1973 and the German rate of 6 per cent between 1955 and 1962, can be explained entirely by the investment rate, the growth of the quality adjusted labour force, and a catch-up variable. The stakeholder model of capitalism had little to do with it. But their subsequent decline in growth and their continuing economic stagnation is due to the rigidities and inefficiencies in their labour and capital markets caused by the stakeholder model. Reluctantly, along with other adherents of the "Asian model", they are moving towards the shareholder model of the Anglo-Americans.
India has combined "owner-managers" in its large business houses, with its legacy of the institutions of Anglo-American capitalism. But the post-Independence financial repression with the banks being nationalised prevented the free entry into the capital market, which is the hallmark of Anglo-American capitalism. Today, by allowing takeovers, completing the privatisation of banks, and ignoring the proponents of stake-holder capitalism, India can repeat the dynamic capitalist growth which has been a hallmark of the Anglo-American capitalism over the last 200 years.
Published in the Business Standard here