Tim Worstall
Just to remind, there has been no austerity
Just to remind, there has been no austerity
Tim Worstall
Of course Boris can't vote without ID - don't ...
Of course Boris can't vote without ID - don't be silly
Tim Worstall
One of those George Monbiot questions we can ...
One of those George Monbiot questions we can answer
Tim Worstall
Onwards to knowledge
Onwards to knowledge
Tim Worstall
Of course slavery, colonialism, did not produce ...
Of course slavery, colonialism, did not produce the Industrial Revolution

The 'Phoenix Four'

4103
the-phoenix-four

A government-commissioned report just released shows how five senior executives earned almost £42m in pay and pensions from carmaker MG Rover before its eventual collapse in 2005. The 'Phoenix Four' of John Towers, Nick Stephenson, Peter Beale and John Edwards bought the company from BMW for £10 in 2000.

MG Rover, originally part of the Leyland ran into trouble in the 1970s, and survived only on cash injections from the government. British Aerospace, a privatized planemaker, took it over but sold the ailing business on to BMW in 1994. Five years later, BMW realised it had bought a pup – losing £600m in a single year – and pulled the plug. There was much pressure on the government to bail it out and 'protect British jobs', but no deal. So the four managers stumped up £10, saying they could turn it around.

They did indeed cut its losses, but the company still collapsed, in April 2005. The withdrawal of a £100m bridging loan promised by Tony Blair's government did not exactly help. Meanwhile, the Four had paid themselves £9m each, and another £5.7m went to the Chief Executive, Kevin Howe. There were accusations that the executives asset-stripped the company to line their own pockets, rather than investing in it to save all those British jobs – 6,300 of them, plus many more in firms making components and supplying services to MG Rover.

While the executive team might have acted over-optimistically and even immorally, their actions (as owners of the company) don't exactly seem illegal. But the government has used all its power and spin, and taxpayers' money, to conceal its own shabby role in the whole affair and pass all the blame on to the executives. A lot of public money had gone into MG Rover, and governments were to say the least a bit careless in what then happened to the company – putting the fear of job-cut headlines ahead of its long-term soundness. MG Rover went bad just before the 2005 General Election, after all, which is why ministers went so headless-chicken about saving it. When it failed, they commissioned an investigation by accountants and lawyers which conveniently kicked the whole issue into the long grass, and avoid Freedom of Information requests, until well after the election. And how. Four years later, £16.3m of taxpayers' cash, and an 850-page report that naturally says nice things about the government that commissioned it. But then, do you think they would have published it, if it had criticised them?

The big picture

4095
the-big-picture

This week the FTSE 100 index of London's blue-chip share prices soared through the 5,000 barrier. I don't know what these people in the City are on, but I'd like some. Perhaps they're all cheered by the 'Recession Over!' headlines in the newspapers, since the latest economic figures suggest a very slight positive growth after over a year of severe falls. And of course, companies are reporting better figures these days.

There are two sorts of market analysts, those who look at the big picture, and those who look at companies themselves. The latter tend to be more optimistic, more gung-ho for the companies they track. That's natural. But company figures only look better today because their reports over the last year have been disastrous. Their descent may be slowing, but they're still in much worse shape than they were. It looks OK because they've already fired everyone so don't have big wage bills to pay. They still have customers because they're running down their stockpiles of unsold stuff. But you can't operate like that for ever.

Nor is the big picture rosy. I don't trust growth figures, which comapre two sets of already-unreliable aggregates. Sure, £175bn of new 'quantitative easing' cash has got to do something to boost things. But it may be a doubly false boost. First, it's fine to print money if the problem is a shortage of it. But stubbornly high inflation figures suggest that there's still plenty still out there, helping to bid up prices. Second, what the Bank of England is doing is simply buy up government debt in exchange for this new cash. But that makes the government look like a much better risk than it really is. Sooner or later, the Bank will have to rein in again. And then the true shakiness of the government's finances will be obvious. Which ain't gonna help the stockmarket at all.

No longer us versus them

4099
no-longer-us-versus-them

The government’s response to the financial crisis has been a shambles. It has coddled “British" firms (such as Indian-owned Jaguar) with tax-payers’ money and restricted foreign lending of some of Britain’s biggest banks (whose UK clients work around the world). It trumpeted the G20 meeting in London, where leaders committed themselves not to indulge in protectionism, and have gone away and broken this promise, most notably through government-driven Buy Local “stimulus" packages triggered by Barack Obama’s “Buy American."

These moves illustrate how trade policy is so out of touch with the reality of 21st Century commerce.

A generation ago, the factory floor was bound by four walls and usually by national borders too. Today, a product might be designed by a team in Bristol and Bangalore, have raw materials from South Africa, Peru and Thailand, and then be assembled in Slovakia or Taiwan, from where it will then be shipped around the world. This has been made possible by dramatic reductions in trade and investment barriers, and revolutionary changes in communications and transport, which have unleashed a truly global division of labour, specialisation and exchange that would have astounded the great Adam Smith – and certainly reaffirms his insights.

Trade can no longer be characterised as a competition between national producers – or “Us" versus “Them". Instead, it is now a competition between collaborations of some of “our" producers and some of “theirs" – to our mutual benefit.

Take the iPod. It begins life in Apple’s design lab in California. Components from Singapore, Taiwan, Korea, and Japan are then assembled in China, before the finished product is shipped around the world. The biggest winner from each iPod sold is Apple because they add the most value through design and marketing. The Chinese, who manufacture almost everything, actually add the least value.

This new commercial reality demands policies that welcome imports and foreign investment and that minimise regulations or administrative obstacles – all based on misconceptions about some vague or ill-defined “national interest."

The only stimulus package that will work is removing trade barriers.

Alec van Gelder is Network Director at International Policy Network. To read IPN's latest report by Dan Ikenson, No Longer Us versus Them, click here.

Under the influence

4096
under-the-influence

The British Medical Association (BAM) has been slamming one of our nation’s favourite pastimes in its new publication “Under the Influence". It has claimed that as over 1/3 of adults regularly exceed the government’s alcohol consumption guidelines “the rising cost [of drinking] – socially, economically and to our health services – really is unacceptable".

The BMA believe that “reducing alcohol-related harm in the UK requires a comprehensive strategy that….seeks to remove or mitigate the unhealthy and unhelpful influences on behaviour". In essence, that UK citizens should be regulated in what they are exposed to, in order to condition their own thinking and desires. Their solution is a blanket ban on the advertisement of alcohol. The BMA claims that alcohol advertising attempts to cast drinking as an essential activity, particularly drawing attention to the sponsorship of music festivals and premiership football by big brands. However, as the Portman Group patiently explained, evidence suggests that advertising encourages brand switching and loyalty, not the abuse of alcohol.

The BMA not only want to control what can be shown to us, but to meddle in market mechanisms, through the instigation of a minimum price for alcohol. Their report states that ASBOs should “not be slapped on the vomiting teenagers, they should be slapped on the irresponsible marketers" – suggesting that companies should be held responsible for the actions of the consumer. Another authoritarian suggestion of theirs is to limit the density of on and off-licensed premises within an area. If people already have enough places in which to drink, then a proposed business will fail. If they do not, why should an entrepreneur be denied a place in the market?

The UK has been a nation of drinkers for thousands of years. No association (or government) should hope to change a society’s habits by telling them what they should and should not do and by restricting an adult’s exposure to a ‘harmful substance’ (just look at the failed ‘war on drugs’). Real social change can only come about when individuals themselves adopt a new attitude to drinking. The best way for this to occur is through the unbiased education about the costs and dangers of alcohol, which people can choose to weigh up against the satisfaction they derive from drinking a pint (or six.)

Let’s just hope that those in Parliament haven’t had enough subsidised pints to think that the BMA’s measure might work too.

Power to us

4094
power-to-us

David Cameron is seeking to institute another step along the road towards more power in the hands of fewer parliamentarians. This time putting forward a cut in public spending via the curbing of the excesses of the Houses of Parliament. He wants to see a reduction of 10% in the costs of parliament, a 5% pay cut for ministers and the abolition of MPs' communications allowance. This along with a reduction in the number of MPs to 585 would see an overall saving of £120m a year. Or 0.0169% of the projected government expenditure of £710b in 2010/11.

Currently constituencies in the UK average around 68,492 eligible voters (England averages just over 70,000, Wales 55,000, Scotland 65,000 and NI 63,000). Under Mr Cameron's plan this would rise to an average of over 75,000 (if not more as the population grows) a distinct erosion of representation and yet more power coalescing in the hands of fewer (and lesser) MPs. Despite much of the UK's legislation being decided overseas this is a move that weakens our democracy. This piffling reform is yet more tinkering around the edges rather than attacking the real problems of our democracy.

Parliament needs to be able to concentrate on two things: defence and the implementation of a system of justice. Local government needs to be the level where decisions over health, education, welfare etc are made. The abolition of quangos should not mean that government departments take over the work, it should be left for local councils to pick up and ask the people to decide. Indeed government departments define how centralized this country has become. We may all live on an island but we all are different with different wants and needs. The time has come for a radical reshaping of the structure of democracy in this country. It would actually give power to the people.

(The figures used in this article are based on the 2005 General Election, and the ONS's latest population figures).

Banks: Some home truths

4090
banks-some-home-truths-

Last autumn’s near collapse of the UK banking system was unprecedented. The reality was that two of the UK’s four major clearing banks – RBS and Lloyds (including HBOS) - were close to financial oblivion. And, whilst Barclays did not require an injection of public equity, it was in poor shape: its fortunes have subsequently recovered. As for Midland, its owner, the esteemed Asian-based Hong Kong and Shanghai Bank, was never likely to fail. Indeed, not surprisingly, it attracted a large inflow of deposits from discerning investors seeking a safe bank.

To enable the survival of RBS and Lloyds, the Government injected an astonishing £37 billion of new equity capital. It was the previous lack of sufficient equity, commensurate with the increasing risks that RBS - especially post the disastrous ABN-AMRO deal - and Lloyds were running, that proved their undoing. At the recent G20 gathering, there was an encouraging consensus that increased levels of bank equity capital were paramount.

There remains a strong case for periodic stress-testing of the UK’s four clearing banks, perhaps over a three-year cycle: immediate restorative action to boost balance sheets could be implemented if necessary. In terms of bankers’ bonuses, there is an ongoing debate both about capping and/or taxing them, and the widespread wish to maintain secrecy. Since the pay of directors is painstakingly reproduced in Annual Reports, perhaps a reasonable compromise would be to publish bonuses over a certain level.

Finally, the four clearing banks should not necessarily operate on a level playing- field. Two passed ‘Go’ to collect a massive level of Government equity to stay afloat – two did not. Hence, if like RBS, you end up with majority state ownership, your activities will inevitably be more constrained.

Moral: never get into a situation that requires a public bail-out. Correct?

No competition, no progress

As reported by the BBC, a recent study has found that there was no improvement in maths skills between 14-year- old students today and those studying during the 1970s. Considering all that has changed and definitely been improved upon in the last thirty years, this should be very troubling to all parents in England. Advancements in mathematics, engineering, and other major disciplines have worked to transform our world into a technological marvel compared to a mere thirty years ago. Most of these advancements are due to an increased number of private universities, and more importantly, increased competition between all universities. The competitive marketplace has thrived among universities in America, and has lead to a host of scientific and economic breakthroughs. When the evidence of what free market competition can do on an academic level is increasingly evident, why will government not allow it to enter into the primary and secondary schooling system? Why, after thirty years, can children not perform any better in basic maths skills? Without competition among schools, teachers have no incentives to improve teaching; they have essentially “levelled out" in their field of work. Principals and administrators have nothing personal to gain by putting more pressure on teachers. There is no adequate mechanism to hold administrators accountable for failure. Unless proper competition is injected into the education system we will be stuck in the same place in another thirty years (or worse). the simple truth is that more competition among schools will lead to more accountability placed on administrators and teachers, which will inevitably lead to better educated students.