Ooooh, gosh, isn’t the Prime Minister being manly. And tough!

This will not work:

Despite the frisson we all feel for the straight-talking from the toolmaker’s son.

The reason it won’t work is because it’s not dealing with the basic and underlying problem here - people in business are rational.

Well, not that we think people in business being rational is a problem, we think that’s a pretty good idea actually. But that is the problem here with all these claims of landbanking, speculation on the value of unbuilt plots and all the rest. The very problem the tough and manly talk is about.

So, you’re in business. You’ve assembled the varied things you need to have to be in business. A management team, some capital, a labour force, institutional knowledge, all the numerous things you need to have to be able to do something. Now you need a supply of the varied inputs required to do something to, right?

So, how much - how many - of those inputs do you have to hand and how many do you just order in as an when you need them? We can think of this as a variant, in detail, of Coase on the Theory of the Firm. As with the very existence of a firm sometimes it’s more economic, sensible, to just order in as and when - barristers, say. On the other hand sometimes you want to own the resource and so employ directly and exclusively - toolmakers for a toolmaking company, say.

Adapt this to your varied inputs necessary to be able to do something. You will have, at hand, enough of whatever for you to be able to keep working. And only that amount (plus a little margin perhaps). So, window sealeant is available by the tonne from any B&Q at 24 hours notice. So, you’ll keep 24 hours, 48 perhaps, of window sealant to hand. If bricks take 3 months (which, we’ve heard they have recently) then you’ll have a stock plus order book of three to 6 months of bricks. Because the last thing you want to have is your overheads - labour, management, capital, institutional knowledge - hanging about twiddling thumbs for 3 months while someone bakes some clay for you.

This is why British Leyland cars crumbled so badly. Steel took 6 months to get. Therefore car factories had 6 months of steel to hand which was only painted when actually used. Rust R Us.

So, why do housebuilders stockpile planning permissions? Because from virgin green field to being allowed to actually build something takes 5 years and up. Therefore the stockpile - both on hand and in the order book - of planning permissions is 5 years and up. That’s just what rational businessmen will do. For the avoidance of having all the assets of the firm twiddling thumbs for 5 years while bureaucrats dither over signatures.

Now, perhaps that 5 year stockpile is something bad in some way. Maybe we’d prefer to manage that down in some manner. The way to do that is to make planning permission faster. If we got to a position where green field to digging trenches was 6 months then builders would, rationally, hold a stock of planning permissions on hand and in order books of 6 months plus a bit. Why would they tie up capital in a 5 year supply of something they can get in one tenth of that time?

That is the solution - and shouting at people isn’t going to be that solution. Because no one rational is willing to operate without a known stock of an essential input that lasts, at least, however long it takes to gain more of that input.

We can also run this observation the other way around. How do we know that our planning system is constipated? Because builders are spending large sums on holding - to hand and on order books - 5 year’s worth of planning permissions. They just wouldn’t spend money on doing that if it weren’t true that the system itself, planning, is in need of a damn good does of Ex-Lax. Or sennapods. Milk of Magnesia, castor oil. Heck, granola would be good - something, anything, that removes the lingering in the system and so promotes flowthrough.

The attempt here, from the Prime Minister, at that tough and straight talking is obviously welcome. But is is possible to hope for solutions that are rather better informed, no?

Tim Worstall