Bonuses, wealth and progress

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John Kampfer’s criticism of the FSA’s decision not to issue binding restrictions on bankers’ bonuses is deeply unpersuasive.

Having reminded the reader that the economy’s doomed, regulation’s brilliant and Fred Goodwin’s greedy, he starts his argument by complaining that:

Britons have long displayed a curious deference to people who are paid far beyond their worth.

Who is Kampfer to decide how much an employee is worth? Is an open labour market, competing for workers on the basis of their productivity, not a better determinant? Britons have indeed displayed an acceptance of the pay arrangements agreed between private firms and their workers, and rightly so. Next is the inexplicable statement that:

The only argument ever used for our largesse is the usually fictitious "brain drain"

Why on earth should the payment that a bank makes to its employee (nationalised banks excluded) be considered “our largesse." It is the largesse of the owners of that bank, and it’s nothing to do with us.

With reference to the brain drain, he then asks:

Would a finance director at, say, Salford or Southampton really up sticks and head for Stuttgart or Stockholm if he or she was told they were overpaid?

Well, simply, yes.

Then follows the most patently untrue statement of the lot, that:

Excessive wealth has not produced an incentive to improve the nation's lot.

Wealth (‘excessive’ or otherwise, whatever that term means) has been the incentive for countless improvements to the nation’s lot throughout our history. From Arkwright to Branson, the entrepreneurs, businessmen and professionals of this country have been driven by the lure of wealth to innovate, produce and employ.

Bonuses are a good way to attract and retain the best talent, and encourage efficient behaviour among employees, generating profit for firms, and wealth for the nation as a whole. More importantly, bonus schemes in the private sector are voluntary arrangements between firms and their employees – the government has no business intervening. There is no reason, beyond envy, to stop them.

Apprenticeship failure

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Figures released show youth (16- 24) unemployment nearing figures of one million and some have already begun to foresee this causing serious social unrest as happened in the 1980s. With such a stark reality for the future of British youth employment it is shocking to see such a poorly misguided and lacklustre input from the government.

In my opinion, one of the most effective and beneficial approaches to youth employment is the apprenticeship scheme. For those who do not wish to enter full-time higher education, it allows a gradual transition period between work and employment, teaching valuable skills and trades as well as life skills such as organisation and time management.

Apprenticeship schemes are not only beneficial to young people, they allow firms access to a labour force that is willing to learn and can be trained specifically for many jobs. If approached properly they can provide a highly trained loyal workforce for years to come. These schemes are beneficial to both parties, meaning that government intervention should be kept to a minimum. This is not the case, as the recession has impacted upon youth employment Labour have jumped on the ‘apprentice bandwagon’ in their usual vote-grabbing fashion.

A government launched website aimed to increase the number of apprenticeship places has failed on an impressive scale. So far just 1,185 out of 18,000 places have been filled on government schemes. There is no need for the government to fiddle with this aspect of the labour market with top-down, unrealistic, quotas and application schemes. Left to the firms and individuals, the most efficient result would be obtained, benefiting all. As the youth labour market currently stands, the government is acting as more of a hindrance than helper.

If it really wanted to give young people the best start in society it would reduce benefits to school leavers, which currently act as a disincentive to find work. Only by allowing firms to offer incentives to young people can this valuable section of society be mobilised to its greatest capacity.

Top-up fees: Just and efficient

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David Papineau argues in The Times against lifting the cap on top-up fees, as Lord Mandelson has been suggesting recently. Apparently, he fears that if the government were to do so, “our proudest universities will quickly turn into rich kids’ colleges."

The present, state-subsidised system of university funding is regressive: hard-working taxpayers from all sections of society, two-thirds of whom do not hold a university degree, subsidise the exploits of relatively affluent students. Obtaining a university degree is not a necessity or a trial, it is a fantastic experience that boosts lifetime income by almost 60%. Those who derive the benefit from the education should pay for it – the students themselves.

Papineau protests that if students are made to pay the full cost of their education, “universities will become the preserve of the rich," and that “a system of means-tested bursaries … won’t solve the problem." Well, if government continues to provide low-interest loans covering tuition fees and living costs for all those who can’t afford the education outright, as they intend, then why should the poor be excluded? If a university education is worth what it costs, then given sufficient credit, people will be prepared to pay for it.

Giving universities the flexibility to charge the price they want for an education will also raise standards. Universities will have to compete for their students: striving to excel, saving money where necessary, targeting students with a variety of demands and reacting to a changing marketplace.

The current system is unjust and inefficient. Raising the limit on top-up fees is a good step towards the free-market university education system that would move the burden of cost from taxpayer to consumer, and improve quality across the board.

August 14 1765

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August 14 was celebrated throughout America as the happy day, on which Liberty arose from a long slumber.

The progressive train to nowhere

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The smoke and mirrors of politics were on show on Tuesday at Demos, where David Cameron's right hand man, the Shadow Chancellor, George Osborne MP gave a speech claiming that the Conservatives were now the torch holders of progressives politics. The ideal being that the Conservatives would reform public services, rather than cutting them (the reforms being sufficient enough to reduce costs). This, in itself, is to be the measure of progress. Progressivism is now being embraced by the conservatives: either this is the politics of triangulation or the air being cut off to conservative brains.

Progress is to realise the folly of government intervention of the past 70 years. It is to realise that for the UK to turn itself from being a debt riddled, inefficient, morally bankrupt, ill-bred and unhealthy nation public services need to be radically reduced in size, not tinkered with at the edges. After the elecion of the Conservative administrations we'll have progressed exactly nowhere. Government will still be in excess of 40% of GDP, debt will still be a weight towering over us and politicians will still be grappling with whether we are responsible enough to do x,y and z. What the conservatives should be proposing is a dramatic reduction in business taxes/regulations to increase growth, reducing the tax burden on the poorest and ensuring that the state is withdrawn from much of public life. That is how we progress rather than wallow and regress as this current crop of politicians want us to.

From 1945: "In the interests of the nation and of the world, we earnestly urge all progressives to see to it - as they certainly can - that the next Government is not a Conservative Government but a Labour Government..." Where has the alternative to big government gone? There is no one offering us a way out of this era of indebtedness and wasteful spending and as such our progress will be continually held in check by the political class.

Obama and Europe

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European opinion leaders just don’t get it. Instead of celebrating president Obama as the new messiah they should put all their bets on failure for both them and us. The man in the White House is keen to emulate the European social democratic model.

An excellent article in the WSJ observes that the very European welfare state has been subsidized by the American taxpayer for half a century. It was only thanks to the very expensive American defense umbrella that the Europeans were able to ignore military expenditure and instead spend like mad on welfare.

It was the strong American consumer demand, driven by free market economics, that provided an excellent market for European products - but perhaps not much longer. If president Obama gets his way both enormous benefits for Europeans will vanish.

As Jeff Durstewiz concludes:

The great irony here is that the European model American leftists envy couldn’t survive without the despised cowboy counterpart. If the U.S. economy weakens because of increasing regulation, heavy-handed unionization, and higher taxes and debt to support an expensive social agenda – all policies Mr. Obama and the Democrats in Congress are pushing hard – it will hurt Europe.

Deal with unemployemt - Scrap the minimum wage

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With unemployment now at around 2,435,000, it is clear that despite all the talk of green shoots, they are certainly not taking root in the job market.

Unsurprisingly, those in the public sector are still doing nicely. In the three months to May the public sector saw an average pay rise of 3.7%, while average annual rate of pay rose at 2.5%. For those in the manufacturing sector that saw an average pay increase of 1.1%, this is a slap in the face.

The response to unemployment by both Lord Mandelson and George Osborne has been to attack the other for their lack of policies. Yet it is quite clear that both are at something of a loss on how to deal with unemployment beyond the introduction of equally wasteful and ineffective government initiatives. Of course Mervyn King has had an idea – namely quantitative easing – whicn I would rather he had kept to himself. The BBC reports that he is planning other stimuli. Inflation is certainly not the best way out of recession.

In truth, the only sustainable way to deal with unemployment is to remove the shackles placed upon businesses of onerous and multifarious government regulations. A good place to start would be scrapping the minimum wage. Although when we were riding high on the credit bubble, such talk of its removal would have been met with bafflement by many, now that the bubble has popped, this policy could be an honest way to work our way out of this recession.

Scrapping the minimum wage would have immediate benefits for those employers that could afford to take someone on for less than £5.73 per hour and for the workers who would rather work for less than not at all. And certainly many of those currently unemployed do indeed want to work. The statistics show that many recently unemployed are not turning to the state for handouts but are instead relying upon family and savings, a dignified mentality that this government cannot understand (it is launching an investigation into the discrepancy).

As the IEA found in its extensive analysis of the minimum wage prior to its introduction in 1999, “in a period of sustained economic growth, a minimum wage has negligible positive or negative effect; but in a period of recession a minimum wage is likely to deepen that recession by preventing labour markets from clearing. Firms will be unable to take on new employees willing to work for relatively low wages in order to escape unemployment; if firms cannot take on new employees and people cannot exit from unemployment, then the route out of recession becomes much slower and more arduous."

Scrapping the minimum wage is a policy that the opposition parties could and should immediately adopt. The economics and morality behind such a decision are entirely sound. This Prime Minister should be held to account for his decision to introduce and increase the minimum wage when he was Chancellor and the effect these decisions are now having upon the job market and in prolonging the recession.

Howard Flight on elected tyranny

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The system we now have is one of “elected tyranny", where, provided governments have a large enough parliamentary majority, they continue in power until legally obliged to call a General Election, irrespective of their competence; and become ever more out of touch with the nation. The floor of the House of Commons has become little more than an ill-attended, empty shell, apart from the weekly “spectacle" of Prime Minister’s Question Time.

Howard Flight 'The number of independently-minded MPs of stature can be virtually counted on one hand' ConservativeHome.

BOGOF

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With the announcement of the government’s latest policy idea comes that familiar mixture of disbelief and despair. This time, DEFRA is demanding that supermarkets end buy-one, get-one-free offers. The aim is to reduce food waste, but the proposal is idiotic from start to finish.

First of all, it probably won’t reduce waste. As those of us without a £400 per month food allowance know, supermarkets often offer two-for-one deals on products that are near their sell-by date, to get rid of them before they perish. It’s commonsense that banning the deals will mean more food ends up in the supermarkets’ bins.

Even if it does reduce waste, a ban wouldn’t help anyone. The market, left alone, allocates food pretty efficiently. Supermarkets offer BOGOFs because it makes them richer, and people buy them because it makes them happier. Banning them will eliminate mutually beneficial trades, and make both groups worse off.

To suggest that people are unable to manage their own grocery shopping, that the state needs to step in to make sure we’re not going home with more food than we can use, is as insulting as it is ridiculous. Perhaps Hilary Benn and chums would also like to regulate how long we grow our hair and what colour socks we wear.

This is the sort of creeping interventionism that constitutes an ever-growing threat to our economic liberty. If Tesco wants to give me a free punnet of strawberries then that’s up to them. If I want to amass vast quantities of perishable fruit and leave it to rot in my kitchen then that’s up to me. The government should keep well out of it.

The worst thing about the proposal is that it distracts from real problems. Tinkering with supermarket offers is a gimmick that diverts attention from genuine waste. DEFRA should take another look at the Common Agricultural Policy, that last year funded uneconomic agricultural production worth €55bn.

Renewable generation – The reality

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Government ministers continue to eulogize about the potential of UK renewable energy. New policy documents have proliferated and ever more ambitious targets are being set. What remains short, though, is adequate finance for renewables investment, which remains uncomfortably dependent upon the six integrated energy suppliers and on the monopoly grid operator, National Grid.

For some years now, these six players have dominated UK electricity generation. EdF, and the two German companies – E.On and RWE - are the leading players in England, along with Centrica. North of the border, Iberdrola, the owner of ScottishPower, and Scottish and Southern Energy (SSE), which owns many old – and fully depreciated - hydro-plants, prevail.

Since the net debt levels of most of these companies have soared over the last two years, there are now more financial constraints on their investment programmes. Importantly, EdF’s investment focus is on new nuclear-build. And, whilst E.On remains committed to heavy renewables investment overall, much of it will be in the US. Moreover, Centrica’s strong interest in renewables has been diluted by the recent fall in gas prices. But Scottish renewables investment remains robust with both Iberdrola and SSE, along with Sweden’s Vattenfall, continuing to support new wind projects there.

Securing grid connections also remains a serious problem, especially in developing offshore wind plants. This scenario is not helped either by National Grid’s net debt currently exceeding £22 billion. In terms of renewable technologies, only onshore wind – with a few exceptions – has made real progress to date in the UK, especially in Scotland where planning requirements are less restrictive. Offshore wind offers some prospects, along with biomass plants, which the Government has been trying to develop.

The key issue remains. Will the six integrated energy companies deliver the required renewables investment, given the many attractive investment opportunities beyond the UK - notwithstanding their own deteriorating finances?