All Hail the Glorious Bolivarian Socialist Revolution!


It really takes a certain amount of cunning, if not good sense, to turn a coffee exporter, one acknowledged to produce some of the finest Arabica in the world, into a place where it is now difficult to get a cup of coffee. But that is indeed what Hugo Chavez has just managed to do in Venezuela. How is it possible to do this?

Well, first set the price at only half what it is in neighbouring Colombia. Then watch as some 250,000 quintales (around 100lbs in a sack) get smuggled over the border into that country. Then gasp in amazement as less coffee is harvested domestically, the crop falling from the usual 1.5 million quintales to 1-1.2 million. Then congratulate youself on how you've been able to make coffee cheaper for the masses: demand has risen to 1.8 million quintales.

The final coup de grace is of course that you've got to go and find some more coffee somewhere:

Most estimates of how much Venezuela needs to import hover around 300,000 45-kg bags, to ensure supply until the 2009/2010 harvest begins in October. Experts say Brazil would be a likely supplier.

"We're talking about two months of supply," Nelson Moreno, head of the small and medium-sized roasters, told Reuters.

"Stocks, including reserves, will be entirely depleted by the third week of August," Moreno said.

For, you see, having fixed the price so that supply and demand cannot balance, you cannot use the price system to either ration the coffee, dissuade people from consuming it nor encourage private individuals to import it: or not export it illegally in the first place.

All Hail the Glorious Bolivarian Socialist Revolution!

As Johan Norberg points out in connection with this story, PJ O'Rouke, as so often, had it right:

The only thing you need to know about socialism is that you can´t get good Chinese takeout in China and that Cuban cigars are rationed in Cuba.


A rare good law


Under a sea of bad law from this administration, the Freedom of Information (FOI) Act is an oyster. It provides anyone who requests it a right to public information and obliges public authorities to release it; often information which they otherwise would have kept secret (because of embarrassment) or simply not bothered to go to the trouble of providing (why bother?).  It has made public life more open, transparent and accountable. But as with all good things, costs are involved and getting hold of information is not as easy as it may at first seem.

The right to public information is not well understood among public officials, even among those responsible for FOI compliance. Protecting the organisation from the public is too often their main concern. Getting the information needed is often dependent on whether you are sufficiently tenacious or are lucky enough to have asked a motivated FOI official who doesn’t see it as his job to disrupt you. The Act is not popular with many officials whose information is requested. They see it as bureaucratic and inefficient. It is both, but this usually merely highlights another reason why the state should not be involved in the activity in question. It is not proof that accountability in public office and for public money is a bad thing.

Three things should be done to improve the situation. First, some exemptions need to be watered down and one ‘commercial interests’ (except ‘trade secrets’) should be abolished. Second, the penalties for organisations and officials found to be in breach should be stiffened. The consequences of ignoring the law are often thought to be laughable, with good reason. Applicants whose information was wrongly withheld should be modestly compensated and officials who knowingly or negligently ignore the law should be personally liable. Third, the Information Commissioner’s Office should ensure that all complaints are investigated as quickly as possible so that blame can be attached to organisations while the staff who made the errors are still in post, before they move on.

The end is nigh?


The result of the Norwich North by-election – with a huge swing to the Tories, who now have a majority of more than 7,000 – has not only humiliated the Labour Party but triggered serious internal friction.
The by-election was caused by the resignation of Dr. Ian Gibson after he was effectively deselected by the 'star-chamber' of the Labour NEC. If Gibson had not been targeted by the star-chamber, an election would not have been called and Labour would still hold their North Norwich seat. Conflict in the party comes as a result of Gibson being ‘targeted’ after the expenses scandal. There has been a longstanding tension between Gordon Brown and Ian Gibson, as such it is not surprising that Ian Gibson was one of only five Labour MPs referred to the Star Chamber regarding expenses. More high profile members, such as Hazel Blears and Jacqui Smith, were spared the star-chamber treatment so as to retain an image of party unity. It is fairly evident that Gibson was initially used as cannon-fodder by the party to create an imagine that they would not stand for expenses corruption. Gibson trumped Brown by resigning, leaving the party with even more serious problems.
The Labour party now faces a crisis. They could be facing a historical downfall with little prospect of recovery. If they enter the next election with the possibility of coming third, any support they currently have will be sapped. This does not necessarily need to happen. Cameron is not on the home stretch yet, and elections have an uncanny way of throwing up surprises when they’re least expected. But as things stand, the Labour Party is a sinking ship and Gordon brown is acting as one hell of an anchor.

Au Revoir to the UK Financial Sector


As reported in our letter to The Times of June 24, the Chancellor and Prime Minister seem to have agreed the French inspired proposals to hand financial regulation, albeit not supervision, over to Brussels. We surmised that to have been the price of Sarkozy’s attendance at the G20 meeting in April.

What was puzzling us then and since is why neither the City nor the Tories have risen up in protest. Do they believe Lord Mandelson’s soothing words that he will see the City all right? More likely is that the large British banks would actually prefer EU to British regulation and are lobbying to that end. Angela Knight has said as much in Parliament’s house magazine in the last few days. This is carrying hostility to the FSA too far. EU regulation is bound to blunt the UK's pre-eminence in financial services.

The financial crisis has revealed just how dumb our banks can be. Little seems to have changed since. Will someone please stand up for our last remaining major industry?

UK water – is Ofwat being realistic?


Yesterday’s eagerly awaited draft determination announcement by Ofwat, regarding the water pricing regime between April 2010 and March 2015, confirmed modest price cuts in real terms and a near £21 billion five-year capital expenditure plan. Good news for consumers.

Shareholders, though, were less happy as Ofwat chose a 4.5% post-tax  Weighted Average Cost of Capital (WACC) figure, which was below market expectations. No wonder shares in the remaining publicly quoted water companies fell.

In today’s volatile markets, setting a credible WACC, which can endure until March 2015, is nigh impossible. Yields on water shares are closely correlated with gilt-edged stock; between March and June this year, the yield on 10-year government bonds rose by some 100 basis points.

Factor in, too, the planned issuance of gilts until March 2015, which could amount to an astonishing £800 billion, and it is clear that forecasting long-term yields is only for the brave. 

In the event of its WACC figure being materially awry, Ofwat did offer some hope of financial restitution - through the ‘substantial adverse effects’ clause in the list of notifiable items by which interim price rises can be awarded. 

In today’s announcement, Thames Water is an obvious loser. There is a near chasm between its own WACC assumption – close to 5.25% - and the 4.5% of Ofwat. A confrontation at the Competition Commission seems almost inevitable.

The tighter WACC being proposed by Ofwat is on the back of lower valuations of water stocks, which are now trading – in some cases - below their Regulatory Asset Value (RAV).

In reality, between now and November, when Ofwat publishes its final determination, expect considerable activity on behalf of the water companies to drive up Ofwat’s WACC assumption much closer to 5%. A lacklustre gilt auction before then would be very helpful.

A pointless 'privatization'


According to Nick Timmins in the FT:

The private sector is to be invited for the first time to take over and run a big NHS hospital under plans backed by the Department of Health and the Treasury yesterday.

Needless to say, I'm generally a big fan of privatization, and an advocate of greater private sector involvement in the NHS. And yet the government's proposals do not exactly fill me with joy.

The trouble is in the way the scheme is set to operate. The government will offer a seven-year franchise on the hospital and invite private operators and NHS foundation trusts to take on its running and financial liabilities. But they will not transfer the assets of the hospital, and all staff will remain employees of the NHS.

Within that framework, you have to wonder what good the scheme will do. Sure, an organisation with private-sector expertise might be able to manage the hospital a bit more efficiently, but will they really be able to make much difference if the hospital has to be run more-or-less as it is now, with the same staff, and the same salaries and benefits (which will continue to be negotiated collectively with the Department of Health, rather than individually with the hospital's management)? No.

In the long run, I worry that politicians' obsession with 'private sector management expertise' (valuable though it is) does the cause of liberalization a lot of damage. They need to realize that the point of privatizing things is not just to introduce a new management with a better-developed profit motive. The goal should be to increase autonomy, choice and competition, and to focus services around consumer interests, rather than producer ones.

As things stand, the government's franchise proposal does not achieve any of those things.

Parliament: more transparency needed


As the Parliamentary Standards Bill limps towards royal assent before the summer recess, picked at and weakened by the government and committee stages, it seems a good time to reflect upon the transparency of government and politicians.
On Tuesday BBC Radio 4 broadcast “Expenses: The MPs’ Story", in which a series of MPs gave their accounts of the days and events surrounding the expenses scandal. Listening to the programme there was a sense that they were looking for sympathy or even to pass some guilt onto the public for overacting with such ferocity. As some MPs claimed at the time, there was a ‘McCarthy style witch hunt’ for MPs – well, what’s wrong with that? If somebody had robbed a supermarket, we wouldn’t decide to let them off in case we hurt their feelings – why should it be different for MPs?
People such as Anthony Steen MP (who is thankfully standing down at the next election), claiming that the public were simply ‘jealous’ of his big Balmoral-esque house, and Lord Foulkes represent what’s wrong with many politicians. They have forgotten whom they represent and why they are in Parliament, detaching Westminster from the rest of Britain. When people enter politics, they need to accept the transparency and public scrutiny that should come with it.
What we need from parliament, and what the Parliamentary Standards Bill will not deliver, is a total change in culture of politics. We need a system that looks out towards voters rather than looking inwards towards personal power and greed, only noticing the electorate every 5 years.
Daniel Finkelstein has written a piece in The Times arguing that we should be able to see into the personal dealings of our politicians, and I couldn’t agree more. Finkelstein says the people of Italy have the right to know the details of Silvio Berlusconi’s misdemeanours – and this is true – but I’d still rather have a lothario than a thief running Britain.

Failure, thy name is Royal Mail


Peter Mandelson was thinking along the right lines when he proposed partial privatisation of Royal Mail (although I would have gone for the full deal). In the end, however, pressure from the Communication Workers Union as well as backbench Labour MP’s sank the proposals. That surrender was a bad move for a government supposedly keen to fix this loss-making institution.

The Royal Mail's pension fund deficit is now running in the billions of pounds (which will be paid for by the taxpayer to the tune of around £12bn) and inefficient practices still prevalent. Even turnaround experts like Allan Leighton, who has helped some of the biggest names in business, have been unable to make a significant difference hitherto.

The Royal Mail has been performing even more abysmally with the gradual opening of the postal market to private enterprise, but the CWU still fails to see the benefits privatisation could bring. Even partial privatisation would mean a more efficiently run Royal Mail, leading way to modernisation in the company’s operations and structure as well as helping to reduce the pension fund deficit (for which the unions are demanding a government bailout).

Striking from union workers has meant a slow down of operations, damaging not only Royal Mail's services, but also its reputation. But the unions are being unrealistic: without the modernisation that privatisation would bring the Royal Mail does not stand a chance against efficiently run, well-managed private sector competitors, in an increasingly open market. Ultimately, the Royal Mail must adapt or die.