Tuesday, 29 November 2011
Make no mistake, today's Autumn Statement by the Chancellor, George Osborne (above) is very, very, very bad news for every Briton. Despite a sequence of quite well thought-out and welcome measures - especially on lending to small and medium-sized firms, credit easing and infrastructure spending - the forecasts coming out of the Office for Budget Responsibility overwhelm all of that in a tsunami of gloom.
The OBR used to say that growth this year, and over the next two years, would be between two and three per cent. Now it's likely to be less than one per cent this year and next, and then only just two per cent in 2013.
Why? Ministers would have you believe this is due to the crisis in the Eurozone. It's not true. It's in fact due to the enormous risk that Liberal Democrats and Conservatives launched out upon in their austerity drive - a high-stakes gamble that this column always opposed.
Unemployment has been rising for months; consumer confidence flatlining; growth stagnating. In fact, it's been clear since the spring that something is very, very wrong with the British economy. What's wrong is a massive hole where demand should be. John Maynard Keynes, that great master of twentieth century British economics, would say something very simple now: borrow. Spend. Look confident. Talk the economy up. Ministers' failure to do that since May 2010 has done immeasurable harm to many companies, many lives and many of Britain's poorer regions (who just got told, with the end of national pay bargaining, that they're getting their economies hacked back yet again).
And although lots of Mr Osborne's ideas announced today are good, they represent only a partial U-turn - an L-turn, perhaps. New youth employment programmes? Then why scrap the Future Jobs Fund in 2010? More infrastructure funding? Why did you cut £50bn from it last year? More lending for small firms? Why did you go so easy on the banks during the ill-fated Project Merlin, then? The questions go on and on.
What lies ahead is now a long, grim slog. There will be round after round of public sector spending cuts. There will be higher taxes. There will be higher unemployment and more uncertainty. And the debt stock still won't peak until early in 2015 - just before the next General Election. All because growth is likely to be so slow.
Tell me again what a good idea it is to take a lot of risks?
Thursday, 24 November 2011
So the news on immigration is that it has gone on rising - despite the Government's unrealistic and unlikely target to bring it down to the 'tens of thousands'. Good luck with that, Ministers, because it's simply not going to happen.
Anyway, I say this is news to make us get the champagne out, not to don the sackcloth and ashes. For three reasons really:
1. The country needs more young people. Someone needs to pay for our pensions, and the ageing 'home' population won't be able to go on doing that forever - at least not on such generous terms. This has been clear for many years. It's simple. So the arrival of young people, who often have more children themselves, can only be welcome.
2. Immigrants work harder. Historically, influxes of new peoples do the work that the 'British' (whoever they are) won't do, or don't want to do. Many people in the host population are as clear about this as the newcomers. Irish building workers among my own forebears helped to build the railways, roads and canals that criss-cross Britain today. Evidence piles up, all the time, about the long hours and the sacrifices immigrants will bear to secure a better life for their children - putting in more to the social security system than they take out. More power to them.
3. Migration says we're open for business. There's lots of evidence that (for instance) Mexican immigration into Texas draws in more and more investment, as well as raw movements of people. Confidence follows. Physical infrastructure gets built. A signal is sent that the United Kingdom is a dynamic, fast-moving, energetic place to live and work.
Jewish immigration in the 1880s and 1890s; Afro-Caribbean immigration in the 1950s; immigration from the Indian sub-continent in the 1960s and 1970s; the arrival of the Ugandan Asians in the early '70s: each wave has made Britain a better place to live. But those groups have also (and this is the critical point) ensured that the country has always been younger, more productive, harder worker and richer than it would otherwise have been.
Rising immigration? Time to celebrate.
Wednesday, 23 November 2011
So my guest blog for The Independent (above) generated a bit of heat and bit of light.
Judging from emails, messages - and the message board at the bottom of the blog - some readers weren't convinced.
It is always hard, in such a short piece, to be really convincing. One has to be oratorical, rhetoric, short and sweet.
But I stand by every word in longhand as well as shorthand, and I can back it up. Let's look at four things I said:
1. We face a political, and not an economic, crisis. What are the states facing the sovereign debt downgrading? Are they the United Kingdom, with one of the highest deficits in the world? Er, no. British bond yields are some of the lowest in history - far too low, in fact, for the health of its banking system. But that's an argument for another day. The point to take here is that its Washington DC, with its absurd 'supercommittee' and its failure to agree both tax rises and spending cuts, Rome, with its comic opera politics, and Athens, with its in-out-shake-it-all-about referendum, that have felt the heat. What do bond markets and investors not like? You got it - uncertainty.
2. Europe is in demographic trouble - not a sovereign debt crisis. Europeans are ageing, rapidly, and that's going to drag down productivity and force up pensions - the ultimate intergenerational transfer payments. There's only two solutions to that problem. They can either (a) have more children, and the UK's birth rate has been moving upwards, or they can (b) allow more immigration. Anyone think that they're going to move on that second front anytime soon? No? Neither do I. In fact, misguided immigration policies, such as the UK Government's attack on student numbers and visas, are at the heart of a new right-wing populism right now, and there's no sign of any change on that front any time soon.
3. No-one rules in Berlin. The German Chancellor, Angela Merkel, has it in her hands to end the Euro crisis today. If Germany would give a lead, the European Central Bank could print enough money to fight off any attack on any Eurozone state. Anywhere. At any time. Or, as proposed today, the European states could issue 'stability bonds', backed by every member. As my old tutor Niall Ferguson used to say, 'to say that the financial markets rule the world is to say that the plankton rule the sea'. A directing mind, conscious of the vast power the German state now wields in the Eurozone, could force them to retreat. In fact, Mrs Merkel will bumble on, firing off broadsides of cash that are just too small to make a difference - the ultimate waste of money. Her voters, coalition partners and her constitutional court form a very high bar to clear if she truly wants to save the Euro and secure the future of Germany's export-and-lend economic miracle.
4. Britain's economic policy is tragically misguided. What are the Coalition's solutions of the moment to our economic malaise? Making it easier to sack workers - with a shorter consultation period and fewer opportunities to go to a tribunal. Does anyone seriously believe that the world economy had a near-fatal heart attack, and is still in intensive care, because of lazy or poorly-motivated workers in Western European economies? If they do, they need either (i) a quick Economics 101 course at one of Europe's many fine institutions of higher learning, or (ii) quick rehab from the hallucinogenic drugs they've been taking. What we face is a huge crisis of confidence and demand (which is why uncertainty or divided governments are so fatal to political survival right now) - something less secure jobs will make worse and not better.
There we have it. A world economy mired in political confusion, demographic decline among the developed countries, without proper leadership, headed in the wrong direction.
Proper growth - the growth that would get us out of this fix - will resume someday. But it would have happened sooner if our own Anglosclerosis hadn't caught on quite so widely.
Wednesday, 16 November 2011
David Cameron (above) has made a political career out of being 'not Conservative' - or, at least, not like those nasty Conservatives his pollsters and spin doctors warned him about. The British folk memory associates the Thatcher era with mass unemployment, with the poll tax, and with 'cuts' to the welfare state and public spending (even though precious little of the latter were actually achieved).
Cameron's whole historical appeal has been: I'm not like this. 'Detoxification', it's called.
But recent events all threaten to unravel all that good work. Cosying up to News International and Rupert Murdoch in order to get elected. Re-organising the NHS after promising to leave it alone. Subjecting the same service to a teeny, tiny real terms cash increase that it's never had to suffer - ever before (and which might turn out to be a cut after all, if inflation stays high) Presiding over a sharp rise in unemployment - particularly youth unemployment, that tragic and unnecessary waste of hope and talent. Taxing an axe to the welfare state - including the middle class welfare state of Child Benefit payments for the relatively wealthy. Raising flat taxes that fall on the poorest hardest.
Leave aside the efficacy or wisdom of any of these measures. Are they really good politics? Harold Wilson spent years building Labour up as the 'natural party of government', which knew how to manage a mixed economy alongide the unions and the nationalised industries. When it all came apart, in the November 1967 devaluation of sterling, he was left ideologically naked in the storm. Labour posed again as the party of fiscal rectitude and hard-nosed economic self-interest again in the 1990s and 2000s, only to see retoxification take hold when the banking system threatened to collapse and the public came (wrongly) to believe that the Government had 'overspent'.
Labour has retoxified itself twice since the Second World War. Are the Conservatives about to follow suit?
Tuesday, 8 November 2011
Time doesn't pass at one speed. It's an insight from quantum mechanics, but it could apply to the historian's trade too.
Sometimes it slows down, and sometimes it speeds up. You can track a problem in an archive - say, the struggle to defend sterling between the IMF London visit of 1961 and the final and traumatic devaluation of November 1967, when Harold Wilson's Labour Government and Chancellor James Callaghan (above) finally had to admit defeat. Some months look pretty calm: there are a couple of letters expressing satisfaction with the state of the currency and bond markets, perhaps, or a few press cuttings. And then some months (for instance, during the crisis of November 1964, after Labour had raised old age pensions and spooked the markets) see a great big deep tray of documents crash onto your desk.
In fact, the long, slow break up of one fixed exchange-rate system - the Bretton Woods link to the dollar, which took shape at a New Hampshire hotel in 1944, experienced trauma after trauma from the moment most currencies became convertible again after the Second World War (in 1959) to the 'closing of the gold window' and the destruction of the system at the hands of the Americans themselves in 1971.
The Suez Crisis of 1956 lifted the curtain on this period, in actual fact, when the Americans pulled the plug on sterling and forced an Anglo-French invasion of Egypt to turn tail. Then there was the aforementioned financial crisis of 1961 following a short, sharp pre-election recession; then an ill-fated 'dash for growth'; then three years of agony when the markets took against the election of a Labour administration in 1964; then the general gold crisis of March 1968. Policymakers ended up exhuasted, unhappy and deeply disillusioned.
The underlying cause? One currency (the dollar) was completely misaligned against the others. Sound familiar? Today, when effectively the German Deutschmark is far too weak against the other currencies held prisoner within the Eurozone, there's the same problem. But if Ireland, Italy, Spain, Greece and Portugal can't revalue or be rescued by a radical one-state fiscal union across the Eurozone, they'll have to go on suffering for years and years - and years.
We could be in for a lot of this, and for a long time. I know it's depressing, but that's the lesson of post-war financial crises. Sorry.
Sunday, 6 November 2011
Want to know what a hate figure looks like these days? Ask a banker. Anyone donning pin stripes, bowler hats and a haughty demeanour in central London these days risks being tutted at or stared down in the street - the British equivalent of Greek rioting against the country's absurdly unrealistic 'rescue' package.
Everyone from Ed Miliband to David Cameron seems to be saying that there's something seriously wrong with the 'casino mentality' of the sector.
Occupy London, of course, is at the forefront of these demands - though it's far from certain that ordinary people find their views congenial, driven back as many citizens have been on more prosaic demands for better schools, hospitals and public transport.
The former chairman of Lazards Investment Bank, Ken Costa, has gone even further, calling for the City of London to rediscover its 'moral compass' - which presupposes that the financial services industry has lost it somewhere. Surveys of city workers themselves accept that something is seriously wrong - though they propose to do little to actually change their ways.
There is no doubt that something has to change. Very high salaries in this part of the economy add to the grotesque inequality which is not only harming our society, but turning western capitalism into a plutocratic network of internship and merit point connections, stifling opportunity, innovation and both geographical and social mobility. The banking sector's behaviour in the run-up to the Great Recession was, by definition, catastrophically misguided.
But banking itself should be an honourable, powerful, well-respected profession. Lending spreads opportunity, wealth and the ability to back oneself and ones intutions. The importance of cash itself is that it allows us to make decision, one against the other, with the same unit of value. Making good decisions with shareholders' money is actually boosting all our pension funds. Investing in companies' ideas boosts productivity and growth.
The tragedy is that a previous generation of 'gentleman bankers', so derided from the 1980s onwards, understood this all too well - Siegmund Warburg (above), for instance, who arrived in Britain with very little but the clothes he was standing up in during the 1940s, and went on to found the country's most famous merchant bank and the Eurobond market itself. What did he say about banking and morality, as Niall Ferguson pointed out in his St Paul's lecture of 2010? Well, if nothing else about behaviour was ever stuck up above a trading floor, this would serve (the originals now reside at the London School of Economics):
Success from the financial and from the prestige point of view... is not enough. What matters even more is constructive achievement and adherence to high moral and aesthetic standards in the way in which we do our work.
Let's hope that Costa and the fellow members of his initiative 'to reconnect the financial with the ethical', can come up with some concrete proposals - on worker value to match shareholder value, on employee representation, on salary scales.
Because if he can't, the dynamic and creative capitalism that we need to get us out of this mess will be further away than ever.
Tuesday, 1 November 2011
So numbers of university applications are down following the near-tripling of English fees. What a surprise. It's early days, of course, and there was a bounce-back after a slump in 2006 when 'top-up' fees were introduced. But in general it does seem rather likely that the massive expansion of Higher Education which began in the 1960s has come to a halt - at least for now.
The Government's response to this troubling consequence of their own policy has been threefold. Take the cap off any courses that offer an AAB bid or above, Ministers say, and you'll allow 'opportunity for all' and universal access to the 'best' and most famous institutions. Massively expand apprenticeship numbers to take up the 'slack' among those who are now put off the very high fees English universities are charging. Thirdly, put back the date at which part time and mature students have to pay back their hybrid loan-taxes.
But it's all rushed, contingent, hurried - a madcap dash to shore up a system that is going to cost the taxpayer and the student more in the short term, without delivering any really clear benefits in the long run. Lifting the 'cap' off AAB courses is likely to do long-term harm to the prospects of strategic and shortage subjects, as well as the next two tiers of universities, who will find their students sucked away by topics and departments that may be no better academically, but are certainly more prestigious. Expanding apprenticeship numbers this quickly bolsters the dangerous myth that university expansion has 'gone too far' (for other people's children, of course). Many of these new 'courses' are rebranded corporate training courses that, while worthy, don't foster transferable skills in the way apprenticeships should in the public's imagination. And lastly, who is really listening among part-time students to one-year fee remissions? Does anyone really think that makes a difference to low income families' spending decicions when sums as large as £50,000 are bandied about? Er, no.
All in all, it adds massively to the confusion. That's one of the elements students and young people themselves, such as Callum Hurley and Katy Moore (above) are complaining about. As they put it, launching a probably-doomed legal bid to halt the fee increases, 'this makes it difficult to decide what to do about our futures'.
Heath Robinson fixes? They won't work. But you need public policy experts, conscious of the passage of time, the realities of decision-making and the confused fog that stands between governed and governors to tell you why.
It's just another example of the value of the humanities to the nation.