UK economic foundations crumble

“My administration is proposing a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression.”   That is what President Obama said about the US system.   By contrast Labour Government Minister Alistair Darling said that the UK financial regulatory system did not need to be changed.  The Governor of the Bank of England disagreed with Chancellor Darling publicly and IN THE SAME ROOM, directly criticising the Chancellor’s ineffectual spin-based ‘reforms’.  Please, someone…save us from this paralysis and incompetence. My country is rapidly going down the tubes and, horror of horrors, we have another year of this to go.

Economics journalists are ga ga ?

Green shoots ? UK economy on the upturn ? Have the journalists gone stark raving bonkers ? The serious press is reporting a multitude of stories about the recession bottoming out. Take off the blindfolds dear scribblers.

No, I am not going to deny the possibility of finding little upbeat stories – some of them are factual and some are planted. It is the sheer stupidity of the editorialising around these stories. Of course it is possible for any government to create economic growth, by borrowing and printing money and pouring it into the economy via government spending and by messing around with banking capital ratios.  This is ‘easy peasy’ – but it also why governments have annual and aggregate borrowing or printing limits. It is anti-democratic to allow any government to seek an election victory by borrowing and printing huge amounts and splashing out – either artificially to avoid economic decline or artificially to create economic growth.

By 2013 the UK government’s borrowing will exceed 100% of GDP. Yes, that’s more than 50,000 quid for every person in work. In case there is any doubt about this, imagine the effect on the economy of every employed person in the UK getting a 50,000 tax rebate. If we are comparing this with the borrowing increases since 1997 that would mean a tax rebate of more than 30,000 quid per person – hard cash for people to spend in the shops or doing up their houses. Most of the money washes through the economy. Is it not surprising that there is growth. Sure some of the money has been used to prop up the banks, but they still have not come clean about the quantity of bad loans on their books (ie they have not ‘faced the music’ fully yet). The money is ‘out there’.

Have the financial press forgotten why Keynesian economic stimulae were all but abandoned ? It is not that it doesn’t work. It was the negative effects that derive from the politics. Politically-directed stimulus money gets ‘captured’ by the politically strong (doctors ?). The productivity of the spending declines as the strategy degenerates into paying people to do little. Lending declines as interest rates rise and credit ceilings come into play. Above all, the assumption that governments will ‘save’ money by spending less than they receive in taxes, in the good times, is almost always a wrong one.

Maybe the financial press has forgotten about the concept of the ‘quality of economic growth’. For economic growth to be ‘of good quality’, it must be sustainable environmentally, widely felt across the economy rather than amongst a small elite or economic group, and above all fiscally sustainable (ie not a temporary artificial creation of wild spending and borrowing by government).  After the unprecedented mega-spending by the UK government, the hangover will come. By splashing out as if there is no tomorrow there will be growth – that is almost certain. Indeed even Sterling will rise temporarily as the government uses its vast borrowing to buy back its own Sterling-denominated IoUs (gilts).

Then what ? Panic, probably. Well, that may not matter if you are a Labour politician. It will be after a general election when almost certainly, Labour will be in opposition. But….as they bequeath the job of emergency spending cuts to the next governmemnt, while they shout ‘Cuts ! I told you so !’ from the sidelines, they will slither away from the job of sorting out the UK finances and recovering from the mass unemployment now just starting.

Judging by Vince’s  ‘Storm’ book he is painfully aware of this too, and says so in slightly coded language – often too subtle for the UK financial scribblers. Advisers to Cameron and Osborne no doubt say the same thing, and indeed they can read the detailed but polite text (ie not the spin) of IMF and IFS reports as well as anyone with a will to read between the many, many lines. But dear David and George are of course paralyzed by the ‘traction’ that the Tory cuts jibe seems to have with the popular press (and maybe the public – that is not clear yet).

What a sorry mess. So much for a more open and honest style of government, my dear Gordon !

Paul

Brown’s promise of open government

You have to admire Gordon Brown’s brazen ability to ‘utter untruths’ between his teeth ! One day he promises open and transparent government, then not a week later declares that the delayed Iraq enquiry will be in private. A day before he reduces significantly the permisable scope of Freedom of Information requests, outlawing ‘public interest’ criteria as a justification for some types of FoI request. It leaves you breathless. If a piece of information cannot be released even if it is the public interest to do so, then exactly in whose interest is substituted ? Here we have statist old socialism at its best – the state having its own ‘interests’ separate from the interests of the public. I think I prefer the Mr Bean Gordon Brown to the Stalin Gordon Brown. Ultimetely the latter always seems to trump the former.

The spin machine has been in overdrive over the Iraq enquiry. The justification for a secret enquiry is that army officers and intelligence officers can speak freely. Hilarious. What is the point in speaking freely if no-one is allowed to hear what you say ! The other justification is timing. This is also hilarious. The demand by the families of those British soldiers who have lost their lives for an enquiry in public (ie not secret), is then twisted by Gordon Brown into a demand for a full judicial Public Enquiry over many years. So we have a choice do we – either a secret enquiry or a multi-million pound judicial Public Enquiry over several years. The government is doing its spinning best but this type of chicanery won’t wash this time. All deference to the government has evaporated. Pressure for an open enquiry may well win out. I for one want to express my views about the lessons in public (I appointed the first post-war regional government in Iraq in 2003, in Basra).

The government press release says that the enquiry will allow people to be candid. If one looks in the dictionary candid means ‘frank, open, ingenuous’, not ‘secret, concealed, disingenuous’. !

The other Brownian justification is national security ?  But it was the abuse of national security cover that got us into the war in the first place. The infamous ’15 minute’ claim, the ‘Niger yellow cake uranium’ fabrications, involving White House smears on intelligence officers, the WMD accusations, the decision to go to war when the Americans had already ‘turned’ several senior military officers prepared to form a new government withoutb a war – all these things passed through the hands of those supposedly responsible for UK national security.

The misuse of secrecy and ‘national security’ imperatives is part of the set of lessons to be learnt. A secret enquiry will hand control to those who were to blame for all this – since they will adjudicate over what is secret and what is not ! By making it secret, the unreformed out-of-control UK security establishment will escape criticism.

It is quite likely that US officials, fearing embarrassment and precedent rather than national security breaches, have leaned on a weak and flailing Downing Street and obtained a cast iron agreement to control the release of info at the enquiry.  Somewhere there is a memo from DC to Downing Street. Now that has a familiar ring about it………

What news stories are being crowded out ?

The expenses scandal and its repercussions rumble on. We could have a new PM by Tuesday and even a general election by the end of the month. But as this crisis continues, many other stories re being pushed off the front pages….the UK agreeing to committ huge resources to guard Iraqi offshore oil production – the PMs refusal to fund a UK troop surge in Afghanistan – Israel’s unprecedented snub to the US president – the imminent closure of Vauxhall in favour of production in Germany and closure of LDV (and the involvement of Lord Mandelson’s friend Mr Deripaska in both) – and the IMF’s criticism of UK economic policy and it’s debts due to exceed 100% of annual GDP by 2013, and general predictions of a large fall in Sterling and a big rise in UK inflation and interest rates.

In a few weeks we will have to re-read all the foreign news websites to catch up on what has been really going on in the UK and the world while we have been away in expenses-scandal-land.

Why constitutional reform to remedy the expenses problem ? !!!

We have now had three weeks of the Parliamentary expenses scandal. Making sense of the whole thing and its implications is not easy for those who have better things to think about than the details of the UK political system !

Two other factors puzzle the general voting public.

Why so difficult to sort out ?

One is the way in which the story has dragged on without an answer. We all have heard the ‘we are waiting for the Chris Kelly review conclusions’ excuse. We wonder of course why something so simple and so common across the nation (most private firms have expenses rules) is regarded as so difficult from our elected MPs – so difficult that it requires a review that takes 9 months to complete ! This is one governmental problem that the MPs and not the civil servants are directly responsible for. Why are they so unable to organise something so simple ?

The public does not (as some MPs seem to think) object to expenses for MPs. They are not so dumb. Sure, MPs outside London should be paid expenses for London accommodation – enough for them to choose whether they want to stay in a hotel (as the private sector do) for the 200 days a year or so when they have to be in London. 200 hotel nights in London costs at least £30,000. Negotiating a price for free first class rail travel for 600+ MPs could be done in a couple of weeks. A daily ‘subsistence rate’ for being in London is already established by the UN (as it is for mot other places). Constituency assistants and parliamentary assistants can be put on the parliamentary payroll and PAYE so MPs don’t have the hassle of paying them – and don’t have the opportunity to employ relatives who do no work. So what on earth is so difficult about this ?  This puzzles and infuriates all ‘normal’ people !

Why so petty, when they finger-wag us about our behaviour ?

The second factor is why, instead of solving quickly the expenses problem, we are hearing all sorts of different proposals for constitutional reform ? There are more than 20 different proposals from the relatively trivial (independent chairs for parliamentary committees) to the monumental (an actual written constitution for the UK), and lots of steps in between. This is puzzling for the public. What angers the public is the petty financial self interest of MPs. It’s not that we paid for the bath plug, it is the disappointment that the grandstanding ‘high moral ground’ MPs who wag their fingers at us, are so petty themselves….so petty and self-centred that they declined to pay for their own bathplugs !

There is something unspoken, as if the proposers of grander reforms all know the connection between the expenses frauds or ‘mistakes’,  and the absence of reforms. But this is not explained directly.

Expenses fraud ? Ah, what we now need is a new constitution ! Or maybe independent chairs of parliamentary committees.  It is as if the link is so obvious that no-one thinks to explain it.

No it isn’t obvious. It does bear stating. And stating clearly.

The decline of the UK Parliament and Cabinet

The degeneration of our Parliament and our MPs has occurred over decades. The expenses situation is a symptom of this decline.

Why did MPs not notice the expenses problem that had arisen since 1997/8 and deal with it ?  It is because the culture of identifying and sorting out problems had long disappeared from Parliament. MPs had become passive – passive as ministers, passive as constituency MPs and passive as opposition members holding government to account.

So many MPs have little experience of the real world. Less than the average Briton. But the running of government – including dealing with foreign governments, the EU, and huge UK ministries such as those dealing with health, defence, social security and education – requires people of much greater than average experience, education, and wisdom…and objectivity in pursuing the national interest.

Just look at the existing Cabinet.  They include sponsored MPs with very thin CVs. That means insufficient experience and weight, and it means a lack of objectivity since sponsors don’t ‘cough up’ sponsorship money for love, do they ? This means all that they are able to do, despite the fact that many of them are nice people, is mouth the written text given to them by civil servants and professional advisers, and put to use their intensive media training designed to help them avoid difficult or unexpected questions.

Hence the irritating spin and the evasiveness when asked simple but unplanned questions.

How did we even get a passive Foreign Secretary ?

Perhaps the worst example and the pinnacle of decline in UK governance is the current Foreign Secretary. In Washington you only have to mention his name and foreign policy experts fall around laughing. He has become a symbol of UK decline. The foreign policy ministerial brief is the most complex in government, especially at a time of two wars involving UK forces, EU constitutional reform, huge changes in international law, global environmental and health problems, a resurgent China, India & Russia – and the world economic crisis.

This role is usually taken by a senior respected statesman with experience of high international matters of state. Our Foreign Secretary however, is the son of a wealthy communist academic who left college to join the Labour Party Research Dept. and was selected for a ‘safe Labour seat’ and then given a ministerial job.

How did he become Foreign Secretary ? He held out as a possible leadership candidate against Gordon Brown, and wouldn’t be ‘bought off’ in the early stages, leaving an impatient Gordon Brown with the prospect of facing a leadership election within the Labour Party. He stood between Gordon Brown and a ‘coronation’. Hey presto he becomes Foreign Secretary and Gordon Brown avoids a leadership election. The nation gets a Foreign Secretary barely able to read out the statements that civil servants have written for him, let alone have any impact at all on foreign policy.

This a defeat for democracy and a victory for the civil servants, who can run the show and comply with requests from foreign powers without worrying that the Foreign  Secretary might disagree ! After the Iraq war, what hope is there in future for Britain to say ‘no’ to joining the US in their next war, with such a laughably inexperienced Foreign Secretary ?

Weak Cabinet, weak ministers, weak MPs

There are many other Ministers who have no idea how to run a meeting let alone run a Government Department, and instead keep their jobs by adhering to the Labour Party’s spin training and arguing at all times in favour of civil service expansion – they are not taught about the running of government, they are taught how to avoid direct questions, and are promoted to government jobs if they are good at this. If they are good at spin/evasiveness and loyally ‘talk up’ the civil servants that write their briefs, they can successfully join the spin machine (merely voicing briefs given to them by civil servants). Any MP that shows independence of mind is now earmarked as ‘insufficiently loyal’ to the civil servants and the departments they work ‘for’, and can not get a Ministerial job. Civil servants (and 10 Downing St) don’t want anyone ‘troublesome’. They want MPs who know their place and don’t rock the boat.

How did this shift in power occur ?

The neutering of MPs has been going on for a long time, but there are a number of factors that have accelerated the tend in order to get us to today’s sorry state.

1. First is the centralisation of UK government. These days over 80% of local government money comes from Central Government, and the allocation and nature of spending is controlled by central government. For example now 100% of education spending comes straight from central government. This means that the local electorate matters less than senior civil servants in deciding how money should be spent. Ministers concerned with local government cannot possibly deal with the details of 1000 local authorities. In practice this means that elected MPs and local electorates have very limited involvement in local spending decisions. This centralisation was driven through by the Thatcher government and it continued under Blair & Brown. A more recent phenomenon also initiated under Thatcher is the rise of government agencies and various Boards and Commissions (known as QUANGOS in the jargon) which have powers governed by strict secrecy laws that used to be openly exercised by elected local authorities.

2. Second is the general power of the civil servants and security officers. This has increased dramatically in the last decade. The strengthening of secrecy laws, the War on Terror & security concerns, the surveillance society, laws against ‘whistleblowers’, wide ranging summary powers like ASBOS and local authority fines, have all transformed the power (and salaries) of civil servants. MPs have been sidelined in this process as well as with respect to ‘local goings on’ on local authorities and local branches of national organisations. The Freedom of Information Act has had little effect on this – indeed much information released has embarrassed MPs more than the civil service.

It should be remembered that the UK is the only developed country in the world without a proper Civil Service Law. A Civil Service Law is usually the law which defines the limits of the power of civil servants and defines the relationship between MPs and civil servants. This means in practice for example, that many, many things which are illegal in other advanced countries are perfectly legal in the UK – for example various types of money-making activities engaged in by civil servants, including ownership by civil servants of companies that civil servants make contracts with ! In the UK the legal requirements on civil servants to declare their interests is very weak and easily circumvented – all the emphasis is on MPs declaring their interests.

3. Third is a series of measures that have shifted power dramatically away from Parliament in favour of Cabinet, and then in turn a series of measures that have taken power away from elected members of Cabinet – to the extent that elected MPs who are Ministers in Cabinet have complained that nothing is discussed in Cabinet any more (decisions being prepared by civil servants and presented to Cabinet as a fait accomplis). MP Clare Short has alleged that the reason why the government was so keen to prevent Cabinet minutes related to the decision to go to war in Iraq being published, was not that there were national security secrets involved, but because there was no discussion in Cabinet – which would have been clear if the minutes were published ! It is certainly clear from the complaints of Ministers that most major decisions in the UK are taken with very limited input from MPs – even if MPs had the ability to scrutinise proposals professionally.

4. Fourth is the constitutional stuff. MPs have very weak powers to scrutinise government. For example, members of the public are often shocked at the easy ride that government departments get before Parliamentary Committees. In most democratic countries it is the specialist sub-committees that do all the hard slog in scrutinising government – and then putting their findings and conclusions before the main sessions of the full parliament. However in the UK these Committees cannot force people to attend, they cannot enforce proper answers and submission of documents, and they are banned from putting their findings and conclusions before the whole parliament for a vote !

The lack of a written constitution also weakens MPs. The arrest of MPs in Parliament for obtaining information which is merely embarrassing to government is a dangerous development echoing events that led to the rise of Hitler in Germany. The bugging of MPs homes and searching MPs computers for information also merely embarrassing to government. Arresting civil servants who go to MPs with evidence of illegality in government is another dangerous development. All of these developments show how the lack of a clear constitutional position weakens MPs.

Worst of all, much UK legislation does not go before Parliament but instead is ‘passed’ using the vestigial powers of the Monarch. These are called ‘Orders in Council’. Tony Blair was particularly fond of using Orders in Council if he felt he could not get new laws through parliament ! This bypasses MPs – and MPs are acutely aware of their limited powers in this regard. What’s more, the vestigial powers of the Queen used by ministers without going to Parliament include making war, making peace, and importantly, signing treaties (including our membership of the EU !). That means massive state powers are exercised by government, away from Parliament.

With the EU it is particularly important – most decisions in the EU are made in the Council of Ministers. However, because EU membership is a treaty, the government is not forced to report fully on the decisions it has agreed to. This can often mean that the UK agrees to something in the Council of Ministers secretly, and then if it is unpopular, they then blame the EU and claim it is ‘being imposed by Brussels’ ! In other EU countries there are much more full disclosures, and debates in Parliament about the decisions. In the UK if journalists want to know what decisions the UK has made, they can go to the Netherlands to find out !

The present Labour Government, and the opposition Tories, are now talking of ‘constitutional change’. However their remedies in the light of the decades-long weakening of Parliament look feeble in the extreme. To rectify these deep-seated problems will take at least 10 years. Having a weak ‘review’ is just cynical. Fixed term parliaments will help. But merely appointing ‘independent chairs’ of parliamentary committees and having open primaries for MP candidate selections, are merely moving around the deck chairs as the Titanic sinks !