David Boyle's Blog, page 88

Reviving the economy, city by city

[image error] There I was in Portcullis House a few mornings ago, for the launch of The Green Book, and I have been wondering what the answer is to the co-editor Duncan Brack's rhetorical question.  Why do Liberals produce so many coloured books - from the Yellow Book that introduced the ideas of John Maynard Keynes in 1928 right through to the embattled Orange Book?

I don't know the answer, I must admit, but can't help feeling that it is a sign of intellectual activity.  I have often wondered whether there were any intellectual signs of life in the Lib Dems, at least since the untimely death of Conrad Russell - but all these coloured books show the place may be twitching into intellectual life again after a long slumber.

Neil Stockley wrote a fascinating chapter of the new book on green political narratives, which is important - because green policy can be exhaustingly specific and rather worthy once the Lib Dems get their hands on it. But what I really wanted to write about - rather immodestly - is my own chapter about how to revive local economies, one by one.

I suggested three important propositions:

1.  It isn't how much money is going into an area that really counts, it is how much money is staying put.

2.  Vital assets are more than just financial - they involve finding the assets among the wasted people of a suffering city.

3.  We need local institutions - and particularly local banks.

It seems to me that these are the bones of a new Liberal approach to economics, which doesn't wait around hopelessly for recovery to come - but doesn't just beg for inward investment either.  The assets are there locally, even in the poorest places - waste material, wasted land and buildings, wasted imagination, wasted money flowing through.  We need an economic approach capable of reviving cities, using their own resources, one by one.

We are in the early stages of stitching this together, and I keep on finding new organisations that are beavering successfully away at aspects of this, from Transition Towns Re:conomy programmes to the community development financial institutions which have been such a success in the USA.

And to confirm that this is the way forward, there is a new report published by the think-tank Respublica, by one of the most intelligent regeneration commentators, Julian Dobson.  He puts it rather differently, but the approach is related.  And he emphasises different starting points:


1.  Secure and affordable local housing.

2.  Localising employment support to make it more effective - this isn't a problem of public versus private, incidentally; it is big versus small.

3.  Using public services as the engines of local renewal, training local people and rebuilding the social infrastructure.

This last one is absolutely vital, and I think it is a really important new direction for policy: how do we reshape public services to have a double or triple effect - tackling social and health problems, but also preventing them recurring, and rebuilding the social and economic fabric around them, all at the same time?

That is the issue - and it is a good deal more important than the question of whether services are better run by one sector rather than another.

Why bankers' bonuses are making the rest of us poorer

There I was encouraging mainstream political parties to be a little more populist in order to beat the joke parties, from the Tea Party to UKIP and Beppe Grillo - to stop being so forgiving to big corporations and big bureaucracies just because their role ought to be important. To see behind the management speak and corporate slosh.

I'm not quite so naive that I expect George Osborne to glance at my blog before taking major decisions.  But of all the reasons to storm off to Brussels, cheered along by Boris Johnson, defending the right of banks to pay whatever inflationary bonuses they want really is really getting priorities skewed.

If that is the way the Conservative Party sees their most important objectives in Brussels - well then, they deserve to be beaten by populist headbangers.  They also will be.

But what is most infuriating about Osborne and Johnson is that they don't see the damage that the bonus culture in banking is doing to us.

It encourages bankers to pay attention to global speculation rather than providing the loans for productive business.

It squanders the imagination and talent of the brightest and the best, by luring them out of the real economy - and damages the nation's prospects as a result.

It prices homes out of the reach of buyers and renters alike in the capital.

It corrodes the values of the hard-working middle classes, who they claim to support - by making their efforts and their earnings look ridiculous.

It corrodes and subverts the economy.

There is another question - I know - about whether the European bonus cap will be effective.  I suspect it will be one of a raft of measures that will be needed.  But why don't they see that bankers bonuses are making the rest of us poorer?

And why are they not prioritising the business of breaking up RBS, turning it into the effective lending infrastructure we so badly need?  Osborne and Johnson are like First World War generals, desperately trying to fight the last war but one - and consequently losing the present one.

The selfishness of South West Trains

Now I’ve heard the lot.  Sitting on Guildford Station early this morning, I heard an admonishing computerised message – presumably inspired by South West Trains - warning me not to take my bicycle on peak trains because of the discomfort to my fellow beings.
I can take folding bikes, of course (they have not banned those yet), but ordinary cycles “cause discomfort for your fellow passengers and can cause delay”.
They can certainly cause discomfort occasionally, but why is this?  Because of the miserable failure of the train companies to build trains capable of carrying them.  So I don’t take it kindly to having my wrist slapped for being thoughtless, when it wasn’t cyclists who were thoughtless. 
These things often work both ways.  What really causes discomfort in this case is a boneheaded pursuit of a narrow kind of efficiency and poor design.
Perhaps the train companies could not reasonably have anticipated the explosion of cycling, but for the last century people have avoided driving by taking bikes on trains.  The new generation of train companies unfortunately prefer their passengers to be rationalised so they can be easy to process.

That is how they come to accuse cyclists of causing discomfort to people just because they want to take the outrageous step their parents, grandparents and great-grandparents did - take their bikes on trains.  Selfish, that's what it is!

Reclaiming personal budgets from the bureaucracies

While I was carrying out the government's review into Barriers to Choice, one of the more peculiar aspects of the whole confusing choice agenda, is finding precisely what has been happening to personalisation.

The word choice is still embattled.  I sat with one group of doctors during the review who just stayed silent with their arms crossed in protest against the whole idea.  But ‘personalisation’ has always had the support of people and professionals alike.

The problem is that every time the innovations are rolled out that genuinely have some chance to give power to disabled people over how the money is spent to help them – local authorities so often move to undermine it.

There are huge exceptions to this, and councils which have really run with the idea.  But many local authorities have systematised the labyrinthine procedures, and have surrounded the business of providing direct payments and personal budgets with expensive bureaucracy, clawing back percentages as a matter of policy, adding approval committees and long lists of no-go areas or limiting choice using preferred supplier lists.

The result is that a big idea designed to give responsibility back to people on benefits - and to save money in bureaucracy at the same time – does neither in practice.

I struggled with the question of how to free up procedures, and help council officials to be a little less risk averse, given that the vast expense almost certainly outweighs the savings.  Setting out the intentions in legislation seemed unlikely to really break the log-jam since it is already set out pretty clearly, and that doesn't make a difference.  The way forward, I believe, is to signpost anyone claiming direct payments to where they can get advice – so that some of these extra-legal restrictions can be challenged.  In other words, by giving power to the people claiming money to insist.

It is also high time that these preferred supplier lists were phased out.  Councils should be able to have lists of their own suppliers – that is fine – but not use them to limit the way that people on direct payments can spend their money.  That locks people into suppliers who they may not like and who may not be able to provide them with the flexibility they need – and flexibility seems to me what choice is really about.

So I was so pleased to see a joint letter from a group of innovative disability organisations urging the Department of Health to back those recommendations in my review.

Fingers crossed on that.

Time to cancel the apocalypse

We all of us live with some kind of apocalypse hanging over us.  These days it is global warming.  In my youth, we used to sit over school lunch, discussing what we should do if the four-minute warning sounded that heralded nuclear annihilation.  Before that, it was the threat of apocalypse by aerial bombardment.
The idea that we might dwell a little less on the imminent end of the world is not to suggest that these are not real threats – or that we need do nothing about them.  We avoided nuclear apocalypse by the skin of our teeth during the Cold War, and not because everyone sat back and trusted those in charge.
But the green movement clings to the idea of apocalypse, and does so increasingly, and it is deeply disempowering – it may also explain the strange lack of communication between those of us who count themselves as part of the green movement (like me) and those who don’t.
So when one of our foremost green campaigners comes along with a book called Cancel the Apocalypse , and when it has a big thumbs up sign on  the front cover and sparkles with the kind of optimism you usually get from washing powder – then you know something important is happening.
Andrew Simms is a close friend (I must declare an interest here) and when he launched his book last week, crammed into St Mary’s Church in Kennington (proprietor: Rev G. Fraser), I was there, eating vegan shepherd’s pie.
His thesis is that humanity tends to avoid our looming apocalypses through innovation and imagination, and his book is therefore a prediction of the age to come.
This is a vital shift in the argument for green campaigners.  Prophesying the end of the world is difficult to sustain, because those it manages to convince it also disempowers.  But to argue that the world inevitably adapts to avoid disaster is something else entirely.
It puts the spotlight on the dinosaurs around us – who sometimes seem to be absolutely everywhere – who say that the status quo will continue, except more so.
It is difficult enough to believe that the economy will be organised in exactly the same way that caused the difficulties in the first place, but more so.  Or that the energy shortfall will be solved by the policies of the 1970s.  But what is really impossible to swallow is the idea that nothing will change.
That is the argument of failed elites in all ages, and they are always wrong.

The trouble with Co-op Bank

I know, kicking the Co-operative Bank is like being horrible about Princess Catherine, Julie Andrews and Alan Bennett all rolled into one.  But there is time for just a little scepticism, and here it is.

The Co-op Bank was the main beneficiary from the Great Banking Collapse in 2008.  If you wanted a half-way decent bank, with scale enough to have some branches, and with an ethical core - where else was there to go?  I know, there's Triodos (but they don't do business accounts), and Metro (not bad but still to prove themselves when I was looking around), and Ecology Building Society (perhaps a bit too small)....

I dumped HSBC for my current account, because they closed my local branch.  I dumped Woolwich because, well, Barclays swallowed them whole and closed them down.  So now I have four different Co-op accounts, plus ISAs, plus goodness knows what.

Their big advantage - and it is a big one, and the reason I stay with them - is that they have a human call centre, with real people who have the power to help you, and based somewhere particular (Manchester).

But I have three gripes with the Co-op, and they are irritating me increasingly.

1.  Like the old-fashioned burglar banks, Co-op has taken to pretending that I can only have an overdraft limit for a year - and then they charge me £20 for administering its renewal every February.  I have never asked them to re-administer it, yet still they do it.  There is an infuriating dishonesty about this which enrages me once a year, every February.

2.  What I really want from the Co-op, and which I have got from everywhere else I have ever banked with, is monthly bank statements for each account.  This turns out to be impossible.  When the computer gets to the end of the page, they send it to me.  A few days later, I get another page, for no obvious reason, with just a few transactions on.  I have asked for monthly statements, because it helps me keep track, but this is apparently impossible.  It is also a staggering waste, which probably covers my extra £20 I pay them a year.

3.  I also have a Co-op ISA, which I find is invested in many of the least ethical companies, including Big Oil and monopolistic supermarkets, and the most destructive banks too.  So I wrote to Co-op Bank asking them if their ethical standards also applied to joint ventures with other financial companies, like their ISAs.  I got no reply.  I have written twice more to named individuals at their head office.  Still no reply.  What I don't know is whether they are too embarrassed, too confused or too lazy to reply.

Because of this lack of response, I have not yet asked them the question I really want to ask.  Why are some of my transactions re-ordered on the statement so that the biggest debits come first?

Is it, I want to know, that they have become such a Big Bank that they now use the 'high to low transaction re-ordering' software used to maximise banking charges by so many big American banks - because if you put the biggest debits first, there is usually more income from bank charges as a result?

I have no idea whether this is the explanation, but would very much like to know.  Because if it is, I'm off.  Human call centre or no human call centre...

How to deal with UKIP

How do you deal with populist jokers like Beppe Grillo and Nigel Farage?
The brilliant result in Eastleigh last night (a little bias showing here) was excellent news for the Lib Dems but a nightmare result for the Conservatives, beaten into third place by UKIP.
Like all ultra-conservative political campaigns, of the small nation, small ambition, small minds variety, UKIP is primarily a problem for the official Conservative Party.  But in the end they are everyone’s problem, because of their disastrous destabilising effect on mainstream politicians.
So I am not just being generous here when I offer this advice to the Conservatives.  Here is the Boyle Patent Three-Stage Advice for Dealing with Populist Jokers:
1.    Downplay Europe as an issue.  Or – to put it another way – for goodness sake don’t encourage them.  The first thing the Conservatives will do is to swing to the right, start arguing endlessly about Europe or coming up with symbolic means to épater les Européens – and the result will be that Britain’s relations with Europe will rise up the political agenda, fuelling the UKIP machine. Farage will be given what they used to call ‘the oxygen of publicity’.  The effect that Jean Marie le Pen had in France was that the official parties began to talk about race as a way of clawing his votes back.  The actual effect of this was to put petrol in his bandwagon.
2.    Stop talking endlessly about vision (unless you have one).  The truth is that the British political system corrodes vision.  Consequently most UK politicians would not recognise one if it was gift-wrapped with ribbons and handed to them with a label marked ‘vision’.  The mouthing of platitudes about vision simply widens the gap with the public.
3.    Don’t be scared of responsible populism. Le Pen used to say he was winning because he was leading the only non-technocratic political party in Europe.  What I believe he meant was that there is a quite terrifying blindness that mainstream politicians have to the miserable failings of vast institutions and bureaucracies – including of course the European Union.  If UKIP is the only party that is able to point out these failings, and point out the way we are trussed up and abused by bureaucracies – public and private – and constantly taken for a ride by the overpaid scoundrels who run them, then it is hardly surprising they do well.  Populism isn’t just about hate, unless you let the big haters get a clear run at the truth.
The political establishment has a horror of populism, which they regard as invariably racist and proto-fascist.  It is one of the legacies of the Second World War, and the besetting sin of Fabianism – the worship of big bureaucracies for the good of the many.
The political projects known as Red Tories (aka ResPublica) and Blue Labour were both remarkably similar approaches to populism, recognising the vital importance of people to making anything work – versus big organisations, big corporations, big bureaucracies and technocracy in its many corrosive forms.
And let’s face it, the Lib Dems are not immune to the Fabian Fallacy themselves.  They are prepared to turn a blind eye to the damage done by economic forces, or by huge bureaucracies – as long as their objectives are correct. As long as they tackle the euro crisis.  As long as they pay down Greek debt.  As if it doesn’t matter too much if a thousand people die unnecessarily on the wards as long as the integrity of the NHS is preserved.
If we really want to tackle UKIP, our very own Tea Party, then we need to borrow a little populism ourselves.  What we need is a parallel Lib Dem movement, let’s call it Purple Liberals – or better still, let’s call it community politics – where we can genuinely start from where people are.
Not The People, a tyrannical concept if ever there was one.  But people.  Don’t let’s leave it to Farage or Grillo to occasionally tell it fearlessly how it is.

Hester, bonuses and the perils of payment by results

I have just listened to Stephen Hester of RBS explaining that salaries must "reflect worth".  He is quite right, he is turning RBS round, he has reduced the absolutely obscene pay and bonuses there to simply obscene.  He is an honourable man who remains unfortunately profoundly wrong - banking salaries are still corroding the economy, creating house price inflation, heaping ridicule on the efforts of the middle classes and cheer-leading the destruction of UK manufacturing.  

He is profoundly wrong because he does not yet see - any more than the political establishment sees - that the financial sector is not dysfunctional because of its operating mistakes.  It is dysfunctional because, even when it has been operating as designed, it has been undermining the economy, corroding our national life.

The central economic task before this government and the next is not to rebuild the financial sector in its current model; it is to create an effective local lending infrastructure.

Does Hester get that?  Obviously not.  Does George Osborne get it?  No.  Do the Lib Dems get it?  They are beginning to (but I may be being hopelessly optimistic).

Which brings is to the UK's backward position on the European Union decision to cap bankers' bonuses.  Bonuses need capping not just because they are a waste of shareholders' and taxpayers' money (though they are), nor because they unfairly privilege the richest (though they certainly do), but because they are actually glorified targets. They have exactly the same perverse effect on companies and organisations that they do on public services.

Just like targets, bonuses persuade staff to focus on reaching simplified numerical targets which can't possibly sum up the complexity of the broad objectives we want them to strive for.  Like targets, bonuses narrow complex objectives down to impoverished output figures. They sacrifice broad objectives for narrow outputs. You might as well replace highly paid human beings with extremely expensive machines.

Whether they are public or private, organisations in which senior staff get major bonuses are therefore organisations dominated by targets, and they resemble the target-driven public sector in many ways. They tend to be characterised by the headlong pursuit of narrow measures, gargling with highly inaccurate figures, and what can sometimes look like the dereliction of duty. Hospitals where older patients were seriously neglected were those that pursued targets hardest.

"As an investor, I have no interest in how much a manager is paid," said the investor Terry Smith, "but I have a great deal of interest in how that pay is calculated" (I do have an interest in how much they are paid, but you get the point).

Anyone who wants to see what bonuses can achieve in financial services should read Michael Lewis's book  The Big Short , his brilliant exposé of the sub-prime mortgage crisis.  At every level, in the disaster that destroyed the world's banks, the behaviour of staff was dominated by bonuses related to narrow targets.

The mortgage sales teams were only interested in how many mortgages they could sell, not whether they could ever be repaid. The bond departments were only interested in packaging up new bonds, packed with mortgage debt, rather than whether or not the debts were sound.

Even the ratings agencies were dominated by targets, by how much they could earn from the bond departments, rather than whether they were accurately rated. When a handful of ratings officials finally suggested downgrading some of these toxic CDOs, Lewis described how they were overruled by managers.

The banking system has been hollowed out by these targets, but turbo-charged by obscene bonus amounts – a perverse Payment By Results system.  The interests of our economies, and our banks, are best served – not just by capping bonuses but by taxing them at 90 per cent.

The truth about negative interest rates

It was strange, and rather thrilling, to hear a radical idea from the deputy governor of the Bank of England.  We have become used to the great tradition of the Bank of England that no no idea should ever emerge from there until it was completely worn out - but then Denmark has already introduced a negative interest rate, so perhaps it wasn't completely radical after all.

But since you won't hear this anywhere else, here is a little potted history of negative interest rates.  The idea goes back to an Argentinian trader called Silvio Gesell.  It was Gesell who pointed out the major flaw in interest rates - they encourage hoarding rather than spending.  It is always going to be easier to make money out of money, rather than using it to do something productive, he said.  Money grows if you invest it – but real commodities tend to rust or go mouldy.  That would mean that the natural interest rate ought to be negative: it should cost you money to hold onto your money.

The answer, he said, is to have money that rusts too. The idea was taken up enthusiastically during the Great Depression, most dramatically in the Austrian ski-ing town of Wörgl. And by catching the eye of the great American economist Irving Fisher, rusting money was adopted all over the world before it was declared illegal by the world’s central banks, fearful of a threat to their own authority.  Gesell put the idea into effect as finance minister of the short-lived revolutionary republic of Bavaria in 1919, but was only in office for seven days.
As a result, only one of the great 1930s money experiments is still running: the Wirtschaftsring system in Switzerland, a mutual-credit currency scheme widely used by the building industry and the restaurant sector. Wir, as it is called, started in 1934, the brainchild of Werner Zimmerman and Paul Enz, two followers of Gesell. By 1993, it had a turnover of £12 billion, using a parallel currency to the Swiss franc.  But they renounced Gesell’s ‘negative interest rate’ in 1952 and now pay and charge low interest on loans and deposits.
Wörgl was in a terrible state in the Great Depression when the burgomaster Michael Unterguggenberger persuaded the town to issue its own currency, to the value of 30,000 Austrian schillings, known as ‘tickets for services rendered’. But unlike ordinary money, these notes lost value by one per cent a month, and to keep value – if you hadn’t spent them – you had to buy their stamps once a month and stick them on the back. The proceeds of the stamps went on poor relief.
The notes circulated incredibly fast. Within 24 hours of being issued, most of them had not only come back, via shops and businesses, to the municipality in the form of tax payments – sometimes months in advance – but had already been passed on their way again. During the first month, the money made the complete circle no fewer than 20 times. After four months, the town had built public works of 100,000 schillings, employing people who were jobless; most of the town’s tax arrears had been paid off too.
Fisher was inspired by what he found in Austria and rushed out his own instruction manuals, called ‘Stamp Scrip’, for the struggling American towns. Within months, about 300 US communities were printing their own negative-interest money.  Roosevelt declared them illegal in one of his first acts as president, afraid that their very existence was undermining faith in the US dollar.
Will the Bank of England do any of this?  Definitely not.  The suggestion is that the Bank of England's own rate ought to be negative, to discouraging banks from simply putting their ill-gotten gains from Quantitative Easing in the bank, rather than lending them out as they are supposed to.  But the Bank of England's interest rate tends to filter down through the economy, and so much of our system is geared to having a positive interest rate that it could be extremely stressful.  Hence the flurry of condemnation from savers' organisations.
But there are two possibilities.  One is that we need a parallel currency or series of currencies which could back regional development, and which could then have negative interest rates - rather as they did in the Middle Ages.  The great Gothic cathedrals were probably built using negative interest money - these things work.  
But the really urgent problem is that Quantitative Easing just doesn't work.  It goes onto the balance sheets of banks and stays there, until it is recycled as bonuses.  What the new governor urgently needs to do is to rethink QE and reinvent it as the direct creation of interest-free loans to build the nation's green infrastructure, and which can be recycled into low-cost loans via the community development finance institutions.  This is the fastest way to get money directly to where it is needed, as Obama has found in the USA.
Here's the key.  Don't let the money go anywhere near the conventional banks.  It isn't that they don't want to use it effectively - this isn't lack of will on their part - but they have abundantly proved over recent years that they are unable to use it.  

More about this, and more, in my book Money Matters.
  

Why I wouldn't give a medal to the bombers

How many civilians died in the bombing of German cities during the war?  The answer is about 600,000, including 72,000 children, approximately ten times the number of civilian casualties inflicted in UK cities.

Churchill became ashamed of the scale of the slaughter which, because it was inflicted by the winning side, has never been classed alongside the other monstrosities of war.  Those who inflicted the damage, the young aircrew, did so with great bravery and a huge attrition rate.

So it may be that today's announcement awarding them medals is finally giving them what they deserve.  I'm not so sure it isn't a result of dulled and dumbed down morality.

I have been wondering this since David Cameron popped up in the celebrations remembering the British-led massacre of Amritsar in 1919.  You might argue that the British troops involved in the massacre had carried out their duty courageously, even though the result was a hideous blemish on the national reputation - but would you still give them a medal?

I don't blame the aircrews for what happened, though I know there is usually a doctrine imposed on the losers of war that 'obeying orders' is no excuse - but there are consequences of the mass slaughter of children, and foregoing a medal might be one of them.

Because what is really going on here is an extension of the idea that - because the slaughter is carried out at arms length - it is somehow not barbaric.  The holocaust, the Amritsar Massacre, were carried out face to face.  The fire-bombing of Dresden was not.  Is it really any different?

I remember a cartoon in Punch during the Vietnam War showing a New York Police bomber dropping bombs somewhere in their own city.  The pilot is saying: "Don't worry - we are bound to hit someone who is breaking the law."  This seems to be the morality of Dresden, just as it appears to be the morality of the drone strikes in Pakistan.

What comes up must come down - that is not my department, says Werner von Braun.

So has our moral sense become so blunted that we can no longer see that killing children at a distance, and for strategic reasons, is really no different to doing so face to face?

Moral decline seems often to be accompanied by gross ugliness, and here is the proof right in front of our faces (see picture above): the hideous monstrosity unveiled along the road in Green Park, next to Piccadilly, and monstrously out of proportion: the new memorial for the aircrews of Bomber Command.

They were young men, and their death was part of the general tragedy of war.  They need some memorial, though perhaps something more subtle.  But a medal?  I don't think so.