Has there ever been anyone so convinced of his own rectitude than Tony Blair? I mean, even Joe Stalin or Pol Pot may have had twinges of doubt or even remorse from time to time, but there's no sign of any such thing from Blair. His amazing weekend interview with Fern Britton shows he is totally unrepentant over his decision to lie to Parliament and the British public about the case for the Iraq war. He doesn't seem particularly bothered by the fact that thousands of "coalition" troops and hundreds of thousands of innocent Iraqis have died as a result.
In any case, why has Blair suddenly decided to do a TV interview on the subject; and why with Fern Britton rather than with someone with more gravitas? (Actually, the answer to that last one isn't hard to guess). He's going to face questioning on the whole issue when he goes before the Chilcot inquiry in January, but it seems that a lot of his testimony will be taken in private. Is his lust for public attention so great that he feels a compelling urge to put his side of the story in front of the public anyway? I can't see any other explanation, because his side of the story turns out to be as bad or worse than the suspicions of his fiercest critics.
Many years ago my firm hired a new boss from outside the company. On his first morning with the firm, he called all of the senior staff together and said that anyone caught trying to conceal loss-making trades would be fired. No second chances, because "if you'd do it once, you'd do it again". All those people paying Blair serious money (JPM, Zurich Insurance, the publishers of his autobiography, whoever is paying for his pointless role in the Middle East) might do well to keep that in mind.
Monday, 14 December 2009
Wednesday, 9 December 2009
The Moody's Blues
Back in the summer some folks in the UK media experienced a brief frisson of interest in Canada. For reasons that were never entirely clear, the idea got around that Canada cut public spending sharply to deal with a fiscal crisis in the early 1990s, and that this was some kind of example for the UK to follow. As I wrote at the time (on 7 July for example), this was a total crock. Canada hardly cut spending at all back then, and escaped from the fiscal mire largely thanks to low interest rates and solid growth in the US.
We haven't heard much about "the Canadian example" lately, so maybe the Tories, who seemed quite taken with it, have taken the trouble to check the facts, and realised they were being sold a bill of goods. However, as I pointed out at the time, there was one element of the Canadian experience that UK policymakers should take note of. Setting ambitious long-term goals is pointless, or even counterproductive; the key to fiscal success is to set achievable short-term goals -- no more than a year or two ahead -- and then roll them forward in successive budgets until you get to where you want to be. This worked in Canada. The decade or so that it took wasn't exactly pleasant for Canadians, but the process was reasonably pain-free and surprisingly well-accepted by the voters. Canada's AAA credit rating, lost in the 1990s, was restored a decade later.
So what has Alastair Darling given us in the much-awaited Pre-Budget Report? Well, he's sticking by the goal of reducing the budget deficit by 50% in the next four years, which is meaningless, inadequate or both, depending on who you ask, and he's going ahead with measures announced previously (VAT back to 17.5%, new higher-rate income tax bracket and so on). Apart from that and the token tax on bank bonuses, though, almost everything he's announced today won't take effect until 2011 or later.
The individual measures planned at that point are nothing out of the ordinary -- a 1% cap on public sector wage increases, strict limits on programme spending, another hike in NI contributions -- but the key thing about them is that they won't have any effect at all until after the general election. If Labour wins that election it can change its mind; if the Tories win, no doubt they'll do something altogether different. Either way, the real decisions that everyone accepts will have to be made are nowhere in sight.
Moody's made a few threatening noises about the UK's credit rating just a day before the PBR was tabled. Messrs Darling and Brown had better hope they aren't thinking too seriously about cutting it, because there's almost nothing in the PBR to deter them.
We haven't heard much about "the Canadian example" lately, so maybe the Tories, who seemed quite taken with it, have taken the trouble to check the facts, and realised they were being sold a bill of goods. However, as I pointed out at the time, there was one element of the Canadian experience that UK policymakers should take note of. Setting ambitious long-term goals is pointless, or even counterproductive; the key to fiscal success is to set achievable short-term goals -- no more than a year or two ahead -- and then roll them forward in successive budgets until you get to where you want to be. This worked in Canada. The decade or so that it took wasn't exactly pleasant for Canadians, but the process was reasonably pain-free and surprisingly well-accepted by the voters. Canada's AAA credit rating, lost in the 1990s, was restored a decade later.
So what has Alastair Darling given us in the much-awaited Pre-Budget Report? Well, he's sticking by the goal of reducing the budget deficit by 50% in the next four years, which is meaningless, inadequate or both, depending on who you ask, and he's going ahead with measures announced previously (VAT back to 17.5%, new higher-rate income tax bracket and so on). Apart from that and the token tax on bank bonuses, though, almost everything he's announced today won't take effect until 2011 or later.
The individual measures planned at that point are nothing out of the ordinary -- a 1% cap on public sector wage increases, strict limits on programme spending, another hike in NI contributions -- but the key thing about them is that they won't have any effect at all until after the general election. If Labour wins that election it can change its mind; if the Tories win, no doubt they'll do something altogether different. Either way, the real decisions that everyone accepts will have to be made are nowhere in sight.
Moody's made a few threatening noises about the UK's credit rating just a day before the PBR was tabled. Messrs Darling and Brown had better hope they aren't thinking too seriously about cutting it, because there's almost nothing in the PBR to deter them.
Tuesday, 8 December 2009
And if my granny had wings, she'd be an Airbus
So, the government's poodle, sorry, watchdog, the Committee on Climate Change, says that a third runway can be built at Heathrow, the world's worst-located major airport, without breaching the UK's carbon reduction targets....but only if (and I'm not making any of this up) aircraft become more efficient, the price of flying is sharply increased, a high-speed rail network gets built, other sectors reduce their carbon emissions by 90%, and my granny starts flying non-stop to Sydney in an all-economy configuration. (OK, I am making the last one up).
Shockingly, The Times has declared the committee's findings to be "good news" for the UK. I suppose they are, if you're one of those people (a minority, I'm guessing) who are prepared to live in the dark and go everywhere by bike just to preserve the right to keep using the developed world's least popular airport. Most of us, though, will continue to do almost anything, even flying out of the glorified bus station that is Luton airport, to avoid going anywhere near the wretched place.
Shockingly, The Times has declared the committee's findings to be "good news" for the UK. I suppose they are, if you're one of those people (a minority, I'm guessing) who are prepared to live in the dark and go everywhere by bike just to preserve the right to keep using the developed world's least popular airport. Most of us, though, will continue to do almost anything, even flying out of the glorified bus station that is Luton airport, to avoid going anywhere near the wretched place.
Monday, 7 December 2009
It wasn't me, says Gordon
Ahead of Wednesday's pre-budget report, Gordon Brown is giving us a few clues about Labour's platform for the general election. This morning he announced that the government would be able to save £3 billion a year by operating more efficiently. He also extended his "politics of envy" theme into his own backyard, condemning a "culture of excess" in the public sector and vowing to name and shame those earning salaries above £150,000.
I know Gordon isn't exactly a bag of laughs, but even he must find it difficult to make these points with a straight face, he being a man who has been in the most senior positions of government for better than a decade. I read somewhere recently that Alastair Campbell is back in the inner circle as the election approaches. If this is the best he can do, he's obviously lost it (whatever it was that he had in the first place).
I know Gordon isn't exactly a bag of laughs, but even he must find it difficult to make these points with a straight face, he being a man who has been in the most senior positions of government for better than a decade. I read somewhere recently that Alastair Campbell is back in the inner circle as the election approaches. If this is the best he can do, he's obviously lost it (whatever it was that he had in the first place).
Thursday, 3 December 2009
The Woody Allen bonus
The UK government's approach to the financial crisis has been riven with contradictions from the outset. After bailing out several of the biggest institutions, the government made it clear that it wanted a return to "normal" lending activities -- but at the same time stressed that it wanted banks to reduce their risk profiles and rebuild their balance sheets. It has talked incessantly about getting tough with the bankers, but is now terrified of the possibility that the EU, in the person of its new French economic commissioner, might actually do so.
Now the government is tying itself in knots over bonuses at one of the bailed-out (and currently 70% taxpayer-owned) banks, RBS. Reportedly, the Treasury has warned RBS not to increase bonus payments significantly beyond last year's level. In response, the RBS board has, also reportedly, threatened to quit en masse if the government (or the bank's largest shareholder and biggest creditor, as we might also call it) intervenes in its payout plans. The board supposedly believes that it needs to pay "competitive" bonuses in order to prevent a haemorrhage of staff to its competitors.
Vince Cable, a man whose powers of reasoning seem to have shrunk as the financial crisis has dragged on, wants the government to call the directors' bluff. It doesn't seem to occur to Vince that in the still-febrile atmosphere of global financial markets, investors might not react well to seeing one of the UK's biggest banks left leaderless. Still less does it occur to him that the directors might be right about the risks posed by a mass exodus.
Leaving Vince Cable aside, there are two possible arguments to be made in favour of the government muscling in on RBS's bonus policy: the populist argument, and the valid argument. Let's take them in order.
The populist argument is simple: RBS and several other UK banks are only still alive because the taxpayer put huge amounts of money into them just over a year ago. Until all that money is paid back, the bankers have no right to any bonuses at all. With the economy still on its back and unemployment rising, it's perfectly understandable that a lot of people feel this way. The problem is that it's a shortsighted approach. The more money RBS et al make, the sooner they can be sold back to the private sector, getting the taxpayers their money back (and with luck a bit extra for their trouble). If the directors are right to fear an exodus of big producers, curbing this year's bonus payouts would be against taxpayers' real interests, hard though it might be to convince them of that. There are enough signs of bankers moving from firm to firm in clusters (what the City refers to as "desk moves", i.e. your whole trading desk ups and leaves for a competitor) to suggest that this is a real risk at RBS.
Then there's the valid argument, which is based on the way the banks have returned to profit this year. Despite the government's lavish injection of funds and continuous jawboning, loans are hard to get, especially for small business. This is not entirely the fault of the banks. The departure of the Reyjavik cowboys and others left a gap in the market, but the UK banks have been very slow indeed to step into the breach. This year's profits have mainly come from "carry". Banks' funding costs have fallen sharply (checked your savings account lately??) and it's literally a no-brainer to invest in low risk assets and watch the money roll in month by month. You don't need traders with PhDs and copulas and algorithms to figure that out -- Jedward could probably manage it. This makes it awfully hard to see the banks' record trading profits as any kind of justification for big bonuses.
The government seems dimly aware of this. The City minister, Lord Myners, said today that banks should recognise that this year's return to profit owed more to the very benign trading conditions resulting from government policy than to any inherent genius within the banks themselves. The problem the government has now is that it appears to be making a scapegoat of RBS. It should have made it much clearer to all the banks (even those like HSBC and Barclays that were never directly bailed out)that a return to the old bonus free-for-all should wait for another year or two.
Woody Allen once commented that something like 90% of the key to success in show business was just showing up. The banks seem to be using more or less the same logic in setting this year's bonuses. It's not surprising that the government feels the need to step in, but it's a shame that they're not making their case more coherently.
Now the government is tying itself in knots over bonuses at one of the bailed-out (and currently 70% taxpayer-owned) banks, RBS. Reportedly, the Treasury has warned RBS not to increase bonus payments significantly beyond last year's level. In response, the RBS board has, also reportedly, threatened to quit en masse if the government (or the bank's largest shareholder and biggest creditor, as we might also call it) intervenes in its payout plans. The board supposedly believes that it needs to pay "competitive" bonuses in order to prevent a haemorrhage of staff to its competitors.
Vince Cable, a man whose powers of reasoning seem to have shrunk as the financial crisis has dragged on, wants the government to call the directors' bluff. It doesn't seem to occur to Vince that in the still-febrile atmosphere of global financial markets, investors might not react well to seeing one of the UK's biggest banks left leaderless. Still less does it occur to him that the directors might be right about the risks posed by a mass exodus.
Leaving Vince Cable aside, there are two possible arguments to be made in favour of the government muscling in on RBS's bonus policy: the populist argument, and the valid argument. Let's take them in order.
The populist argument is simple: RBS and several other UK banks are only still alive because the taxpayer put huge amounts of money into them just over a year ago. Until all that money is paid back, the bankers have no right to any bonuses at all. With the economy still on its back and unemployment rising, it's perfectly understandable that a lot of people feel this way. The problem is that it's a shortsighted approach. The more money RBS et al make, the sooner they can be sold back to the private sector, getting the taxpayers their money back (and with luck a bit extra for their trouble). If the directors are right to fear an exodus of big producers, curbing this year's bonus payouts would be against taxpayers' real interests, hard though it might be to convince them of that. There are enough signs of bankers moving from firm to firm in clusters (what the City refers to as "desk moves", i.e. your whole trading desk ups and leaves for a competitor) to suggest that this is a real risk at RBS.
Then there's the valid argument, which is based on the way the banks have returned to profit this year. Despite the government's lavish injection of funds and continuous jawboning, loans are hard to get, especially for small business. This is not entirely the fault of the banks. The departure of the Reyjavik cowboys and others left a gap in the market, but the UK banks have been very slow indeed to step into the breach. This year's profits have mainly come from "carry". Banks' funding costs have fallen sharply (checked your savings account lately??) and it's literally a no-brainer to invest in low risk assets and watch the money roll in month by month. You don't need traders with PhDs and copulas and algorithms to figure that out -- Jedward could probably manage it. This makes it awfully hard to see the banks' record trading profits as any kind of justification for big bonuses.
The government seems dimly aware of this. The City minister, Lord Myners, said today that banks should recognise that this year's return to profit owed more to the very benign trading conditions resulting from government policy than to any inherent genius within the banks themselves. The problem the government has now is that it appears to be making a scapegoat of RBS. It should have made it much clearer to all the banks (even those like HSBC and Barclays that were never directly bailed out)that a return to the old bonus free-for-all should wait for another year or two.
Woody Allen once commented that something like 90% of the key to success in show business was just showing up. The banks seem to be using more or less the same logic in setting this year's bonuses. It's not surprising that the government feels the need to step in, but it's a shame that they're not making their case more coherently.
Saturday, 28 November 2009
Franchising's fatal flaw
A couple of Decembers ago I travelled from London to Newcastle on the first day of the new east coast main line rail (ECML) franchisee, National Express. I blogged about it at the time. I was amazed that all reference to the previous franchisee, GNER, had been obliterated with paint overnight. And I was bemused by the fact that in the buffet car, one of the waitresses was turning all the cups the right way up, in line with a new corporate policy; GNER had always placed them upside down on the saucers.
As of a couple of weeks ago, National Express is no longer the ECML franchisee. It was stripped of its right to run the line because it failed to make the required payments to the government. The line is now operated, at least for the next two years, by a special-purpose public company. Its first action has been to paint out the National Express name from the trains and the stations. No word yet on the coffee cups.
So National Express, which operated no fewer than seven of the UK's 20 or so rail franchises a couple of years ago, is now down to two, and it has been told it will lose both of those by 2011. One rail industry expert, interviewed on Radio 4, opined that the franchising system may be on its last legs: who, he asked, is likely to bid for any of National Express's franchises when they are retendered, given the problems that this evidently experienced operator has run into?
I wonder. The flaw in the franchising system is so perfectly simple that, if it didn't occur to the politicians and the public servants when they concocted the whole awful mess back in the 1990s, it's unlikely to occur to them now. Ready? Virtually all of the people in the UK who were competent in any way to run a railway were working for British Rail at the time of privatisation. So there was nobody out there who could do the job cheaper or better than those who were already doing it. This remains the case when franchises change hands today: the guy who clocked off as a National Express driver on the day the ECML franchise was lost, clocked on as an employee of the new company next day, and drove the same train on the same route in accordance (or not) with the same timetable.
This simple and unavoidable fact explains much about the way that privatisation has worked in practice. Examples?
* It explains why cosmetic changes (the signage and the coffee cups again) seem to take precedence over meaningful change. It's easy to hire marketing types and graphic artists, but there are not a lot of railway engineers sitting around twiddling their thumbs waiting for your call.
* It explains why wages for drivers and others have soared since privatisation. For better or worse, the old BR was both a monopolist in supplying rail services and a monopsonist in employing railway staff and buying equipment. In the past, if you were a train driver, you worked for BR, and were paid whatever your union could negotiate for you. Now you and your union can play one franchisee against another in pursuit of higher wages.
* This applies to management too; the new CEO of the government-run east coast line is a woman who previously headed up my local commuter franchise, Thameslink, which was not exactly a byword for customer service and satisfaction. Now she's running one of the two most important long-distance lines in the UK.
* Most basically of all, it explains why so many franchises have run into trouble. There's not much they can do to differentiate themselves, stuck as they are with the same stations, people and rolling stock. So they make extravagant financial pledges in order to win the franchises, only to get into trouble as soon as things deviate from plan.
There are other problems with the way that rail privatisation was carried out in the UK -- the sweetheart deals given to the leasing companies, the pervasive regulatory power retained by the government. These were avoidable and reversible policy mistakes, though admittedly there is not much sign that anyone is in any hurry to reverse them. But the failure to recognise that there was simply not much in the way of real expertise that private sector operators could bring to the running of the railways, apart from a snappy line in colour schemes, was a fundamental error.
It would be nice to think that the franchise system, which has proved massively more expensive than BR ever was, is on its last legs. As with the 6:17 to London, though, I'll believe it when I see it.
As of a couple of weeks ago, National Express is no longer the ECML franchisee. It was stripped of its right to run the line because it failed to make the required payments to the government. The line is now operated, at least for the next two years, by a special-purpose public company. Its first action has been to paint out the National Express name from the trains and the stations. No word yet on the coffee cups.
So National Express, which operated no fewer than seven of the UK's 20 or so rail franchises a couple of years ago, is now down to two, and it has been told it will lose both of those by 2011. One rail industry expert, interviewed on Radio 4, opined that the franchising system may be on its last legs: who, he asked, is likely to bid for any of National Express's franchises when they are retendered, given the problems that this evidently experienced operator has run into?
I wonder. The flaw in the franchising system is so perfectly simple that, if it didn't occur to the politicians and the public servants when they concocted the whole awful mess back in the 1990s, it's unlikely to occur to them now. Ready? Virtually all of the people in the UK who were competent in any way to run a railway were working for British Rail at the time of privatisation. So there was nobody out there who could do the job cheaper or better than those who were already doing it. This remains the case when franchises change hands today: the guy who clocked off as a National Express driver on the day the ECML franchise was lost, clocked on as an employee of the new company next day, and drove the same train on the same route in accordance (or not) with the same timetable.
This simple and unavoidable fact explains much about the way that privatisation has worked in practice. Examples?
* It explains why cosmetic changes (the signage and the coffee cups again) seem to take precedence over meaningful change. It's easy to hire marketing types and graphic artists, but there are not a lot of railway engineers sitting around twiddling their thumbs waiting for your call.
* It explains why wages for drivers and others have soared since privatisation. For better or worse, the old BR was both a monopolist in supplying rail services and a monopsonist in employing railway staff and buying equipment. In the past, if you were a train driver, you worked for BR, and were paid whatever your union could negotiate for you. Now you and your union can play one franchisee against another in pursuit of higher wages.
* This applies to management too; the new CEO of the government-run east coast line is a woman who previously headed up my local commuter franchise, Thameslink, which was not exactly a byword for customer service and satisfaction. Now she's running one of the two most important long-distance lines in the UK.
* Most basically of all, it explains why so many franchises have run into trouble. There's not much they can do to differentiate themselves, stuck as they are with the same stations, people and rolling stock. So they make extravagant financial pledges in order to win the franchises, only to get into trouble as soon as things deviate from plan.
There are other problems with the way that rail privatisation was carried out in the UK -- the sweetheart deals given to the leasing companies, the pervasive regulatory power retained by the government. These were avoidable and reversible policy mistakes, though admittedly there is not much sign that anyone is in any hurry to reverse them. But the failure to recognise that there was simply not much in the way of real expertise that private sector operators could bring to the running of the railways, apart from a snappy line in colour schemes, was a fundamental error.
It would be nice to think that the franchise system, which has proved massively more expensive than BR ever was, is on its last legs. As with the 6:17 to London, though, I'll believe it when I see it.
Tuesday, 24 November 2009
What a good idea!
After their humiliating 9-1 hammering by Tottenham, Wigan Athletic's players have agreed to compensate the fans who travelled all the way to London to witness the debacle. About 450 people will be offered a refund of their travel costs and the price of their tickets.
The cost to the players is nugatory -- no more than £10,000 in total -- but the principle that useless people should voluntarily forfeit some of their earnings is an intriguing one. I'm not thinking only about footballers, though Messrs Berbatov and Pavlyuchenko might want to take note; there are applications in the wider world too....
* The Duke of York (Prince Andrew) in his role as "special trade envoy" has cost taxpayers a fortune. I've never heard an exporter say "we only got that deal thanks to good old Andy", so I think we should be offered a refund.
* ditto Lord Sugar in his role as "enterprise czar". Other than pissing off everyone he's met in Whitehall, what has he achieved?
*ditto ditto Tony Blair in his role as Middle East peace envoy. Truth to tell, he's probably totally useless in his ambassadorial role for Zurich Insurance and JPM as well, but at least they can afford him.
* ditto ditto ditto Alan Greenspan for almost wilfully steering the global economy onto the rocks. Now he has the chutzpah to get paid all over again for pontificating about it.
With only a modicum of effort, this could get to be a very long list, and we haven't even started on the managements of HBOS and RBS, Michael Grade at ITV, Martin Johnson of the England rugby team, Sven-Goran Eriksson in every job he's had for the past five years.....
The cost to the players is nugatory -- no more than £10,000 in total -- but the principle that useless people should voluntarily forfeit some of their earnings is an intriguing one. I'm not thinking only about footballers, though Messrs Berbatov and Pavlyuchenko might want to take note; there are applications in the wider world too....
* The Duke of York (Prince Andrew) in his role as "special trade envoy" has cost taxpayers a fortune. I've never heard an exporter say "we only got that deal thanks to good old Andy", so I think we should be offered a refund.
* ditto Lord Sugar in his role as "enterprise czar". Other than pissing off everyone he's met in Whitehall, what has he achieved?
*ditto ditto Tony Blair in his role as Middle East peace envoy. Truth to tell, he's probably totally useless in his ambassadorial role for Zurich Insurance and JPM as well, but at least they can afford him.
* ditto ditto ditto Alan Greenspan for almost wilfully steering the global economy onto the rocks. Now he has the chutzpah to get paid all over again for pontificating about it.
With only a modicum of effort, this could get to be a very long list, and we haven't even started on the managements of HBOS and RBS, Michael Grade at ITV, Martin Johnson of the England rugby team, Sven-Goran Eriksson in every job he's had for the past five years.....
Subscribe to:
Posts (Atom)